Delving Deeper into the Macro Bitcoin's Price Development in the Market
With a correction well underway now, we find ourselves at that midway point wondering whether a base will be built here or whether we’ll see another level lower. If anything characterizes sentiment at the moment, it is anxiety. Of course, my approach to the market all along has been one of remaining anxiety-free [indeed, emotion free as far as possible], for it is often the emotion that gets the better of us in what are extremely speculative and volatile markets. I’ve aimed in my approach to eschew certainty [and its false assurances] and instead have based all my speculations on uncertainty [both TA and actual trades/ investments]. But, the reader asks, isn’t the condition of uncertainty itself angst-ridden? To which I’d say not necessarily, for the moderate position between the two polarized extremes of certainty and its opposite is one of confidence. One can be confident in a trend, without being certain of it, and so accordingly hedge against it at the same time. This position is not reductionist, it is not one of the either/ or of the bull or bear [monikers of the animal spirits/ emotion]. Rather, it allows for both this and that, both the investment in Crypto, and the swing trading of Crypto volatility for USD [the hedge]. Here we have a practical policy allowing for complexity. It gives rise, from the perspective of pure theory, to a ‘negative capability’ that can entertain various outlooks. This is something that an overly theoretical outlook, always reductionist, will struggle with. Instead of attempting to make the market in our own theoretical and ideological image, the ‘reality principle’ involved here allows for the fact that we cannot know the future [of market prices]. That said, we can have confidence in a rationally discerned long-term trend. This article is a focus on the various ways in which we as investors can be confident in our Crypto investments, just at a time when the market is becoming increasingly nervous. It will focus in turn on the confidence we can have in the macro, in the trend, and in the volatility.
1] The Macro
Nothing has been more lacking in my opinion than the use of macro ideas that could serve to undergird our notions of the way in which the Bitcoin market is developing. Too often you’ve seen simply a focus on the data-crunching of past price [the methodology of statistics] or simple comparisons of past cycles to the present [assumed] cycle. Like all interpretations, these are fine in themselves but are also very limited. The focus is on the numbers and the price action, and so is termed quantitative analysis [hence the term ‘quants’]. What is missing in these calculations and projections is a consideration of the macro. The macro is also that which lies behind the numbers, just as we can say reality lies behind appearances. Anyone that understands the idea of inflation will be all too familiar with the mere appearance of money in its units, and the reality of money in its potency/ purchasing power. In contrast with quantitative analysis, macro considerations will bring to bear a qualitative analysis. It will look at the market and ask whether it is facing a qualitative change, which, if true, will skew all mere quant analysis. The questions raised here are:
- do we see an increasingly liquid/ mature market?
- do we see diminishing returns?
- do we see the breaking up of ‘grand cycles’?
- what is Bitcoin? Just an asset or a nascent currency being capitalized?
In my opinion, when questions such as the above are thought through, most of the unrealistic projections of quant analysis are taken off the table. Anxiety toward market prices has a cause, and more often than not, the catalyst for that is too great an expectation to begin with. Have a more realistic outlook in the first place, based on a better understanding of the macro, and there’ll be no loss of confidence in the trend of an ongoing macro bull market.
2] The Trend
The macro serves essentially as a hypothesis that on the one hand explains the phenomena [of developing market prices], and on the other provides some basis for prediction of prices going forward. As a hypothesis, it is fully capable of invalidation/ falsification [the strength of a theory/ model not a weakness]. As all observations are ‘theory-laden’ [Kuhn], this recognizes the realities of a certain ‘bias’ in the equation. However, this ‘bias’ is not simply driven by sentiment, but by a rational hypothesis. Actual price developments, the empirical part of the equation in our ‘scientific experiment’ serve to test the theory, and in turn validate or invalidate. So far, the theory of a developing Logarithmic Growth Curve has been well substantiated and corroborated by subsequent price action as the following chart depicts. It has been severely tested and has held a few times now, which should increase the amount of confidence that one has in it - it’s as if price is following the dictates of the LGC, that there is some logic to it, that it is in turned further explained by the macro [as discussed above].
You here have a chart with solid results as far as the long-term model goes. Were all the shorter-term TA predictions correct? Obviously not. But what really counts, from the investor’s perspective, with optimal entry levels in mind, is the larger macro call, where price has stayed within what is a relatively narrow range for a macro model. The logic here is that if this model has managed to remain valid since 2018, where it has predicted price to remain within this the trend of a converging channel, then one should have increased confidence that it should continue to do so.
3] The Volatility
It may seem odd to say we can have confidence in the volatility, and yet this is the next certain thing to uncertainty itself. Add into the mix that the investor hedged against his core Crypto will find that hedge in the counter trading of Crypto volatility, and you can consider it a bonus. Crypto has been volatile, and so it’s reasonable to assume it will continue to be so… even if that volatility is somewhat mollified in the macro [given a maturing market]. And of course, this brings us to the current chart, where everyone is curious, and dare I say anxious, as to whether we’re to see another leg down in the correction. Given the larger strategy, and wider macro outlook, there should be no cause for concern here [even if there were a move down] - one has a core in Crypto [preferably bought at lower prices, in the ‘buy zone’], one has managed a few swing trades to re-build their USD position, or even converted some profits into real assets, and one considers any downward pressure on prices to be temporary [given a hedged confidence in the LGC]. If anything, a leg down should be welcomed, where some of those dollar reserves will be put to work in either adding to those core positions, or rebuying for the swing trade. In short, volatility should not be cause for trepidation, but expected as the normal course of things. You can take some confidence in it as giving rise to further opportunities.
Lots of moving parts have been elucidated here, circles within circles, and yet an over-riding strategy and end goal. But this itself reflects the complex path that the development of BTC price takes. While it is volatile and unpredictable in the shorter-term, like a drunken dog bouncing this way and that, there does seem to be an over-all logic and trend to it. Looking at the longer-term, there would seem to be a strong leash on that dog. It’s in the understanding of this trend, and of the macro causes that might underlie it, that your competitive advantage lies in my opinion. Not only will you be in a better position to take advantage of a volatile market, but you’ll never be overly captivated by your senses or sentiment. You’ll be somewhat detached in seeing the leash and marveling at the dog.
Until next time,
Stay [relatively] safe out there,
Dave the Wave.