Bitcoin: I'm Surprised That You're Surprised
Summary
- Willy Woo has predicted a market bottom in Q2 2019.
- The Bitcoin Value Indicator predicted a mean Bitcoin Market Cap of $66B on the last day of October.
- My position is unchanged: Short-term bear and long-term bull.
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Back in June, I wrote an article about the relationship between Unique Addresses and the Bitcoin (BTC-USD)(COIN)(OTCQX:GBTC) market cap. I said:
...the predicted market cap of Bitcoin on June 1 of 2018 is $21,993,572,103.22, compared with the actual Bitcoin market cap of $131,769,788,441, six and a half times higher than expected.
Source: Seeking Alpha - June 1, 2018
Then, on July 1, 2018, I published this table of the Bitcoin Value Indicator input signals:
| Indicator Name | Unique Addresses | Hash Power | Total Transactions |
| Predicted Market Cap | $20,042,854,205 | $94,484,985,458 | $57,573,388,992 |
| Actual / Predicted | 5.78 | 1.23 | 2.01 |
| Metric Signal | Overbought | Overbought | Overbought |
Source: Bitcoin Value Indicator, July 2018
As recent as the 1st of November, I said that the market was still overbought.
While the Bitcoin price may still have room on the downside, it's clear to me that this opportunity won't last long.
Source: Bitcoin Value Indicator, latest
What did I mean about the "opportunity not lasting" long? Well, many crypto investors are apparently completely shocked by the price action, and there have been reports of people simply throwing in the towel. I'm not going to post these comments here, but if you head over to Twitter or Reddit, you'll see what I'm talking about.
There will be some people who will simply walk away from the market, only to discover that it's still alive and well next year.
The market is driven by both psychology and fundamentals. The best time to buy is when the fundamentals look great but investor sentiment is the worst. Why? Because that's where the largest opportunity exists, when the perception of value and the generation of value are the greatest distance apart.
Bitcoin is no different in that regard, and that's why I've been talking about the underlying value this whole time. Recall that the value is in the network. The larger the network becomes, the more valuable Bitcoin will become, which will encourage more speculation on other cryptoassets, which grows the ecosystem, which leads to a speculative bubble.
Now, one thing about bubbles is that they generally only pop once. Bitcoin has popped three or four times already - it's almost predictable now. Bitcoin has market cycles, like I described here.
Of course, I wasn't the only one saying the cryptocurrency market had room on the downside, or that the bear market was not over. Here's Willy Woo on Twitter:
The talking heads get it wrong again
I think we do ourselves a disservice when we only let people on TV who speculate about the price at the end of the year. Almost always, it's some ridiculously high figure like $25k, or even the modest $15k that a certain key figure graciously lowered his year-end target to recently.
You can't trust the people on TV. Look at the fundamentals, look at the primary data, do the research yourself. Or, at the very least you should arm yourself with a variety of techniques to quantify this new asset class. I'll humbly suggest my own methods be present in your toolkit.
What happens next?
I'm so glad you asked. The price goes lower still and eventually stabilizes.
Look, as I've been saying for some time now, Bitcoin only has two possible futures. In one, it collapses completely, and in the other it changes the world. I call this Bitcoin's Binary Future.
Before you ever think about investing (or speculating) on Bitcoin you need to understand that. Those two futures are the only possibilities.
Understanding the Predicted Values
You will note that the predicted values in the Bitcoin Value Indicator are not the price Bitcoin is actually going to be. Rather, they are the price (or market cap depending on the metric) around which the price oscillates in log scale. During a deep bear market, the price will be below the predicted value. During a speculative bubble, it will be several standard deviations above the predicted value.
To further illustrate this point, let's pretend this crash had happened 21 days ago, and see what the Bitcoin Value Indicator Chart would have looked like instead.
Source: Author's Charts
Observe that in the last bear market, the yellow line (Bitcoin's market cap) was below all three predictors. Right now we're below one, but still above the two other metrics. Translation: We are still not out of the woods.
Prepare yourself accordingly.
Conclusion
When you think in log scale, we have to think about the downside as well as the upside. The price action looks very dramatic in linear scale, but if we zoom out.. not so much.
Over the coming months, Bitcoin will be finding its new equilibrium and finding the floor. After that, prepare to be bored to death by several more months of the price action moving sideways. By then, I hope you have your positions, because unless there's a total system failure (which again, I admit is possible), we'll be starting on the next wave that's likely to play out in multiples of what we saw at the end of 2017, making that last run look like child's play (not the movie, like... actual kids playing).
Cheers,
Hans
This article was published first in Crypto Blue Chips.
Analyst’s Disclosure: I am/we are long BTC-USD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Comments (99)
Hans was right all along!!!! omgare we back to 20k yet ? Tomorrow maybe ???
You said "Why is it taking so long for Bitcoin to scale? Or perhaps how will it scale? Just the other day I wanted to send $25.00. They wanted a 4.00 fee!"Do you mind telling me where you were sending from? This fee is way too large. The average fee as of yesterday was $0.58 according to Bitinfocharts.bitinfocharts.com/...In regards to scaling, I would look to the lightning network. The reason it takes time, is that it's difficult to scale something without a middleman. But, it is happening. Good things take time.Have you read my article on the lightning network?seekingalpha.com/...Recently the capacity of the LN spiked up. We're on our way for sure.p2sh.info/...The real question is how long will it take for LN to get adopted. This bear market is a great time for it to grow quietly in preparation for the next wave."2. IMF pushing all central banks to develop their own crypto. Hate Lagarde. Unelected criminal trying to tell the world what to do re money. So what do u think of this? What if anything would a digital currency replacing the dollar do to the current crypto space?"Eventually we'll have digital money. But, I don't think a digital dollar is a substitute for Bitcoin. This may sound strange, but I think in the future we'll just get used to having many currencies to pick from. I think payments will automatically draw from whichever asset we have selected and it will all happen behind the scenes. Have you seen Mr. Robot?
1. Why is it taking so long for Bitcoin to scale? Or perhaps how will it scale? Just the other day I wanted to send $25.00. They wanted a 4.00 fee!
2. IMF pushing all central banks to develop their own crypto. Hate Lagarde. Unelected criminal trying to tell the world what to do re money. So what do u think of this? What if anything would a digital currency replacing the dollar do to the current crypto space?
What place will bitcoin occupy? ( maybe in the end, it just becomes a store of value due to quantity limitations).
>>Who cares? Predictions are a dime a dozen, especially when there's no long term history to support it. BTC is only 10 years old afterall.The Bitcoin Value Indicator predicted a mean Bitcoin Market Cap of $66B on the last day of October.
>>See above comment.My position is unchanged: Short-term bear and long-term bull.
>>At the end of the day, you, and everyone else in cryptoland has no basis in fact or history to point to why there should be any long term to look forward to, in the way we understand things now and almost everything is up for grabs. There simply isn't enough history or use case adoption yet.I have no business or philosophical connection to cypto. May the best vision of the future for crypto ultimately win, however long that takes. In meantime, if and when the trend changes to upward and rising, then I'll start to care a bit more.
Then there are good stocks, or indices like the S&P 500, that rise and fall in cycles, but surge in the long run. Now compare both to Bitcoin. Bitcoin is definitely developing like good stocks or indices. It had several cycles and is gradually rising, even if there are deep valleys from time to time. The reason is simple: It has intrinsic value, namely its technology plus the confidence that many people have in it. So it is quite unlikely that it will go to zero. As it existed for 10 years already, there is a very good chance that it will still exist in 10 years time. Unfortunately many people who have lost money in the current downturn easily overlook that. They blame Bitcoin for it instead of blaming their own bad investment skills.
You may consider them worthless and delusional. Others may feel the same about fiat currencies. If they can be exchanged in the marketplace they have value."While Bitcoin has demand from some now, that demand is likely to disappear sooner rather than later. Bitcoin is just data. What is the value of old obsolete data? www.cnbc.com/...
HODL . . . and wait till Jan 2019 to buy more