Ok, this is a longer post with pictures to address a long term thought. The summary is that in a worst case scenario, a big new ATH may take a while but that the downside is limited from here. I stress that the below is hypothetical and just to entertain some thoughts.
First, a number of charts indicating the idea that the market is not in bear market territory (yet) but 'in between' bull and bear. Time will tell whether the coin flips to bear or remains in bull.
Will $35k prove a correction in a bull market or is it the precursor of a bear market?
This is the big gamble at this point. The Great Decide.
Other than DCA strategies, I would not recommend a novice investor to take out a large position at this point. First, let the market tell us what the further direction will be (bull or bear).
The 'in between' narrative is illustrated in the next few charts, taken from glassnode.
1. Mayer Multiple
The Mayer Multiple had a nice peak and went down. But it hasn't truly bottomed like in previous great bottoms. Not a true long term buy signal at this moment.
2. MVRV Ratio
MVRV ratio not giving a long term buy signal. It's in between.
3. NVT Price
NVT is signalling a bottom. However, please note that this chart only starts from July 2017 and, looking at the 2018 bear, a bottom signal may also be a precursor to an ensuing bear market. NVT cannot be used as a sole indicator on the Great Decide.
4. VWAP Ratio
VWAP in the 2017 bull run showed a nice jagged pattern within a defined band all the way to the top. In 2021, the band may of course be higher but the comparison with 2017 gives that indefinite feeling again. The Great Decide.
5. Price Models
Looking at the price models. touching the purple line was the big bottom in a cycle. The purple line stands at $10,xxx
But that would also be the theoretical line in the sand. Notice that true bear markets saw the blue line crossing the yellow line downwards. We are not there yet. It would take many months before this potential signal could alarm us of bear market trouble.
In short, no true signal from this chart (yet) other than painting potential min and max $$ prices.
6. Hypothetical projection - repeat 2018 bear
This leads me to a projection. The projection is mainly based on the idea of averages. The averages can tell us where Bitcoin is on a binary scale: overvalued or undervalued. Assuming that Bitcoin's true value is still increasing, investing in Bitcoin is still a good choice on the long term. But timing your entry right can mean the difference between a big win and a massive win.
The idea of the chart is that big bottoms in a cycle occur in an area far below the purple line. The purple line (in the 3Day chart) is currently at $20,000.
We have seen that the Bitcoin markets have plenty of speculative money in them + derivative trading. What goes up big time, can also go down big time. Especially in times of fear.
The assumption underlying the chart is that the current financial markets move along until something breaks. That's how it usually goes. A bank going bust, a large company is marked junk. It could be anything that suddenly breaks the markets. Stonks slide, yields go down and everything is sold in order to obtain cold hard cash.
The FED and other CBs step in and 'save the day' by printing even more money. After the panic subsides, market participants jump back in with both hands on the waves of yet another Great Reflation.
I take this as the default scenario.
The chart is essentially about extending the moving averages based on the 2018-2019 bear market (copy/paste). Extend and duration will probably not match the future; it's just an 'what if' exploration. For instance, the March 2020 panic will probably remain an outlier.
The chart gives me confidence:
- even in a major downturn - a Bitcoin bear market and/or the GFC 202x occurring - price is not expected go lower than approx 50% from here
- with nothing fundamentally changed to the long term Bitcoin growth drivers, buying a bit at this price point is fine
- this is the worst case scenario for me. Working through this period will probably take less time
Poll
