Is the Bitcoin Price Trend still Intact?

[virginorange]

Is the Bitcoin price trend still Intact? I’m checking my Kelly allocation assumptions

I am heavily invested in Bitcoin. My allocation isn't just a random bet based on feelings; it's a calculation based on the Kelly Criterion, which balances Bitcoin's expected returns against the risk of price model failure. But a model is only as good as its assumptions. In this post, I want to walk you through some of the risk indicators

From time to time I stress-test the two core assumptions my Kelly allocation is derived from:
(1) does the long-term Bitcoin price trend remain valid? and
(2) how likely the Bitcoin price trend will break

The goal is to determine, if I need to adjust my current 60-75% portfolio allocation.


Bitcoin allocation: two buckets

My Bitcoin allocation consists of two buckets:

❶ Safety-bucket due to Bitcoin's intrinsic properties (30% Allocation):
Even with zero real price appreciation against fiat currencies, I would hold a significant portion of my wealth in Bitcoin. This 30% base allocation is about security and sovereignty. It is my digital gold, but better, because I can self-custody it and transport it across borders with a seed phrase. These properties make it censorship-resistant and difficult to takte away by a hostile state. This part of my allocation doesn't rely on "number go up."

❷ Yield-bucket due to the Expected Return via the Kelly Criterion (up to 60-75% Allocation):
Many have observed an interesting historical price trend in Bitcoin. To calculate how much extra to allocate for number-go-up reasons, I use the Kelly Criterion. This requires two inputs:
ⓐ Expected yield: Calculated from the Bitcoin Price Trend Function.

The in ln-space the Bitcoin price follows the trend:
y = 5,8323x - 39,296

This translates into (=black line):
Bitcoin_price_in_EUR = e^[ 5,8323 * ln(Date - 03.Jan.2009) - 39,296 ]

Making the graphs easier to follow
A Bitcoin price in ln(EUR) and a Bitcoin age in ln(days) is easy to draw, but difficult to understand. Therefore I added the Bitcoin price in EUR and the calendar year.



Interestingly, the Bitcoin price does not seem to fall more than 1 below the trend (=red line).
Bitcoin_price_in_EUR_low = e^[ 5,8323 * ln(Date - 03.Jan.2009) - 39,296 -1]



This chart is similar to the bitcoin rainbow charts produced by others*. We can now subtract the observed price from the trend to separate the cyclical component of the bitcoin price from the trend component.
*https://www.blockchaincenter.net/en/bitcoin-rainbow-chart/

ⓑ the price trend survival probability: Calculated by the Lindy Effect.



I check if the current price performance is still aligned with this trend. This cycle we were witnessing a historically weak euphoria phase, which may be an early sign that the trend growth rate is weakening. Let's examine the checks I performed.

The Core Assumption Under Review: The Bitcoin Price Trend

The Bitcoin price trend is modeled by a power function: Trend(t) = exp(intercept) * (days since 2009-01-03)^growth. Historically, the spot price oscillates around this trend. Currently, the model predicts a trend price of roughly €124,000 per Bitcoin, while we observe a spot price of ~€55,000. This means we are about 55% below the trend—a level that, historically, has acted as a floor with a valuation of Trend * e^-1.



If the trend function holds, the outlook is compelling. The trend price in one year will be roughly €171,000. We don't just get the base trend growth (~38%), but also a potential reversion to the trend from our current undervalued state, suggesting an additional potential return of ~122%.

The question is: Is this trend still valid, or is it breaking? I use several indicators to find out.

Risk Indicator 1: The Missing Euphoria (Time Ahead of Trend)

In previous cycles, the market price ran significantly ahead of the trend during euphoric phases. I measure this by how many days ahead of the trend the price is.

● The Method: I check if the spot price equals the projected trend price 500 or 750 days into the future. If we spend many days above these "future trend" lines, the euphoria is strong.



● The Current Signal: In the last cycle, we barely crossed 300 days ahead of trend. The "500-day euphoria" phase did not materialize and thus there was also no 750-day euphoria.



☞ Interpretation: This is a yellow flag. The missing euphoria could indicate a weaker price trend (=bad) or lower volatility in both directions (=neutral to good). If the price trend is weaker we might not be at a deep cycle low now, but a structural decline in trend growth.


Risk Indicator 2: The Undervaluation and Volatility Combo

This indicator plots two metrics: how undervalued we are relative to the trend (X-axis) and the volatility multiple compared to the S&P 500 (Y-axis).

● The Red boxes = current Bitcoin price data: The graphic marks critical zones. We are currently near Trend * e^-0.8, which is already in a deep historical low relative to the trend.
● Historical Comparison: In the last two cycles, we have rarely been this undervalued. The volatility is not spiking (which could indicate problems with Bitcoin itself instead of attention exhaustion), which is good.




☞ Interpretation: This is a red flag for the trend model. A further drop in equities markets could easily push Bitcoin below the critical Trend * e^-1 threshold, which would confirm a break in Bitcoin's price behavior vs. historical norms. The risk that the model fails is tangible.

Risk Indicator 3: The Market's Failure Probability (STRF & IBIT Options)

I don't just rely on my own models; I check what the options and credit markets say about Bitcoin's tail risk.

❶ MicroStrategy Preferred Stock (STRF) trafic light:
This stock pays a fixed $10/year dividend, secured by Bitcoin. By discounting these dividends by the Lindy survival probability, I can back out the market's perceived risk of Bitcoin failing.



☞ The current "Lindy Multiple" is slightly above 100%, meaning the market sees a marginally higher failure risk than the pure Lindy model. It's a mildly negative signal, but not yet at alarming levels.

❷ IBIT Options Implied Volatility:
The 2-year implied volatility for Bitcoin ETFs is historically low (around 50). The relative volatility compared to the Nasdaq (QQQ) is also extremely low.






Source: Bloomberg

☞ Interpretation: This is a green flag. The options market does not price in a systemic crash or failure of Bitcoin. The asset is in a state of "dead money"—no hype, but no panic. The risk of a price collapse to zero is considered low.

Risk Indicator 4: Zyklus Percentile Distribution

We now decompose the historical price data into percentiles relative to the trend. In a healthy cycle, we occupy the 0-10th percentile (deep value) just as often as the 90-100th percentile (euphoria).

● Current Observation: We are currently stuck in a very low percentile (well under 10%). For the last cycle, the distribution of data points has changed somewhat.
● The Shift: The "middle" percentiles (especially 50-60%) are now overrepresented, while the extremes (0-10% and 90-100%) are underrepresented.





☞ Interpretation: This is evidence of structural change. It’s a mix of lower volatility and a possible downward shift in the trend. It's not a clear crash signal, but it confirms the "weakening trend" hypothesis. The days of extreme blow-off tops and 85% crashes might be moving to a more mature, sideways-distribution pattern.

Conclusion: Adjusting the Kelly Criterion Assumptions

So, where does this leave my 60-75% Kelly allocation?

The assumption of a total Bitcoin failure (Lindy probability) remains robust. The implied volatilities and STRF market don't show a significant risk of Bitcoin sigificantly dropping in price (e.g. to 20k USD).



However, the trend growth assumption is under pressure. The missing euphoria, the deep and persistent undervaluation, and the shifting percentile distribution all suggest that the exponential power function might be cooling off. We might be entering a phase of slower growth than assumed my the trend function.

I will not reduce my target allocation today, but if the price continues to move sideways or fall with low volatility, the expected growth factor in my Kelly equation must be revised down. This would mean capping my allocation not at 66%-75%, but at a lower number (e.g. 50%), due to weaker price growth while the self-sovereignty thesis remains intact.


Discussion: How do you see the current trend weakness? Temporary pause or structural break?

[MaxMueller]

I do agree to your general conclusion.
Currently we are somewhat at the floor level, maybe 1 step further down (~50k$) within the next month, but then BTC needs to recover to stay within the model. If there is an AI-Bubble and if it is bursting during that time, i guess we will fall deeper and break the model.


In addition to that i believe that your model is a little inaccurate (worse than reality), because it is measured in BTCEUR not in BTCUSD. If you have a look to USD/EUR the USD increased his power since 2009 a lot. We have seen that in the last bullruns second top compared to the first top: while it was almost the same in BTC/EUR (+1,5%) it was remarkable highter in BTC/USD (+15,6%). In that case i think the weakness of EUR/USD exaggerates the weakness of BTC(/USD) in your model.