Bitcoin "Normal" Bear Market Targeting
TLDR: We have at least another 40-50% downside if the pattern holds
Introduction
Bitcoin and crypto has some fierce bear markets that can really affect people's psychology. To that end I think it would be helpful to show people a general pattern I have noticed and have been using to help me do my personal battle planning.
Two Simple Indicators
The NVT by aamonkey
This version of the NVT dynamically paints zones on the NVT so you can recognize when the price of bitcoin is high or low compared to the number of transactions it is pushing through. Despite all the noise about what bitcoin is, the blockchain is a decentralized payment network and the currency of that network can either be expensive or cheap compared to the number of transactions being run on the network.
When the NVT enters the red area it is a sign that a bubble is going to form and there are going to be a lot of of higher highs inbound. Once price has gotten above the upper red limit the party is about over. When it reenters the yellow band the bear market begins in earnest. Lots of trades can happen but ultimately the direction is down. Historically accumulation begins when the NVT is in the green. When the NTV starts to make its way out of the green area accumulation is broadly done and the cycle begins again.
The Gaussian Channel
The Gaussian channel default has a look back period of over 144, which means it is a very slow and very lagging indicator for what the average price was. So if price is at the center line of the the channel then the average price of bitcoin was roughly the same over 144 periods. Price is now below the centerline, which means that it is roughly down over the last 144 periods. When price falls out the bottom of the channel the channel turns red and we can expect a 40-50% drop.
Limited Conclusions
First, my conclusions are limited by the short life span of Bitcoin and the lookback periods of the indicators being used. The NVT can be used on lower time frames to find moments where the network is undervalued and therefor a buy to value investors but it still doesn't look proper on the first two years of available data.
Second, there is this disturbing rising wedge formation on bitcoin as shown in purple. Since these wedges break down the majority of the time my assumption is that this one will likewise break down. That means that investors looking to use what has worked the last two cycles could be in for a nasty surprise. more indecision comes because bitcoin could have a melt up once it
What I am doing and why
I believe in charts and patterns. As such I am only taking shorts on crypto and have only had 3-4 long margin trades over the last year and some of them were absolute busts. One reason I became bearish is consolidation patterns did not resolve themselves bullishly or they turned out to be reversal patterns and when that happens it takes a while for the bearish energy to work its way out of the system. I am taking the portion of my paycheck that I use for crypto trading and using it to fund shorts and I don't have any crypto other than stable coins. I am going to be using my targeting on the double top pattern to stop me from being too greedy on my shorts. Once the price gets close to the 1.618 to 2 level on the fib retracement, which is near wedge support it would be reckless to short open new shorts considering a bounce would be very likely. A move from 15,000 to 35,000 is very doable with a short squeeze.
Until I see a bullish pattern that is bigger than the purple rising wedge I am going to watch for the weekly NVT to go through the cycle and I don't feel like accumulating, I will wait for price to fight its way into the Gaussian channel and for the NVT to get out of the green. Here is a key point: rising wegdes that don't break down fully often were part of a channel. If I see price action finding support on the channel then that would be a larger chart pattern than the rising wedge and I can play that. Likewise the Keltner Channel and 200 week SMA have been great support before. If they appear to be working then I will look at putting on some long margin trades, but I don't see myself investing and holding crypto for a while.
[b/Abnormal Bear Market
The bottom of the wedge is the target for a mega bear market. This would probably mean that the Nasdaq bubble pops again and loses over 90% of its value. Commodities soar and people spend a fortune on making sure they can afford the bottom layer of Maslows Hierarchy of needs. If you don't need it for food or shelter, and it isn't addictive it will be sold off.
Linked Ideas
A broader view on why I am so bearish.
Introduction
Bitcoin and crypto has some fierce bear markets that can really affect people's psychology. To that end I think it would be helpful to show people a general pattern I have noticed and have been using to help me do my personal battle planning.
Two Simple Indicators
The NVT by aamonkey
This version of the NVT dynamically paints zones on the NVT so you can recognize when the price of bitcoin is high or low compared to the number of transactions it is pushing through. Despite all the noise about what bitcoin is, the blockchain is a decentralized payment network and the currency of that network can either be expensive or cheap compared to the number of transactions being run on the network.
When the NVT enters the red area it is a sign that a bubble is going to form and there are going to be a lot of of higher highs inbound. Once price has gotten above the upper red limit the party is about over. When it reenters the yellow band the bear market begins in earnest. Lots of trades can happen but ultimately the direction is down. Historically accumulation begins when the NVT is in the green. When the NTV starts to make its way out of the green area accumulation is broadly done and the cycle begins again.
The Gaussian Channel
The Gaussian channel default has a look back period of over 144, which means it is a very slow and very lagging indicator for what the average price was. So if price is at the center line of the the channel then the average price of bitcoin was roughly the same over 144 periods. Price is now below the centerline, which means that it is roughly down over the last 144 periods. When price falls out the bottom of the channel the channel turns red and we can expect a 40-50% drop.
Limited Conclusions
First, my conclusions are limited by the short life span of Bitcoin and the lookback periods of the indicators being used. The NVT can be used on lower time frames to find moments where the network is undervalued and therefor a buy to value investors but it still doesn't look proper on the first two years of available data.
Second, there is this disturbing rising wedge formation on bitcoin as shown in purple. Since these wedges break down the majority of the time my assumption is that this one will likewise break down. That means that investors looking to use what has worked the last two cycles could be in for a nasty surprise. more indecision comes because bitcoin could have a melt up once it
What I am doing and why
I believe in charts and patterns. As such I am only taking shorts on crypto and have only had 3-4 long margin trades over the last year and some of them were absolute busts. One reason I became bearish is consolidation patterns did not resolve themselves bullishly or they turned out to be reversal patterns and when that happens it takes a while for the bearish energy to work its way out of the system. I am taking the portion of my paycheck that I use for crypto trading and using it to fund shorts and I don't have any crypto other than stable coins. I am going to be using my targeting on the double top pattern to stop me from being too greedy on my shorts. Once the price gets close to the 1.618 to 2 level on the fib retracement, which is near wedge support it would be reckless to short open new shorts considering a bounce would be very likely. A move from 15,000 to 35,000 is very doable with a short squeeze.
Until I see a bullish pattern that is bigger than the purple rising wedge I am going to watch for the weekly NVT to go through the cycle and I don't feel like accumulating, I will wait for price to fight its way into the Gaussian channel and for the NVT to get out of the green. Here is a key point: rising wegdes that don't break down fully often were part of a channel. If I see price action finding support on the channel then that would be a larger chart pattern than the rising wedge and I can play that. Likewise the Keltner Channel and 200 week SMA have been great support before. If they appear to be working then I will look at putting on some long margin trades, but I don't see myself investing and holding crypto for a while.
[b/Abnormal Bear Market
The bottom of the wedge is the target for a mega bear market. This would probably mean that the Nasdaq bubble pops again and loses over 90% of its value. Commodities soar and people spend a fortune on making sure they can afford the bottom layer of Maslows Hierarchy of needs. If you don't need it for food or shelter, and it isn't addictive it will be sold off.
Linked Ideas
A broader view on why I am so bearish.
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