Bobby Lee “accuses” his brother Charlie – the founder of Litecoin – for causing the Bitcoin price crash in 2017/2018.
He’s kidding, of course. Somehow.
As is known, Charlie sold the last tranche of his Litecoin holdings in December 2017 for $ 350 each.
Bobby remembers seeing the message on Twitter. “I figured, gosh, that might be the climax,” he says.
“I jokingly said to him, like, ‘You just brought the bull market to an end’.”
Of course, Charlie wasn’t the real reason the bull ended, but it was a staggering slice of market timing as he sold the last of three tranches of LTC almost right to the top. It wasn’t a coincidence either, as Charlie had predicted in early December that a “multi-year bear market” with 90% drawdowns was imminent.
The question is can ordinary crypto traders and traders follow Charlie’s lead and sell out at the next market high so they can buy back in and accumulate more at the lower end.
It’s a tough job, and most people are more likely to follow in the footsteps of podcaster Peter McCormack, who was notoriously caught up in the 2017 hype and watched his Bitcoin portfolio soar to $ 1.2 million … He was forced to sell his stash to pay the bills in the depths of the crypto winter.
Some of the greatest minds in the crypto industry have worked on this problem, from onchain analyst Willy Woo to David Puell of Puell Multiple Ruhm and Decentraders Filbfilb and Philip Swift. Around 2018, they started developing metrics and indicators based on historical patterns to determine when the highs and lows will approach.
There are a number of views as to whether market timing is even possible. Bobby Lee swears by halving price cycles, while Quantum Economics ‘Mati Greenspan and Wolf of All Streets’ Scott Melker believe it is best to follow sound profit-taking rules and portfolio construction that do not require predicting events in advance.
The unpredictability of the markets became evident when writing this story, which I started writing in April and then put it on hold for four months after news from China and Elon Musk’s Twitter account destroyed the markets and the bull run like a distant memory .
Spoiler alert: All of the surveyed commentators agreed that you should try to take profits on the way to the top. I was lucky enough to take their advice literally hours before the big crash in May.
Every crypto bull run I’ve seen has been followed by a bear cycle. The market takes time to consolidate. This is just my 7 year experience of observing this room.
How low and how long it will be is still open. People need to be aware of this possibility and invest responsibly. https://t.co/ozcR11N68o
– Charlie Lee [LTC⚡] (@SatoshiLite) December 11, 2017
History class: Four more years
Bitcoin hasn’t been around long enough to draw firm conclusions from historical records, but there is widespread belief that it moves in predictable cycles related to The Halving.
At this point, the block reward bitcoin miners receive is halved almost every four years, reducing the issuance of new bitcoins. The theory is that less Bitcoin equals higher prices, and during every halving so far, the price has bottomed out in advance and then hit new all-time highs.
Lee has been an advocate of the idea for nearly a decade, and introduced the concept during a December 2013 talk at Stanford University.
“I’m a simple man,” says Lee, author of the new book “The Promise of Bitcoin”. “I can’t predict the future, but based on my gut instinct and based on my 10 years of experience, I think these price cycles mimick the halving of the block reward. It’s a real economic lever that happens to Bitcoin that cuts the rate of production by half. “
“In any case, the upward price movement is delayed compared to halving the block reward.”
If the theory is correct – and although it seems to have worked so far – it only considers supply and not demand, which means it is still not that helpful in determining when markets will peak. The first halving saw the low a year earlier and the high a year later. The second and third halves saw the low and high more than 500 days after the halving.
The April high marked only a three-fold increase from the previous high, meaning Lee believes this cycle is a long way off.
“In my experience, bull markets not nearly triple their previous highs, they easily go 10 times, 20 times, even 30 times. So if it hits 15 or 16 times the previous high, that conservatively brings us to $ 300,000. “
Topper and Popper
There are two things you can do with this information: You can try to sell out at or just before the peak prices. Or you can just hang in, expecting that prices will invariably rise higher in four years’ time.
The second option is much easier. It is especially difficult to spot the peak of the market as most people get carried away with euphoria by their staggering portfolio gains. Lee says that rapidly rising prices are actually the best indication that the top has hit.
“If it doubles in 24 hours, that’s sure to be the peak,” he says.
Crypto trader Scott Melker, better known as The Wolf of All Streets, agrees. He started investing in Bitcoin in 2016 and had a front row seat for the 2017 bull market and crash that followed.
“I don’t think there was much feeling among the masses that the music was going to end anytime soon, to be honest,” he says.
“The retail sector was pushing its way up, believing that the price of Bitcoin would soar to $ 100,000. And obviously it stopped at around $ 20,000. I think most people didn’t make a profit and rode the whole market through the crypto winter. “
On-chain and technical indicators
The dramatic fall from the 2017 all-time high has inspired numerous analysts to develop tools that could help predict the next one, explains Decentrader co-founder Filbfilb. They scoured the blockchain and market data for the past 12 years to determine the relationships between profits, participants, supply, and the ups and downs of the market.
“There are some really brilliant minds who have come up with some fantastic on-chain derivatives tools that allow us to try and understand how different market participants might behave,” he says, adding:
“David Puell, for example Phil Swift, Murad Mahmudov … we made all of these things up in the depths of the bear market to make sure we could call the next top.”
Filbfilb says that because of the radical transparency of the blockchain in terms of the amount of data available for charts, crypto markets are almost unique.
“Do we have all the tools to time the top? We probably have the best insight you could have if you compare us to something like the gold market, where it’s just impossible to see that kind of data. “
Three of the best
There are roughly a million different tools, but in Filbfilb’s opinion two of the most important ones are the Puell Multiple, which studies how profitable miners are, and the MVRV-Z-Score, which is the current price in relation to what each bitcoin was bought for , considered. Both charts can be explored for free.
“The MVRV-Z-Score is very good because it says how profitable the investors are,” he explains.
The idea is that if the average market participant bought bitcoin at $ 1,000 and the price has now risen to $ 20,000, they are far more likely to cash out than in a market where most people buy bitcoin for $ 15,000. Dollars bought.
“If the MVRV-Z-Score climbs into the upper band, it means that all Bitcoin holders are making above-average profits compared to when they bought Bitcoin. So this is something that leads you to believe that people could immediately think about taking profits and buying lambos. “
While this chart may stop working if we enter a period of hyperinflation, it has been back-tested and so far has shown the peak correctly within about a week. So when your barber or pharmacist starts offering advice on which coins to go all-in, it may be time to consult this chart more often.
Filbfilb says that another very valuable tool is the Puell Multiple, which shows how profitable miners are today compared to the past 365 days.
“If you suddenly get into this massive above normal profit base, then at the end of the day you are a business and they will likely throw your coins away,” he says. “Both are very important from the point of view of the investor and from the point of view of the offer.”
Hodlers don’t sell cheap
The other founder of Decentrader, Philip Swift, adds that the HODL wave chart over 1 year is another useful indicator based on the market psychology of HODLers.
“It’s an on-chain tool that shows the percentage of Bitcoin that has been HODLed for at least a year. There is a clear cyclical pattern where the 1 year HODL wavy line has developed an inverse trend in price over time. That’s because HODLers pile up in bear markets and don’t want to sell their BTC at cheap prices. So the 1-year HODL rate increases. “
“As we penetrate bull markets, these HODL users want to realize their profits as price increases. They start selling their bitcoin, which we can see from the bitcoin leaving their wallets. This lowers the 1-year HODL, ”he explains.
“The 1-year HODL is currently 53% and will likely be around 47% when we finally hit the top. So we still have a long way to go before the end of the cycle. “
1 year HODL wave chart was briefly on the site but is now back in operation
It also shows that HODL’ers have no interest in selling at this level. Much higher prices are expected
I don’t think the HODL line will decrease significantly until + 100k $ #Bitcoin pic.twitter.com/ucqGZX7590
– Philip Swift (@PositiveCrypto) August 13, 2021
Most people probably won’t have time to learn and understand all of the other different tools simply because there are so many. The technical analysis charts include a two-year MA multiplier, a 200-week moving average heat map, a stock-to-flow model, a Pi Cycle Top indicator, a golden ratio multiplier, Bitcoin profitable days and BTC logarithmic growth curves.
On-chain indicators include RHODL waves, RHODL ratio, extended NVT signal, relative unrealized profit / loss, bitcoin network momentum, reserve risk, sentiment indicator for active addresses and rate of output profit output.
Decentrader has developed a meta tool called Bitcoin KPI that assigns values of 100 to each chart. “It’s really difficult to go through 50 different charts to get one and then try to consolidate what’s actually going on here,” says Filbfilb, adding, “So we were trying to get a high-level overview to create.” .
“All of these things are summarized in a snapshot. And then you get a score. And you can see how far in the cycle you are. How overheated is the market, ”he says.
A note of caution
Of course, there are some caveats with these tools. Many are based on the premise that Bitcoin is leading the entire cryptocurrency market up and down, which is likely to be true, but it is within the range of the likelihood that Ethereum could overtake it as the market-leading cryptocurrency.
And as the tweets from China Mining FUD and Elon Musk showed in April and May, these indicators are not going to save your stash from a Black Swan event that could cause markets to crash and possibly a new bear market.
Mati Greenspan, founder of Quantum Economics, points out that sometimes history rhymes but doesn’t predict the future.
“People like to get confused and say, ‘Oh, well, just because this happened X times, then just because X happened, Y will happen afterwards.’ It doesn’t always mean something. “
How to Prepare for the End of the Bull Run, Part 2: Sell or Hodl is coming next week. Mati Greenspan, Filbfilb, Scott Melker, and Bobby Lee share their advice on how to trade the end of the bull run and consider whether four-year cycles will end when mainstream adoption begins.