The Cryptocurrency Trading Journal

[johnarb]

Bitcoin has a tendency to make some really strong parabolic waves before its spectacular 80% crashes. I identified these waves by looking at "stable" periods right before surges that lead to big crashes. There wasnt some quantifiable rule for that, I just sorta used my trader judgement to see what a parabolic wave was like

Historically I was able to identify these, I rounded the figures to make it easier:

4/11/2011 - $0.77
6/8/2011 - $29.6

38X over 2 months

2/25/2013 - $30.4
4/9/2013 - $230

7.5x in 1.5 months

10/14/2013 - $133
11/30/2013 - $1124

8.5x in 1.5 months

11/14/2017 - $6598
12/16/2017 - $19343

3x in 1 month

As the market has become more liquid and mature, it appears that these waves have become smaller and more controlled. This time around, its possible it will be even more muted, specially given hundreds of billions of dollars will be needed to move BTC. and perhaps institutions will be more price sensitive vs retail investors. If that is so, perhaps a 2x in 2-4 weeks will be alll that is needed to trigger a large correction and bear market. The key, is that the 2x has to happen in a late stage market (that can be confirmed by other indicators). Obviously a 2x at the start of a bull cycle of the in the middle means nothing

Given that, here are some scenarios:

A) The stable period before the fast parabolic move happened in the last few weeks. If that is so, BTC will surge to $120-$150K and then crash
B) We are still in the stable period (meaning mid stage cycle) and the parabolic has not started. If that is the case, we will see BTC grind back and forth to perhaps $80-$100K and then start to go parabolic
C) We are in a different regime where institutions (with quarterly rebalancing) dominate the market and we will not see anything like what happened historically happen again. If that is so, I expect a slow grind to $130K, with lots of back and forth
D) Something else is going on that I'm missing

So far, the indicators I'm looking at are not indicating we are at late stage but indicators are nothing but econometrics, which are SUPER error prone when dealing with markets predictions. So, at the end of the day, its all a probabilistic assesement

I think there is a 50% probability we are at a mid-stage bull cycle, 35% at a late stage bull cycle and 15% at an early stage bull cycle.

If BTC does a 1.5 to 2x from here in a small period of time, than, as a matter of prudence I will have to start to bank some profits. Certainly not all but some because there is the chance we are in a late stage. Furthermore, in 1-2 months that mid-stage will start to become more like an late-stage cycle given the passage of time and increase in market capitalization so prudence is warranted

anyways, these are my thoughts for now

Do you consider the coin movements as reflected on the blockchain in your analysis for determining a bear market?

For me, price action is on the lower end of the metrics I'm looking at to know we're on a bear market for bitcoin

Crypto winter happens over a period of 2-3 years, the distribution phase, where there's no real demand, all rallies are sold. Based on my experiences with 2014-2016 and 2018-2019 bear markets

No one can hide their bitcoin actions without being reflected on the blockchain and much truer now given the size of the holdings of the institutions

jmho, not trying to influence your decisions, you have to do what's best for yourself

 

[Daal]

Do you consider the coin movements as reflected on the blockchain in your analysis for determining a bear market?

For me, price action is on the lower end of the metrics I'm looking at to know we're on a bear market for bitcoin

Crypto winter happens over a period of 2-3 years, the distribution phase, where there's no real demand, all rallies are sold. Based on my experiences with 2014-2016 and 2018-2019 bear markets

No one can hide their bitcoin actions without being reflected on the blockchain and much truer now given the size of the holdings of the institutions

jmho, not trying to influence your decisions, you have to do what's best for yourself

Yes, I'm look at them from time to time. That's what I meant by 'other indicators'. But they are similar to econometrics and the stock market. Its not a science, its an art because other people will also by looking at them. So its not about what the indicators are saying, but what people are thinking about that they are saying and how they will antecipate others thinking about the indicators, etc, etc. Kinda like Keynes Beauty Contest. So I would disagree that price action is on the lower end of metrics, to me, price action is number one, everything else is secondary because price action reflects the net result of all this thinking by market participants

What I want to see are major contrarian indicators + parabolic price action, to me that is enough, but if I get parabolic price action + on-chain data suggesting a top, then they could be enough so. If I get all 3, even better. How to weight and measure each one will be the art part

 

[Daal]

Also, there is nothing to prevent BTC from dropping 50% without major deposits into exchanges, because there is already plenty of BTC at exchanges to make the market collapse IF buyers are scared to buy and sellers are in panic. Price moves when one side is pressuring the market and the other is backing off, large deposits are not needed for that but just a shift in human emotions

 

[Daal]

Maybe all that will take will be ONE large deposit into Coinbase/Binance when BTC is super high and everyone is super bullish and that will shift everyone's psychology from 'BTC to da moon' to 'shit, institutions are about to take profits' and then ALL the smart money will be dumping their BTC everywhere. The price will then collapse, which will bring more sellers in, more big deposits into Coinbase, more price collapse, then more sellers, etc etc.
So its possible that some on-chain data will actually be a coincident indicator, if you think about it, its the most likely scenario because only a few people can sell at the top. There is no liquidity for everyone to sell at the top

As far as other on-chain data goes, as my historical analysis shows, every cycle is so much different from the previous one. So its all an art, and its a very hard art

 

[johnarb]

Maybe all that will take will be ONE large deposit into Coinbase/Binance when BTC is super high and everyone is super bullish and that will shift everyone's psychology from 'BTC to da moon' to 'shit, institutions are about to take profits' and then ALL the smart money will be dumping their BTC everywhere. The price will then collapse, which will bring more sellers in, more big deposits into Coinbase, more price collapse, then more sellers, etc etc.
So its possible that some on-chain data will actually be a coincident indicator, if you think about it, its the most likely scenario because only a few people can sell at the top. There is no liquidity for everyone to sell at the top

As far as other on-chain data goes, as my historical analysis shows, every cycle is so much different from the previous one. So its all an art, and its a very hard art

On chain analytics is strictly by the numbers. Willy Woo discusses the mechanics on this video, if you have an hour to spare....

 

[Daal]

On chain analytics is strictly by the numbers. Willy Woo discusses the mechanics on this video, if you have an hour to spare....

I believe I already watched this episode. But this 'science' suffers from the issue of what does retail psychology have to do with institution psychology? There are different emotions, knowledge, mandates, rebalancing, incentives involved. So when someone looks at NUPL from 2017, that might be shown to be completely flawed in 2021. That's what lots of gurus miss. Gurus are in the guru business, so they need to give out predictions so they can expand their guru business and get invited to shows/podcasts. They are not in the 'being the best trader I can be' business, if they were, they would notice flaws like that but they dont, so they just hype them up
I'm not saying this stuff doesnt have value, all I'm saying is that one should not fall in love withit and think they can 'understand' the market because they got all these numbers and indicators. Its a false confidence, in the real world there are always surprises and things that stop working

 

[johnarb]

I believe I already watched this episode. But this 'science' suffers from the issue of what does retail psychology have to do with institution psychology? There are different emotions, knowledge, mandates, rebalancing, incentives involved. So when someone looks at NUPL from 2017, that might be shown to be completely flawed in 2021. That's what lots of gurus miss. Gurus are in the guru business, so they need to give out predictions so they can expand their guru business and get invited to shows/podcasts. They are not in the 'being the best trader I can be' business, if they were, they would notice flaws like that but they dont, so they just hype them up
I'm not saying this stuff doesnt have value, all I'm saying is that one should not fall in love withit and think they can 'understand' the market because they got all these numbers and indicators. Its a false confidence, in the real world there are always surprises and things that stop working

Cool, yea, since you've already seen the video, there's no point for me to press the issue.

On chain analytics watches the big coin movements, the whales, not interested in retail with less than 100 coins on the wallets, those won't move the market of bitcoin that trades in the hundreds of billions of $ a day

Bitcoin is in a different stage now, when we got institutions like MSTR, TSLA, SQ, NYDIG, JPM, Guggenheim, etc all playing in the sandbox and playing big

Good luck to you, Daal, wish you the best on this bull market

 

[NoahA]

Also, there is nothing to prevent BTC from dropping 50% without major deposits into exchanges, because there is already plenty of BTC at exchanges to make the market collapse IF buyers are scared to buy and sellers are in panic. Price moves when one side is pressuring the market and the other is backing off, large deposits are not needed for that but just a shift in human emotions

This part is worrisome. I of course don't understand the technical details like you do, but I always figured that if I buy 0.1 BTC at an exchange, no BTC actually changes hands yet. Perhaps these exchanges match up the buys and sells, and also use what they have in storage and allocate a little to me. In a way, they take a risk because they could be selling BTC they don't have, until they have to go in and buy a big block once they run out.

But this of course opens up a huge issue as you point out. Its that the banks having to sell huge chunks of shares when that hedge fund imploded last month because of margin calls. So once the exchange sees the price dropping, and customers selling, they too are forced to sell actual BTC so as not to be stuck with too much inventory that nobody wants.

Is this how it actually works? When I read snippets that say that miners are hardly selling, I'm left wondering where all the BTC is coming from that people are buying at exchanges? But if the exchange already has enough in storage to sell to the little guys, then it could very well be a wild show. At least at the CME, my ES or NQ contracts go right to the market. So are these crypto exchanges just bucket shops?

 

[Daal]

This part is worrisome. I of course don't understand the technical details like you do, but I always figured that if I buy 0.1 BTC at an exchange, no BTC actually changes hands yet. Perhaps these exchanges match up the buys and sells, and also use what they have in storage and allocate a little to me. In a way, they take a risk because they could be selling BTC they don't have, until they have to go in and buy a big block once they run out.

But this of course opens up a huge issue as you point out. Its that the banks having to sell huge chunks of shares when that hedge fund imploded last month because of margin calls. So once the exchange sees the price dropping, and customers selling, they too are forced to sell actual BTC so as not to be stuck with too much inventory that nobody wants.

Is this how it actually works? When I read snippets that say that miners are hardly selling, I'm left wondering where all the BTC is coming from that people are buying at exchanges? But if the exchange already has enough in storage to sell to the little guys, then it could very well be a wild show. At least at the CME, my ES or NQ contracts go right to the market. So are these crypto exchanges just bucket shops?

No, I think they match buyers and sellers for the most part. So when you buy, you are buying from another client that is selling. But they also seem to run algos or to allow people to run algos to make markets. Most exchanges are probably net long BTC but I dont think they care much if the price drops, they care about volume and turning over their inventory.
My comment was more in general about how auction markets work. AAPL can drop 50% without a single share being traded, all it takes is for a shift in the psychology of people to occur, bidders back off and sellers drop their offers. Of course, this wouldn't happen in the real world but huge drops can occur with very thin trading. all it takes is for bidders to backoff and/or sellers start to dump at any price

 

[themickey]

Also, there is nothing to prevent BTC from dropping 50% without major deposits into exchanges, because there is already plenty of BTC at exchanges to make the market collapse IF buyers are scared to buy and sellers are in panic. Price moves when one side is pressuring the market and the other is backing off, large deposits are not needed for that but just a shift in human emotions

My 2c opinion, panic from sellers is not reqd, just a reluctance from buyers.
Thus can be witnessed from the differences in mkt tops as an example.
a) panic would see prices drop via longer than usual bars. There would be scrambling for the exits quick fast. Regarding volume.....aaahhhhh maybe high volume, maybe normal volume. Usually on long bars hodlers just wanna dump at any price because they already have substantial profits and kissing away some profits is expected as part of doing business.
b) non panic is where price begins to slide gradually and everyone lulled into a false sense of security. Hodlers may buy more but they are retail nibblers, don't have much spare $change left in the kitty. Price bars are normal, volume normal or to the low side. So what happens, buyers are scarce, sellers outnumber but sellers are not panicing, they may believe there are better things to do than sit hodling. There is no bad news about, nobody is spooked, it's just (smart) money closing their wallets, waiting for downtrend to turn back up - which doesn't happen.