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Bitcoin: 3 Bulls, 3 Bears – Bitcoin USD (Cryptocurrency: BTC-USD)


The problem with the use of a long-term rating approach to Bitcoin (BTC-USD) (COIN) (OTCQX: GBTC) is that you only have a clear direction when the market has made a serious mistake. If the market is too cheap for Bitcoin, it's a great time to buy; if it's too high, maybe you should transfer a little cash or another business class. However, when the models say the price is right, or when they contradict each other, what do you do?

A clue that comes from the past behavior of the bubbles, which seems to be repeated with moderate variations every few years. In other words, there seems to be a very large psychological component of the price of Bitcoin, which causes bubbles to emerge, and eventually explode. After a bubble, people need to reset psychologically, but when the market starts to go crazy, people go wild and FOMO catches on.

From the point of view of the past, we have just left a bubble and the price has been reduced by around 12 months. Now, we also know that as we pass the "fair value" or long-term trend line, we can only move in either direction. Before a bubble, we pass the fair value going up, and then after a bubble, we pass the fair value backwards.

Today I will present three bullish and three bearish charts. Let's begin.

Hash Power Regression

In previous articles, I have argued that the price of Bitcoin and the hash power of the network form a feedback loop. Because of this relationship, we can easily identify divergences between hash power and price. Ideally, this helps us identify opportunities for buying or selling.

Let's take a look at this long-term relationship.

regression of the hash rateSource: blockchain.com and graphics of the author

Using this model, the price is now significantly lower than the expected level. However, the magnitude of divergence has not yet reached the lowest levels we have seen in 2011, 2012 and 2015.

expected Actual
Price $ 6.156 $ 4.027

Data until December 23rd 2018.

Bitcoin Mayer Multiple

The Mayer Multiple is the price of Bitcoin divided by the 200 DMA of the price. Recently, it has fallen to levels that have not been seen for several years.

multiple mayerSource: charts.woobull.com

There have been lower readings in the past, but almost four years have passed since we saw the level from 0.6 to 0.5. Using this approach, Bitcoin today could be an excellent purchase.

Total transaction regression

The total number of transactions that have been confirmed on the Bitcoin network has grown since the beginning. I have suggested in the past that total transactions are an interesting proxy for the age of Bitcoin. As long as they are increasing, Bitcoin is still alive.

The total transaction count is one of the inputs in the reports of the value of the Bitcoins that I publish here once a month. Let's take a look at this report at a more granular level.

total transaction regressionSource: blockchain.com and graphics of the author

expected Actual
Price $ 4,860 $ 4.027

Data until December 23rd 2018.

Using this model, the price of Bitcoin comes under what is expected. However, in the past, this state (where the price is lower than expected) has persisted for many months or even years. So, maybe it's a good time to buy, but there does not seem to be any reason to hurry up at this point. If this period of undervaluation continues, then there will be plenty of time to take a position when (or if) it is right for you.

Approach to network values

There are several ways to evaluate the Bitcoin network using Metcalfe's law. My approach is to use the daily transaction count and the number of unique addresses, of which I wrote here.

Regression of unique addresses

The number of unique addresses in use is a proxy for the number of Bitcoin users (probably very conservative). Let's take a look at the relationship between the unique addresses and the long-term price.

regression unique addressSource: blockchain.com and graphics of the author

Using the number of unique addresses in use, it does not seem that we are still out of the woods. The price is still clearly above what is expected, indicating that the current price of Bitcoin is not supported by the network.

expected Actual
Price $ 1,565 $ 4.027

Data until December 23rd 2018.

Daily transactions

The daily transaction count tells the story of the network from the point of view of network activity, rather than the number of participants. Using the same approach as above, let's see what we find.

regression of daily transactionsSource: blockchain.com and graphics of the author

expected Actual
Price $ 2.302 $ 4.027

Data until December 23rd 2018.

From the point of view of the evaluation of the network, it seems that the price of Bitcoin is still too high. To fill this gap, the price must fall or the levels of activity must go up (or both).

Willy Woo's NVT

The NVT is a way to measure the value transmitted on the Bitcoin network compared to the Bitcoin price. I wrote a review of this approach, which you can find here. The version "too long, has not read" is that the approach is interesting, but seems to be lagging in the market for several months. However, it is interesting to look at and is a popular evaluation method.

bitcoin nvt ratioSource: charts.woobull.com

Using the NVT report, it seems we are out of the dangerous territory of the bubble, but we still have to enter the main buying range. The thin gray lines (which are the daily measurements) have had a lower trend, but still have to lower the thicker red line, which represents the moving average.


Five of the six models I presented have one thing in common. Everyone agrees that at the beginning / mid 2015, there was a significant buying opportunity. In fact, the price of Bitcoin dropped briefly below $ 180 at that time.

However, bullish indicators seemed to place the peak of the last bubble in December 2017, where downside indicators posted the highest results in the first quarter or even in the third quarter of 2018.

I think that when we reach the current lower price of this current market, we will see the same signal consistency. In other words, the charts will be agreed. Until then, there will be a lot of noise and confusion.



This article was first published in Crypto Blue Chips.

Revelation: I am / we are long BTC-USD. I wrote this article alone, and expresses my opinions. I'm not getting any compensation for this (other than Seeking Alpha). I have no business relationship with any company whose actions are mentioned in this article.

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