Read on Twitter
1/ Recently did this write up in the dojo and I think it's worth sharing here too: Since we are approaching the all time high retest area it is going to be useful to study past cycles in order to prepare for what's ahead. This is that area back in 2016:
2/ Each of these candles is a week of price action. As you can see, once we breached into that area with weak volume nodes/vpvr action, things got really volatile:
3/ Once we hit ATH for the first time, price retraced 36% (here on the aggregated BraveNewCoin Index). Then we bounced, faked out above all time high just to dump about 32%, more slowly (and arguably more painful and aggravating, again.
4/ Let's zoom in to get a better understanding of how quickly this price action unfolded. Here on the daily we can see that the final candle in particular gets extremely steep and then the next day we touch all time high at $1177 to quickly dump more than half of the way down.
5/ So the first dump already does 23% in one daily candle. You get a bounce but it's difficult to time. The second dump after the fakeout above all time high unfolds more slowly, with a stronger rebound forming a complacency shoulder to suck in more early optimists.
6/ This second slow dump then even stop runs previous structures just to take off from there and never look back ever again.
7/ The first cycle following Bitcoin's inception didn't do any of that. You get a 50% dump on an earlier weekly level rejection that breaks people's backs and then it just chuggs along past all time high:
8/ Let's look at where we are right now and check for VPVR conditions. The data closely resembles our first cycle case study and as you can see we are getting closer to that super thin area where things got really volatile during the 2015-2016 breakout. (2016 again on the right)
9/ So how can we apply what we found make it operable in our trading and portfolio management? A couple of conclusions:
- timing the top is going to be very difficult
- a dump is very likely to occur in that low volume profile and volatile area. Volatility works both ways.
- timing the top is going to be very difficult
- a dump is very likely to occur in that low volume profile and volatile area. Volatility works both ways.
10/ - if you want to get orders around the top filled, you'll need some BTC on exchanges with resting asks.
- we don't know if we are going to reach the magical number close to or at $20k or if we blow past it to fake out immediately before the dump.
- we don't know if we are going to reach the magical number close to or at $20k or if we blow past it to fake out immediately before the dump.
11/ - when the dump happens it's going to happen quickly and violently.
12/ How I am going to play this is by:
- gradually reducing my exposure.
closing out longs or playing with smaller and smaller positions as we get closer to the top.
- Selling some of my portfolio into stablecoins bit by bit to realize a good overall average.
- gradually reducing my exposure.
closing out longs or playing with smaller and smaller positions as we get closer to the top.
- Selling some of my portfolio into stablecoins bit by bit to realize a good overall average.
13/ - then either wait at key levels when I can pay attention or mark areas to average back in (average downwards and also average upwards if some of my bids don't get filled).
- No all-out/all-in moves but instead keep some BTC that I hold. I'll be out of leveraged positions.
- No all-out/all-in moves but instead keep some BTC that I hold. I'll be out of leveraged positions.
14/ All that being said, does history have to rhyme here? There are compelling arguments for a different outcome, mostly how spot driven this rally has been with Mex not in the game and the strong institutional demand while BTC is leaving exchanges, resulting in a supply crisis.
15/ If we look at the data, it supports the argument that "this time it's different" in terms of supply/demand. The exchange net transfer volume is more skewed towards the outflows than in 2016:
16/ The general condition of BTC leaving exchanges while price was climbing however, did exist back then too. So we can take note that conditions are similar but we are witnessing a potentially more extreme case of the supply crisis right now:
17/ Even the MVRV (a metric that tries to measure BTC's "fair value") is sitting at a reasonably similar level compared to where we were in 2016 although we are a bit more extended today (at this point on the MVRV, price had already broken ath back then):
18/ Overall I think the similarities outweigh the differences here and when things get volatile, we get a liquidity surge and get those prices close to 20k and above, profits will be taken.
19/ Personally, I am not selling all my spot holdings but adjusting portfolio risk is going to be taking the front seat, just like taking unusually high risk following the Corona capitulation made sense. Remember, you can oscillate on a spectrum, you don't need to all-in/out.
20/ For reference: This indicator study that I have been updating since spring of this year is why I am making my 2016 comparisons with relatively high confidence. There is a lot of confluence here. https://twitter.com/Stillman___/status/1324555717605556224
21/ I'll update you with a (shorter haha) thread about what I observed in terms of altcoins for this phase of the cycle shortly.
