How to prepare for the end of the bull market, Part 1: Timing – Cointelegraph Magazine

Bobby Lee “blame” his brother Charlie, the founder of Litecoin, for the 2017/2018 plunge in Bitcoin prices.

Of course he was joking. Kind of.

Famous charlie Sell The last batch of Litecoin he held in December 2017 was $350 each.

Bobby remembered seeing this news on Twitter. “I thought, my goodness, this might be the pinnacle,” he said.

“I told him jokingly, like’you just caused the bull market to end.'”

Of course, Charlie is not the real reason for the end of the bull market, but this is an amazing market timing because he almost sold the last of the three batches of LTC at the highest price. This is by no means a fluke. As Charlie predicted in early December, a “multi-year bear market” that has shrunk by 90% is about to come.

The question is whether ordinary cryptocurrency traders and currency holders can follow Charlie’s approach and sell at the next market peak, allowing them to re-buy and accumulate more at the bottom.

This is a difficult feat, and most people are more likely to follow in the footsteps of the podcast Peter McCormack, who is known for his 2017 hype, witnessing his Bitcoin portfolio soaring to $1.2 million… and then Plummet After he was forced to sell his collection to pay bills in the depths of the crypto winter, his stock price returned to near zero.

From on-chain analyst Willy Woo to Puell Multiple’s David Puell and Decentrader’s Filbfilb and Philip Swift, some big names in the encryption field have been studying this issue. Around 2018, they began to design indicators and indicators based on historical patterns to help determine when peaks and troughs will arrive.

There are multiple opinions on whether market timing is feasible. Bobby Lee swears about the halving price cycle, while Mati Greenspan of Quantum Economics and Scott Melker of Wolf of All Streets believe that it is best to follow reasonable profitability and portfolio construction rules that do not require you to predict events in advance.

When writing this story, the unpredictability of the market is obvious. I started writing this story in April, and then the news from China and Elon Musk’s Twitter account blew up the market and made the bull market look like one Distant memory.

Spoiler alert: All commentators interviewed agree that you should try to make a profit during the rise. I was fortunate enough to listen to their advice a few hours before the May crash.

History class: another four years

Bitcoin has not existed long enough to draw any clear conclusions from historical records, but it is generally believed that it is moving in a predictable cycle related to the halving.

At that time, the block rewards received by Bitcoin miners were halved almost every four years, which reduced the issuance of new Bitcoins. The theory is that the less Bitcoin, the higher the price. In every halving so far, the price has bottomed out in the rise and then hit a record high.

Lee has been a supporter of this idea for nearly ten years, and he proposed it in a speech at Stanford University in December 2013.

“I’m a simple person,” said Li, author of the new book “The Promise of Bitcoin.” “I can’t predict the future, but based on my intuition and my 10 years of experience in this area, I think these price cycles mimic the block reward halving. This is the real economic leverage that happens to Bitcoin, the productivity of Bitcoin It’s down by half.”

“In each case, the price increase occurred on a delayed basis compared to the block reward halving.”

If this theory is correct—although it seems to have succeeded so far—it only considers supply rather than demand, which means that it still does not help much in determining when the market reaches its peak. The first halving saw prices bottomed a year ago and peaked a year later. The second and third halvings saw the price bottom and peak more than 500 days after the halving started.

The April high was only three times higher than the previous high, which means that Li believes that this cycle still has a long way to go.

“According to my experience, bull markets will not only reach nearly three times the previous high, they can easily rise 10 times, 20 times, or even 30 times. Therefore, conservatively speaking, if it is 15 or 16 times the previous high , We will reach 300,000 US dollars.”

Bowler hat and popper

You can use this information to do two things: You can try to sell at or before the peak price. Or you can stick to it, hoping that prices will always rise higher in four years.

The second option is much easier. Identifying the peak of the market is particularly tricky, because most people are ecstatic about their amazing portfolio returns. Lee said that rapidly rising prices are actually the best sign that the top has come.

“If it doubles in 24 hours, it must be a peak,” he said.

Crypto trader Scott Melker agrees with this view. He started investing in Bitcoin in 2016 and took the lead in the 2017 bull market and subsequent crashes.

“Frankly, I don’t think there is too much emotion in the crowd that the music will end soon,” he said.

“The retail industry keeps climbing and thinks that the price of Bitcoin will reach $100,000. Obviously, it stopped at around $20,000. I think most people did not make any profits, but went downhill all the way through the cryptocurrency winter.”

On-chain and technical indicators

The dramatic crash that hit a record high in 2017 inspired many analysts to design tools to help predict the next. explain Filbfilb, co-founder of Decentrader. They use blockchain and market data from the past 12 years to determine the relationship between profits, participants, supply, and market ups and downs.

“There are some very smart people who have come up with some excellent on-chain derivatives that allow us to try to understand the behavior of different market participants,” he said, adding:

“For example, David Puel, Phil Swift, Murad Mahmudov… We came up with all these things in the depths of the bear market to make sure we can call the next peak. “

Filbfilb stated that due to the absolute transparency of the blockchain, the crypto market is almost unique in terms of the amount of data available for graphing.

“Do we have all the tools to keep time? If you compare us with a market like the gold market, we may have the best insight you might have, where it is impossible to see that kind of data.”

MVRV Z-Score (LookIntoBitcoin.com)

Three best

There are about a million different tools available, but in Filbfilb’s view, the two most important are Puell Multiple, which looks at the profit of miners and the MVRV-Z score, which looks at the current price relative to each bitcoin Purchase price. Both charts can be viewed for free.

“The MVRV-Z score is very good because it tells you the profitability of investors,” he explained.

The idea is that if the average price of market participants bought Bitcoin at $1,000, and the price has now risen to $20,000, then they are more likely to cash out compared to the market where most people buy Bitcoin at $15,000. .

“If the MVRV-Z score rises to the upper limit, it means that all Bitcoin holders are at extraordinary profits compared to the time they bought Bitcoin. So, this will make you believe that people may immediately consider profit and buy Lan Boss.”

Although this chart may stop working if we enter a period of hyperinflation, it has been back-tested and so far it has correctly displayed the top in about a week. Therefore, when your hairdresser or pharmacist starts to make recommendations on the coins you should put your full effort into, it may be time to start reviewing this chart more frequently.

Filbfilb said that another very valuable tool is Puell Multiple, which shows the profitability of miners today and the profitability of the past 365 days.

“If they suddenly enter such a huge extraordinary profit base, then they are a business at the end of the day, and they are likely to dump their coins,” he said. “From an investor’s point of view and a supply point of view, both are very important.”

Puell multiples (LookIntoBitcoin.com)

Hodlers don’t sell cheap

Philip Swift, another founder of Decentrader, added that the 1yr+ HODL waveform is another useful indicator based on the market psychology of HODLers.

“This is an on-chain tool that can show the proportion of bitcoins that have been held by HODL for at least one year. There is an obvious cyclical pattern in which the 1-year HODL wave line is inversely proportional to the price over time. That is Because in a bear market, HODLers accumulate and do not want to sell their BTC at a low price. Therefore, the 1-year HODL interest rate rises.”

“As we enter the bull market, those in HODL hope to realize their profits as the price rises. They start to sell their bitcoins, and we can see this by leaving their wallets with bitcoins. This is reduced by 1 year. HODL level,” he explained.

“The 1-year HODL level is currently 53%, and when we finally reach the peak it may reach around 47%. Therefore, we still have a long way to go before the end of the cycle.”

Most people may not have time to learn and understand all the other different tools, simply because there are too many tools. The technical analysis chart includes two-year MA multiplier, 200-week moving average heat map, inventory flow model, Pi cycle top indicator, golden ratio multiplier, Bitcoin profitability days and BTC logarithmic growth curve.

On-chain indicators include RHODL wave number, RHODL ratio, advanced NVT signals, relative unrealized profit and loss, Bitcoin network momentum, reserve risk, active address sentiment indicators, and spending output profit margins.

Decentrader has developed a meta tool called Bitcoin KPI that can assign a score of 100 points to each chart. Filbfilb said: “It’s really difficult to get your information through 50 different graphs and then try to integrate it into what’s actually happening,” Filbfilb added: “So what we’re trying to do is create one Advanced view.

“All of this is pulled into a snapshot. Then you get a score. You can see how far you have gone in this cycle. How overheated the market is,” he said.

Precautions

Of course, these tools have some strings attached.Many are based on the premise that Bitcoin leads the ups and downs of the entire crypto market. This may be true, but it is possible Ethereum may surpass it to become the market-leading cryptocurrency.

Moreover, as the China Mining FUD and Elon Musk’s tweets in April and May indicated, these indicators will not protect your reserves from the black swan event, which may cause the market to collapse and possibly Usher in a new bear market.

Mattie Greenspan, the founder of quantum economics, pointed out that history sometimes rhymes, but it cannot predict the future.

“People like to get confused and say,’Oh, well, just because this has happened X times, and then just because X happened, Y will happen afterwards.’ It doesn’t always mean anything.”

How to prepare for the end of the bull market, Part 2: Sell or sell next week. Mati Greenspan, Filbfilb, Scott Melker, and Bobby Lee provided advice on how to trade the end of the bull market and considered whether the four-year cycle is about to end with the rise of mainstream adoption.



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