Long Term Update: 2024 Outlook with entropic methods

https://btctrading.blog/2024/01/01/long-term-update-2024-outlook-with-entropic-methods/

Every year i post an outlook using entropic methods explained in the technical section of this blog. Here you can find the 2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022 and 2023 forecast update, where you can find more information about this approach.

Updated values for bitcoin (in brackets values of 2023) using daily data since August 2010 (from now on I will use only BITSTAMP data, as today there are not many differences between major Bitcoin exchanges.).

  BTC/USD
Growth Factor G1.00099 (1.00090 )
Shannon Probability P (see this as entropy)0.52237 (0.5214 )
Root mean square RMS (see this as volatility)0.0471 (0.049)

The entropy values of Bitcoin versus the USD have experienced a slight improvement in 2023. The Growth Factor (G) has marginally risen to 1.00099% compounded daily or 144% per year, surpassing the 139% observed one year ago. The optimal fraction of your total wealth to invest in Bitcoin has also slightly elevated to 4.5% (~0.52237*2=1.04475 – 1 = 0.04475 or ~4.5%), a figure that can still be rounded to 5%, similar to last year’s recommendation.

The volatility of Bitcoin has not exhibited an increase this year, considering the average value since the inception of its historical series in August 2010. Currently, it maintains a stable position at a relatively high value when compared to other assets such as gold, stocks, bonds, and forex currencies.

It seems that a volatility plateau has been identified, and it is notably substantial higher compared to other assets. This suggests that Bitcoin continues to be a highly speculative asset. In the year 2023, the growth factor of BTCUSD still outperforms traditional markets significantly, except for the Shannon Probability, which aligns closely with that of the US stock market (around 0.52). This implies that, on average, out of 100 days, an asset rises for 52 days and declines for 48 days.

 2024 Price forecast Full Historical Volatility Half Historical Volatility
Forecast using only G* or Growth Factor~61,400$~61,400$
Upper bound adding volatility~151,000$~96,000$
Lower bound subtracting volatility~24,900$~39,000$

*61400 is obtained with 1st January as a starting price (around 42650$) times (1.00099^365)=~1.44   |  42650*1.44=~61400$, just change 365 with the number of days you prefer for a different forecast.

What happened in 2023? 

A year ago, I predicted an upper boundary of $58,000 using full volatility and about $36,500 using half of historical volatility, these two targets were calculated based on the opening price on January 1, 2023, which was around $16,500. The calculated support levels were $9,100 and $14,500. 
The year has proven positive, surpassing the initial calculated resistance level of $36,500, which coincided with the monthly KAMA average. This signals a notable strength in the uptrend, with BTCUSD transitioning from a position of weakness to one of strength by rising above the monthly average.

Conclusions

For this year, it might be a smart move to also consider a lower value for volatility, let’s say 25% of the historical volatility, as I don’t expect a new all-time high but rather a consolidation phase a few months before, during, and after the halving. Therefore, determining a resistance level at around $77,000, calculated with a precise 1/4 of historical volatility—a method I don’t typically employ but find plausible for this year. This is due to my belief that it might be challenging for the volatility to remain high for a significant amount of time, making it less likely for BTC to surpass this $77,000 level.

I might consider taking profit if the market shows signs of weakness around this level. I remind you guys that I had opened a bullish position in February 2023 at approximately $22,500.

Furthermore, I have cautious long-term trading recommendations for you this year. The hype surrounding ETFs might culminate in a “sell on news” scenario on the day the ETF gets approved. There’s a possibility of subsequent gradual declines in Bitcoin prices toward calculated support levels for the next year, ranging between $24,000 and $39,000. Don’t forget that the most probable support area is around the monthly Kama, which is inside the support windows for this year ($24,900-$39,000).

Instead of anticipating any catastrophic scenarios this year, in contrast to the previous year, which appeared more susceptible to bearish scenarios, I maintain my view of the $24,900 support as very solid.

About the upper bound i’ve to admit that it is very unlikely to reach and/or break $151,000 during 2024.

I’m at your disposal for any questions; see you at the next update and Happy New Year!

Charts

Bitcoin’s cumulative volatility as expected is dropping every year and is stabilizing towards a value that is still a bit high compared to other traditional assets (stocks, gold, bonds range from 0.01 to 0.03) but the very high average returns of btc compensate the high volatility. The values represent the root mean square of logarithmic returns of bitcoin daily data.
The first lower monthly kama average price band will probably slowly reach the $25,000 support level during the 2023.
I’ve added the equilibrium point computed using the G growth factor at $61,400.
The chart is monthly and begins at the end of November ’22 bottom.

Long Term Update: The Big Picture part II

https://btctrading.blog/2023/05/09/long-term-update-the-big-picture-part-ii/

BTCUSD Monthly Chart Jan 2021 to present day

For all my Italian followers, I am pleased to announce that my analysis are now available in Italian on bit-reminder.com. This Italian website, which I collaborate with, is a valuable resource for those interested in the cryptocurrency world, with lots of information and a technical analysis section authored by me. In addition to covering Bitcoin, from time to time I also discuss some altcoins using the same approach, utilizing the CRSI oscillator and KAMA price bands. You can find the Italian version of this article on that website as well.

Since I last made my prediction in February, Bitcoin has continued to rise and is now approaching the resistance level of $36,000. However, bitcoin is hesitating just below this critical level of $36,000 without a clear breakout. The modified RSI oscillator is approaching the overbought level, so probably we are two to three months from a top.

Based on the Kama average levels, my earlier prediction of a target range of at least $36,000 with a maximum potential upside of $58,000 still stands. However, given the current market conditions, it’s difficult to say whether we will see a new intermediate top this year. However, there is still a significant portion of May left, so it will be interesting to see how the market develops in the coming weeks and if there is enough fuel to approach $36,000 before end of June and possibly break it to hope to see $50,000 by the end of the year.

Short Term View

BTCUSD Daily Chart

For those who follow me on Twitter, they already know about the situation in the short term. Since the market’s corrected inversion on April 25th, it has been weak and moving sideways. There is a possibility that it might drop to $25900, which could result in my CRSI becoming oversold and recharging itself, potentially leading to a new short-term buy signal.

Long Term Update: The Big Picture

https://btctrading.wordpress.com/2023/02/17/long-term-update-the-big-picture/

BTCUSD Monthly Chart with KAMA+Deviation Bands, RSIC oscillator confirming new buy signal

In the chart above, there is a new buy signal from a modified RSI oscillator after an apparent four-year interval, with a smoother output compared to the original. My yearly prediction, which I typically release in January, appears to be consistent with the Kama average levels. The estimated target range for this upward movement is at least around $36,000, with a maximum potential upside of $58,000. As a result, I believe that we will not see a new all time high during this year.

It can be noted that the examined oscillator also gave two bearish signals in 2017 and 2021, at the respective peaks of the four-year bitcoin cycle.

Does the 4-year halving cycle exist or not?

While many people believe in the 4-year cycle of Bitcoin, which is linked to the halving phenomenon, I personally think that this effect is not significant. The price of a commodity, including Bitcoin, is mainly determined by the supply-demand balance and the liquidity of the market, rather than by scarcity or safe-haven properties. Indeed, there are many scarce things in the world that have no value simply because there is no demand for them.

In my view, Bitcoin’s price is affected by liquidity cycles and the interest of investors in the asset for various reasons. When the liquidity provided by central banks decreases, Bitcoin’s price is likely to bottom out as well. However, it may take many years for Bitcoin to overcome the influence of central banks, given their significant impact on the global financial system.

In practice, if we measure it, the long term cycle we can find in Bitcoin is three years and a three months (on average), which surprisingly resembles the liquidity cycle in China observed in its 10-year bond yield, CN10Y.

10 Year Chinese bond and major Bitcoin tops

It is important to acknowledge that the Chinese 10-year bond yield can be influenced by central banks, including the People’s Bank of China. This is because bond yields reflect the expected return for investors who hold them until maturity, and interest rate changes can impact the bond’s value. Central banks have the power to adjust interest rates through various monetary policy tools, such as altering the money supply, setting interest rate targets, and buying or selling assets like bonds.

Therefore, movements in the Chinese 10-year bond yield can serve as an indicator of shifts in monetary policy, which may have a ripple effect on other asset classes, including Bitcoin. It’s worth noting that Bitcoin is known for its high volatility, and any changes in monetary policy could potentially affect its value as well in a dramatic way.

It’s important to keep in mind that the total market capitalization of Bitcoin is currently around half a trillion dollars, while the liquidity being moved by central banks is much larger, estimated at around 100 trillions dollars. The impact of monetary policy decisions by central banks on Bitcoin’s price may be significant at this point, given the relatively small size of the Bitcoin market compared to the global financial system. However, as the market value of all existing Bitcoins grows over time, it may become more resilient to external factors, including monetary policy decisions. Nonetheless, it’s likely that the influence of central banks on Bitcoin will continue for many years to come.

We can observe that in the current cycle, approximately 20 months have passed from the peak in 2021 to the recent bottom. Based on this, we can hypothesize that the current cycle may be 40 months long, which is in line with the previously calculated value of 39 months (3 years and 3 months).

I hope you enjoyed the article, and I would like to invite you to comment and share your opinion. You can comment here or on Twitter.