Bitcoin is in a Bull Run: But where is the top?

Bitcoin has been on a bull marathon since March’2020. Soon after the crash, price made a V-recovery & has been on a rise ever since. June & most part of July has shown record minimum volatility, with price testing 8.9K & making a slow rise soon after. Last Sunday saw the long awaited Blast-off to reclaim 10K. BTC hasn’t gone below 10K since then. Having faced resistance at 11.4K, BTC is slowly making its way up!

Now what’s next?

If you look closely at this below fractal from Jan to June’ 2016, you can see the similarities in the 2 fractals. This fractal led to the 2016 Halving. There was a 133 day long price recovery & consolidation before the Blast-off to 800$.

We are at a similar stage. Price has recovered & consolidated for 137 days before pumping to 11.4K this week. Next is the 2nd Leg of Blast-off to a “Price peak”. Going by the 2016 fractal, this “price peak” should be achieved within August. Price should drop thereafter then slowly grinding further up continuing the bull run.

I know there will be many naysayers to this fractal. Below is an On-chain piece of data to validate this fractal. The 2 Yr+ HODL% currently is almost same as that just before 2016 Blast-off (May-June’2016). This further validates the 2016 fractal & flags off the 2020 Bullrun.

2 yr + HODL %

Now if you’re Bullish enough & believe me when I say that the price should peak within August , next question in your mind would be: How high will Bitcoin go before dropping again?

We will do a bit of Fundamental Data Analytics to reach the magic number. Yes, I’m talking about the August price peak. In the below chart, the red & green dots are the deflection of price from Stock-to-flow price. Deflection is the ratio of (Price / Stock -to- flow price). So deflection is < 1 if Price < S2F price and deflection is > 1 if Price > S2F price.

Price Deflection chart. Red dots show “Overvalue” & denote price peak or sell points. Green dots are good for buying

As you might observe, Deflection < 1 are points of price either bottoming or consolidating. When deflection < 1, price is “undervalued”, that is, as per the stock-to-flow price should ideally be higher but market has not priced the supply shock yet. These are excellent points to buy. When deflection > 1, price is “overvalued”. These are usually the points where price peaks, followed by deep pull-backs.

Currently, we are still at a “green” dot (deflection <1), that is, price is still undervalued, even at 11K. Deflection is moving up towards 1. Price will peak ONLY after it crosses over to >1 that is it gets from a green dot to red dot.

So next question is: where is the next red dot? If you look closely, you can see that for almost all red dots, deflection ranges between 10% to 60%, that is, when price peaks, BTC becomes overvalued in range of 10%- 60%. This means, atleast 10% overvalue is highly likely. Actual overvalue can be more than 10%, but it is safe to say we will see atleast 10% deflection.

Below picture contains the Stock to Flow prices in August that are already calculated as per Plan B’s Stock-to-flow model.

Stock to Flow Prices in August’2020. Green Line shows the Stock-to-flow price (+10%). Green line denotes highly likely top

Now depending upon when the price Blast off takes place, if the blow-off top comes by 10th August, 15.6K is the minimum price for the top (Actual top can be more than this!). If blow-off euphoria comes on 15th August, minimum price for top is 16K.

If top comes by 31st August, price will peak atleast to 17.6K. So depending on when the top comes, we can estimate atleast till what price we need to HODL our coins.

In my view, 16K to 17K should be the price peak for August!!!

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Where is Bitcoin heading in the next few weeks?

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Why Bitcoin is more bullish than you think?

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How to use Funding rate to predict Bitcoin price?

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Why BTC won’t cross 11K in the near future?

We have seen Bullish divergence in BTC Price action in this month. However I don’t consider this as the start of a major Bull run before the halvening. Reason? On- chain momentum doesn’t justify a major bull run in the near future. If anything, we are in the middle of a small rally within a greater bearish trend. I will share the techniques to analyze on-chain data later.

Here, we will look at how we can determine the top of this rally. We will use technical analysis to determine this. My favourite metric to do technical analysis is Fib Retracements. In my 4 years of BTC trading, I have seen that BTC likes to follow Fibs very religiously. So how to determine the top?

Simple. BTC will generally retrace upto 50% and in some cases upto 61.8%. We have the 0.5 fib for the long term dump from 13838$ to 6423$ at 10135$. 0.618 fib is at 11012$. So your sell zone should be $10135- $11012. I would bet on $11012 tbh, because after crossing 11k, many plebs will turn bullish and a huge amount of longs will get trapped. If we have daily close above 11K, this idea will get invalidated.

Where to buy? 7800$ to 8050$ is a good buy zone in my opinion, since these are the 0.5 and 0.618 fibs from 6836$ local bottom to 9205$ local top.

I think this idea will take atleast 3-4 weeks to play out. The buy zone should come towards end of January.

How to make life- changing money in Bitcoin?

According to a new study by mainstream American news network CNN, Bitcoin is by far the most profitable asset class of this decade. The news network reviewed the performance of investments over the past decade to come to this conclusion. USD 1, if invested at the beginning of this decade, would be USD 90,000 today, while an investment of just USD 11.12 would have become a million.

Such is the immense potential of Bitcoin. But the path to make good money in BTC is too perilous. You often hear stories of hundreds of people making millions in this asset but there are also hundreds of thousands of people who end up blowing up their accounts, sometimes losing a lifetime of savings. The market is designed to weed out the weak investors. With corrections ranging from 50% to 80% from the peak prices, this market is certainly not for the faint hearted.

But is there a way to make that 5X profit and get out of the market in time? Is there a way to get in when others start doubting the future of this amazing technology and media reports start flashing “doom” for this asset or “burst of the BTC bubble”. There certainly is. Answer to this million $ question lies in the very network of Bitcoin or the Bitcoin Blockchain, which we discussed in my previous articles [1] [2] on this blog.

Valuation of BTC is nothing but valuation of the Bitcoin Blockchain network. BTC is just a token to make payments on the BTC Blockchain. So more the acceptability and usability of the network, more is the value of its digital token, BTC. Let us break this BTC network acceptability and usability a bit further.

Bitcoin is the most transparent asset that has ever been traded in the history of the modern financial system. While in your traditional bonds and stocks, it is very difficult and at most times impossible to track the investor activity, this is not the case in Bitcoin. Data on the critical parameters of the network are readily available for everyone to see and analyze. A bit of playing with the Blockchain network data can make such amazing revelations of the value of this network. This has led to the rise of a new area of study called On-Chain Analytics.

In my coming articles, I will write more on the On-Chain parameters that can be usually analyzed to get an estimate of the demand & investor sentiment. We will deep dive on Hash Rate, Mempools, HODL waves & few more fundamental parameters. I will explain each of these parameters and how to analyze the On-chain data to “know for sure” when is the best time to buy.

Bitcoin market is such that only the smartest and well-informed can make money (Yes I’m talking about triple digit returns 😉 ). Please stay tuned to this blog to learn these life-changing techniques. Please like and share my blog posts with your family and friends and follow me to get regular updates. I will soon open a twitter account to answer any questions that you might have. Cheers!

What makes Bitcoin valuable?

As we saw in the previous article, Bitcoin offers an efficient means of transferring money over the internet and is controlled by a decentralized network with a transparent set of rules, thus presenting an alternative to central bank-controlled fiat money. 

Bitcoin and other digital currencies have been touted as alternatives to fiat money. But what gives any type of currency value?

Why Currencies Have Value

Currency is usable if it is a store of value, or, put differently, if it can reliably be counted on to maintain its relative value over time and without depreciating. In many societies throughout history, commodities or precious metals were used as methods of payment because they were seen as having relatively stable value. Rather than require individuals to carry around cumbersome quantities of cocoa beans, gold or other early forms of currency, however, societies eventually turned to minted currency as an alternative. Still, the reason many examples of minted currency were usable was because they were reliable stores of value, having been made out of metals with long shelf lives and little risk of depreciation.

In the modern age, minted currencies often take the form of paper money which does not have the same intrinsic value as coins made from precious metals. Perhaps even more likely, though, individuals utilize electronic currency and payment methods. Some types of currencies rely on the fact that they are “representative,” meaning that each coin or note can be directly exchanged for a specified amount of a commodity. However, as countries left the gold standard in an effort to curb concerns about runs on federal gold supplies, many global currencies are now classified as fiat. Fiat currency is issued by a government and not backed by any commodity, but rather by the faith that individuals and governments have that parties will accept that currency. Today, most major global currencies are fiat. Many governments and societies have found that fiat currency is the most durable and least likely to be susceptible to deterioration or loss of value over time.

Scarcity, Divisibility, Utility and Transferability

Aside from the question of whether it is a store of value, a successful currency must also meet qualifications related to scarcity, divisibility, utility and transferability. Let’s look at these qualities one at a time.

1) Scarcity

Key to the maintenance of a currency’s value is its supply. A money supply that is too large could cause prices of goods to spike, resulting in economic collapse. A money supply that is too small can also cause economic problems.

2) Divisibility

Successful currencies are divisible into smaller incremental units. In order for a single currency system to function as a medium of exchange across all types of goods and values within an economy, it must have the flexibility associated with this divisibility. The currency must be sufficiently divisible so as to accurately reflect the value of every good or service available throughout the economy.

3) Utility

A currency must have utility in order to be effective. Individuals must be able to reliably trade units of the currency for goods and services. This is a primary reason why currencies developed in the first place: so that participants in a market could avoid having to barter directly for goods. Utility also requires that currencies be easily moved from one location to another. Burdensome precious metals and commodities don’t easily meet this stipulation.

4) Transferability

Currencies must be easily transferred between participants in an economy in order to be useful. In fiat currency terms, this means that units of currency must be transferable within a particular country’s economy as well as between nations via exchange.

To assess Bitcoin’s value as a currency, we’ll compare it against fiat currencies in each of the above categories.

Bitcoin Compared Against Fiat Currencies

1) Scarcity

When Bitcoin was launched in 2009, its developer(s) stipulated in the protocol that the supply of tokens would be capped at 21 million. To give some context, the current supply of bitcoin is around 18 million, the rate at which Bitcoin is released decreases by half roughly every four years, and the supply should get past 19 million in the year 2022. This assumes that the protocol will not be changed. Note that changing the protocol would require the concurrence of a majority of the computing power engaged in Bitcoin Mining, meaning that it is unlikely.

As part of their monetary policy, most governments maintain some flexible control over the supply of currency in circulation, making adjustments depending upon economic factors. This is not the case with Bitcoin. So far, the continued availability of more tokens to be generated has encouraged a robust mining community, though this is liable to change significantly as the limit of 21 million coins is approached. What exactly will happen at that time is difficult to say; an analogy would be to imagine the U.S. government suddenly ceased to produce any new bills. Fortunately, the last Bitcoin is not scheduled to be mined until around the year 2140.

2) Divisibility

21 million Bitcoins is vastly smaller than the circulation of most fiat currencies in the world. Fortunately, Bitcoin is divisible up to 8 decimal points. The smallest unit, equal to 0.00000001 Bitcoin, is called a “Satoshi” after the pseudonymous developer behind the cryptocurrency. This allows for quadrillions of individual units of Satoshis to be distributed throughout a global economy.

3) Utility

One of the biggest selling points of Bitcoin has been its use of blockchain technology (details in previous article). Blockchain is a distributed ledger system which is decentralized and trustless, meaning that no parties participating in the Bitcoin market need to establish trust in one another in order for the system to work properly. This is possible thanks to an elaborate system of checks and verifications which is central to the maintenance of the ledger and to the mining of new Bitcoins. Best of all, the flexibility of blockchain technology means that it has utility outside of the cryptocurrency space as well.

4) Transferability

Thanks to cryptocurrency exchanges, wallets and other tools, Bitcoin is transferable between parties. While it takes vast amounts of electricity to mine Bitcoin, maintain the blockchain and process digital transactions, individuals do not typically hold any physical representation of Bitcoin in the process.

Thus we saw that Bitcoin is well suited to be a currency or a medium of exchange for goods and services. While this digital money is in its early stage of adoption, it is already picking up pace. Currently, there are more than 300,000 transactions being done per day on the Bitcoin blockchain. The average transactions has been on a steady rise since the invention of Bitcoin in 2009 by Satoshi Nakamoto. While it might be a few years till your next door grocery door will accept Bitcoin, many early adopters of this incredibly powerful technology has already started accepting payments in Bitcoins, case in point, Starbucks, Nordstorm and Whole Foods.

So we saw here why Bitcoin holds value as a currency. In my next article, I will share my thoughts in detail on why bitcoin holds tremendous potential as an investment asset. Please share the link to my website and blog posts with your family and friends if you like my articles and want me to share more here. Cheers!

What the hell is Bitcoin? What on earth is Blockchain?

The 2008 financial crisis exposed the world to the dark side of the Global Banking system. It introduced us to the whole new concept of Shadow Banking [Will write an article separately on this] and how it was significant enough to bring down the entire financial system. This made us ask the question: Is there an alternative to banks?

Bitcoin provides the most promising answer to this question, and provides the most usable and innovative alternate solution to the most important function of banks: Payments. Bitcoin is a cryptographic token that is used as a currency to enable users to make decentralized peer-to-peer payments on the Bitcoin blockchain at incredibly low transaction costs as compared to the existing payment system powered by banks.

What is blockchain?

At its most basic level, blockchain is literally just a chain of blocks, but not in the traditional sense of those words. When we say the words “block” and “chain” in this context, we are actually talking about digital information (the “block”) stored in a public database (the “chain”).

“Blocks” on the blockchain are made up of digital pieces of information. Specifically, they have three parts:

  1. Blocks store information about transactions like the date, time, and dollar amount of your most recent payment to the other party.
  2. Blocks store information about who is participating in the transaction. But this is recorded without any identifying information using a unique “digital signature,” sort of like a reddit username.
  3. Blocks store information that distinguishes them from other blocks. Much like you and I have names to distinguish us from one another, each block stores a unique code called a “hash” that allows us to tell it apart from every other block. Let’s say you made your splurge purchase on Amazon, but while it’s in transit, you decide you just can’t resist and need a second one. Even though the details of your new transaction would look nearly identical to your earlier purchase, we can still tell the blocks apart because of their unique codes.

A single block on the blockchain can actually store up to 2 MB of data. Depending on the size of the transactions, that means a single block can house a few thousand transactions under one roof.

How Blockchain Works

When a block stores new data it is added to the blockchain. Blockchain, as its name suggests, consists of multiple blocks strung together. In order for a block to be added to the blockchain, however, four things must happen:

  1. A transaction must occur. Let’s continue with the example of your impulsive Amazon purchase. After hastily clicking through multiple checkout prompt, you go against your better judgment and make a purchase.
  2. That transaction must be verified. After making that purchase, your transaction must be verified. With other public records of information, like the Securities Exchange Commission, Wikipedia, or your local library, there’s someone in charge of vetting new data entries. With blockchain, however, that job is left up to a network of computers. When you make your purchase from Amazon, that network of computers rushes to check that your transaction happened in the way you said it did. That is, they confirm the details of the purchase, including the transaction’s time, dollar amount, and participants.
  3. That transaction must be stored in a block. After your transaction has been verified as accurate, it gets the green light. The transaction’s dollar amount, your digital signature, and Amazon’s digital signature are all stored in a block. There, the transaction will likely join hundreds, or thousands, of others like it.
  4. That block must be given a hash. Not unlike an angel earning its wings, once all of a block’s transactions have been verified, it must be given a unique, identifying code called a hash. The block is also given the hash of the most recent block added to the blockchain. Once hashed, the block can be added to the blockchain.

When that new block is added to the blockchain, it becomes publicly available for anyone to view—even you. If you take a look at Bitcoin’s blockchain, you will see that you have access to transaction data, along with information about when (“Time”), where (“Height”), and by who (“Relayed By”) the block was added to the blockchain.

Is Blockchain Secure?

Blockchain technology accounts for the issues of security and trust in several ways. First, new blocks are always stored linearly and chronologically. That is, they are always added to the “end” of the blockchain. If you take a look at Bitcoin’s blockchain, you’ll see that each block has a position on the chain, called a “height.” As of Dec. 2019, the block’s height had topped 562,000.

After a block has been added to the end of the blockchain, it is very difficult to go back and alter the contents of the block. That’s because each block contains its own hash, along with the hash of the block before it. Hash codes are created by a math function that turns digital information into a string of numbers and letters. If that information is edited in any way, the hash code changes as well.

Here’s why that’s important to security. Let’s say a hacker attempts to edit your transaction from Amazon so that you actually have to pay for your purchase twice. As soon as they edit the dollar amount of your transaction, the block’s hash will change. The next block in the chain will still contain the old hash, and the hacker would need to update that block in order to cover their tracks. However, doing so would change that block’s hash. And the next, and so on.

In order to change a single block, then, a hacker would need to change every single block after it on the blockchain. Recalculating all those hashes would take an enormous and improbable amount of computing power. In other words, once a block is added to the blockchain it becomes very difficult to edit and impossible to delete.

To address the issue of trust, blockchain networks have implemented tests for computers that want to join and add blocks to the chain. The tests, called “consensus models,” require users to “prove” themselves before they can participate in a blockchain network. One of the most common examples employed by Bitcoin is called “proof of work.”

In the proof of work system, computers must “prove” that they have done “work” by solving a complex computational math problem. If a computer solves one of these problems, they become eligible to add a block to the blockchain. But the process of adding blocks to the blockchain, what the cryptocurrency world calls “mining,” is not easy [More on Bitcoin mining in the next articles]. In fact, the odds of solving one of these problems on the Bitcoin network were about one in 13 trillion in Dec. 2019. To solve complex math problems at those odds, computers must run programs that cost them significant amounts of power and energy and money.

Hence the Bitcoin Blockchain can verify the peer-to-peer transactions through a network of miners and is completely independent of banks. Also add to that incredibly low costs, as low as 0.5% of the transaction value. All these factors make blockchain one of the most promising technological invention of the century. Now that we have a fair idea of what a blockchain means, we will dive deep into Bitcoin & cryptocurrency. Please hang on till the next article post on Bitcoin and Bitcoin mining and what makes it a valuable asset for investment.

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