bitcoin

Why Bitcoin May Fall to $12,000


I always say that charts are a great way to predict the past. Surprisingly, this can make them very useful. They can’t predict the unpredictable but as we know the past strongly influences the future because signal and noise are intertwined and when you can measure the underlying signal it is a guide for what will follow. Perfect markets are random, but few markets are perfect, especially in these days of “curated” markets by regulators with their liquidity rigging.

People are not only duped by chance, but they are also often unaware of the signal. You may be acting randomly, but you’re still in your car at about the same time going to work at about the same place. Even if you randomly parked your car in a different bay when you arrived and adjusted your chair a bit from how you sat the day before, your day’s thrust isn’t random. Signal and noise are wrapped together and the signal is normally a big part of what runs through everything which makes things pretty predictable. Sure, you could break down on the way to the office, be called home for an emergency, or have a “moment” and go fishing instead, but overall the signal is a pretty high component of your wave function.

It’s the same with stock charts, and that’s why moving averages are so popular. The less efficient the market, the stronger the signal. I rate crypto as a pretty inefficient market, and it certainly has been. It therefore lent itself fairly well to my technical analysis. You can see the noise in the bitcoin chart and you can see the fractals there, which themselves are the result of partially non-random events.

Fractals are a bit of a mystery to people, but you can imagine them this way: take a sheet of copper and a spherical hammer; hammer the sheet as much as you want. Pretty soon you have a fractal pattern on the copper foil that’s very recognizable and quite repetitive in a way that’s hard to predict. In effect, the pattern is created by roughly the same action, acting on roughly the same metal substrate by roughly the same hammer face with roughly the same force in a bounded area. Nature is full of these fractal patterns because rain falls pretty much the same way on pretty much the same mountain and pretty much the same waves wash up on pretty much the same shore and pretty much the same wind blows on about the same fluffy cloud and so on. In the markets, it’s pretty much the same people, making pretty much the same decisions on pretty much… you get the idea. This injects fractals into the graphics. “Roughly” is the random element, the rest is the signal.

Of course, a big meteor strike will destroy the lot, markets and all. However, left unhindered, these processes produce patterns that reveal the processes themselves.

So here is the Bitcoin chart.

I drew a few speculative lines. I extrapolated that level from $12,000 to $13,000 for a very long time, one way or another. My doodle track record is all here on Forbes to see and it’s not too sloppy. If you want to come back here on Forbes, you will see me calling the crypto from the 2020 lows and calling it back below $20,000 again.

Somehow, I’m comfortable with the $20,000 level for bitcoin and resist the temptation to start a slow accumulation program at these prices. As a bitcoin and crypto proponent, I see long-term prices will be multiples of current levels, so buying now and watching the price halve isn’t a big deal; the losses will disappear later. However, I resist, I’m not that optimistic of an investor. I prefer to stay away for now with a strong intuition that there is another leg down.

Bitcoin
BTC
could break towards $10,000 at any time, but underestimating how long it takes for an asset to break low is an easy mistake to make.

Then there is a huge metaphorical asteroid out there that could shake things up in crypto and that is Ether
ETH
launch eum V2 (the merger), which is currently scheduled for release in September. Friday’s dump (August 19, 2022) was likely driven by options expiration, so until the Ethereum fork (proof of stake) has passed, crypto in general remains a waiting game.

My view is that we appear to be in a bear market rally and the final bear market bottom has not yet established and there has not been a satisfying moment of capitulation. For uncertain investors it must be a waiting game, but for traders there is still a lot of noise and volatility to trade and they have no reason to stop their risky endeavors.

I leave the pleasure to the traders and I wait.

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button