Today two more valuation models got published in the article “A Primer on Bitcoin Investor Sentiment and Changes in Saving Behavior”. This article also include a quick History of Bitcoin Valuation Research deserving a shout-out.
Some new traders/investors will probably focus on USD prices and even experienced traders will sometimes “ignore” other pairs nevertheless we always need to keep an eye on every cross pair available since they all have relevance at some point. Also considering this we may even play with some strange pairs just to find out if any correlation exists.
We could work with many examples but for clarity let’s focus on LTC. In the next chart we can see LTCBTC in yellow and LTCUSD in blue. When BTC is in a Bearish Market for a longer period (2014 and 2018) all alt coins usually follow that price action. Funds move from alts to BTC and fiat currencies (or other stable coins) pushing alts lower and lower but when the trend/market gets Bullish, BTC pairs can enter in correction phases while USD pairs remain quite stable for a longer period. Even in Bull markets the USD and BTC price can fall from time to time but not as much as in a Bear Market. For instance, from July 2015 to February 2017 LTCBTC lost value but LTCUSD consolidated because BTCUSD was slowly increasing in value.
In Bull Markets we have periods when BTC pairs get dormant or lose value because funds start moving/rotating between alts. To understand this rotations we need to look for potential tops and bottoms on cross pairs. Looking at the LTCBTC we can clearly see where LTC lost or gained traction but we also see some interesting things if we use the LTCETH pair (blue line in the chart below).
In fact, we notice an ascending channel on LTCETH for the last two years and also that every time this pair tested the top of the channel LTCUSD started a new consolidation or correction some weeks after.
Last time Cryptocurrencies had so much volume in the last 24h (31.8B), Total Market was around 400B and Bitcoin price near 9K.
Still premature to call this a definitive bottom, especially when we are very near a diagonal resistance but we want to see the volume rising with price moving higher for confirmations.
Ethereum is one of the most relevant cryptocurrencies for many reasons, some may argue that EOS, Tron, Ada, NEO or whatever are better versions but none of them have the community Ethereum has. The amount of resources and developers using Ethereum is just impressive and not matched by any other project (not even Bitcoin). Nevertheless charts don’t care about such things…
ETH/BTC Monthly Chart clearly shows a major correction in ETH history. Since inception ETH formed a nice uptrend broken in this Bear Market but the good news is that ETH/BTC finally seems to be pushing above the support. If ETH remains above 0.035BTC for this month we may even retest the top of this TR (Trading Range) this year. Probably sooner than later but we have at least two major resistances, one between 0.04-0.045 and one more near 0.07, each one if and when broken should trigger more FOMO.
Zooming from the Monthly to the Daily we have this very interesting break and we may also have a Golden Cross (50MA – yellow, crossing the 200MA, red)…
Monthly charts are so underrated lately, I need to publish one…
At the moment we have a local Bottom in formation entitled Support 2. This Support may be the Bottom of the Bearish Market or not but keeping an eye on this should be valuable.
As a side note, notice that one of the major differences between this Bear Market and the one we saw in 2014 is the fact that we don’t have a mid Support between Support 1 and Support 2 since the fall from the top of the channel pushed us directly to the bottom. Nevertheless we have a support/resistance around 4800 made previously (while the market was still Bullish).
Well summarized video of what cryptocurrencies are using the HTC Exodus 1 as example by Forbes.
Yesterday Willy Woo published one more chart, entitled Bitcoin Valuations, with various valuation metrics. This chart is useful for checking how the market is behaving considering some of this valuation metrics nevertheless it will not tell the future as many would like (nothing will). This chart includes, Market Value, Realized Cap, Thermo Cap, Average Cap, Delta Cap, Top Cap and NVT Cap but he didn’t include the Fair Value Market Cap, available on coinfairvalue.com.
As we can see on this chart the Fair Value is indicating a bottom in formation, not meaning the Lower Low is already achieved, but eventually meaning we reached the last consolidation phase of the Bear Market (It can last months also confirming other valuation metrics).
Besides this valuation metrics we can also use more indicators like the Mayer Multiple or modified versions of this. For instance in the bottom of the following chart I combine a Major Mayer Multiple (using the Total Market Cap instead of BTC) with Bitcoin NVT and both (in this time frame with this parameters) confirm my previous assumption.
One of the most undervalued concept in trading is the notion of support/resistance. We have plenty of support/resistances, we can draw horizontal or diagonal lines (and patterns), we can use moving averages and so on. Nevertheless, many traders keep “ignoring them”.
The simple reason for that is because they keep trading/investing in the belief this support/resistance will break. Why? Because it’s well known that each support eventually will turn into a resistance and vice-versa. First of all, each individual is different. Some like to trade in counter trend and some will follow the trend. Knowing what type of investors/trader you’re is the first step to build a strategy based on that behaviour.
For instance in the following example (considering a mid/long term investor, more than 3 years) a counter trend investor may buy on “A” (also considering the long term trend as Bullish) and a trend investor will wait for a definitive trend and may buy on “B”. Both choices make sense if you have a proper risk management and if you keep aware of the market cycles. Cryptocurrencies are very volatile and speculative, if you don’t follow a strategy, diversifying and investing gradually, you will lose money for sure.
Conclusion & Recommendations
- Never forget the big picture (weekly/monthly charts)
- Invest/trade avoiding emotions
- Follow a strategy
- Keep in mind your risk managment
- Keep learning
While many sold Bitcoin at major losses in despair and frustration (and even panic), because not everyone can endure this kind of Bear Markets, it’s now a fact that institutional investors keep stepping in silently.
Grayscale Q4 2018 report is revealing about the inflows made while price was lagging or moving down. As we can see in this report more funds got injected into BTC when price broke major supports, for instance bellow 6k.
In order to show support to the Brave Browser Project and also as a way to spread more awareness for cryptocurrencies, CryptoK.eu is now a Brave Verified Publisher.
One small step for each individual, one giant step for cryptocurrencies adoption.
Stay safe and keep learning…