it seems like right now I am experiencing a constant time shortage that hurts my ability to get things done. It can be clearly seen that the previous post was published 1 month (29 days) ago
1st part - Examines the current state of the condition
2nd part - Examines the historical performance and behavior of the Bitcoin market
3rd part - Essentially discusses what could happen after the potential crash
Note: I am not an expert, This is not a financial advice
What could happen after the potential crash
Would you like to know how to act after the crash? A lot of traders would like to plan ahead and create a market case-specific strategy for Investing/Trading.
I do not claim that by the end of this post you will know how to act, neither I am claiming that you should act according to this post, but let's examine what could/should happen after the crash and what might be the opportunities to trade/invest in the Cryptocurrency market.
I've decided in this post to take a broader look. It is not only about Bitcoin.
The truth is Bitcoin is some sort of S&P 500 for the crypto market. It is an indication of how the crypto market performs in general. Now, I know that Ethereum by itself also has some influence on the crypto market, but let's just take a look at Bitcoin.
Possible market Bitcoin market behavior after the crash
What would Bitcoin's lowest point be after the last hype? Let's examine
Picture 1. 2013 - 2014 hype
Let's draw a Fibonacci retracement from an arbitrary price before the hype to the lowest point after the 1st wave after the all-time high of the hype
It seems like the price sets its lowest point after the last hype at 0.5 Fibonacci retracement level.
Picture 2. 2017 - 2018 hype
The same story goes here. The lowest point after the last hype usually appears to be at 0.5 Fibonacci retracement level.
Also, the price did not go below the all-time-high of a previous hype
Picture 3. 2020 - 2021 hype
Certain rules can be derived from these findings.
- The price is unlikely to go below the all-time high of a previous hype
- It is likely that the price will bottom at 0.5 Fibonacci retracement level
- The lowest point after the hype is usually below the 1 Fibonacci retracement level
What also can be found is that with each hype the price tops at lower Fibonacci levels than in previous hypes. In 2013-2014 the price was able to reach 4.236 Fibonacci levels, in 2017 - 2017 only the 3.618 Fibonacci level was reached, in 2020 - 2021 the price failed to reach 3.618 level, but stopped halfway through 2.618 and 3.618 levels
It indicates that the hypes are getting weaker with each consecutive hype. The volatility is decreasing
It seems obvious because It is easier to get from 500 $ to 5 000 $ than it is to get from 5 000 $ to 50 000 $ in price.
Fundamental side of the picture
Bitcoin dominance is declining.
Picture 4 Bitcoin dominance index 2014 - 2021
This index tracks the Bitcoin market capitalization relative to the compound market capitalization of multiple different cryptocurrencies
Right now, BTC Dominance stands at 44.45%
Bitcoin Community
The community itself is being actively censored, more specifically the r/Bitcoin and other major online forums
I am not going to explain much in detail, but the narrative in the majority of the community is controlled by core developers and other individuals who are interested in keeping the block size of Bitcoin to 1 megabyte or less.
Due to about 1 MB block size and the fact that Bitcoin is designed in the way that each block is being created approximately every 10 minutes, Bitcoin is limited in speed of processing transactions.
How many transactions does the Bitcoin network complete in a second? 7. It processes 7 transactions per second.
Due to the fact that each transaction contains a certain amount of data, There's a limited number of transactions that can be fit in 1 block. Each block is being created approximately every 10 minutes. Bitcoin transactions with the highest fees offered are being processed first. Other transactions with lower fees have to wait longer to be processed than those that have higher fees. This creates a certain kind of competition for "being processed first or quickly", which drives the fees upward.
This creates a big scalability issue and hurts Bitcoin's ability to grow its market capitalization over the long run
Now, there are 2 groups who have specific special interests Bitcoin core developers and big miners
Bitcoin core developers have an intent to keep the block size small in order to force users to use Second Layer solution networks (L2) such as Lighting, Liquid, etc.
Miners are interested more in the "fees competition" style of average fee hike.
More on that issue can be found here:
- https://archive.is/LStzf
- https://www.reddit.com/r/btc/comments/g72lwe/how_did_blockstream_manage_to_keep_the_small/
- https://www.reddit.com/r/btc/comments/p8crst/we_can_see_what_happened_to_bitcoin_btc_everyone/
- https://www.reddit.com/r/btc/comments/c65og0/why_are_bitcoin_transaction_fees_so_high/
- https://www.youtube.com/watch?v=vjwVtl-VBDw
- https://youtu.be/_Kav2K1DVWo
7.https://www.youtube.com/watch?v=fMWnaR5uJxQ&t=751s
There are also some things.....
There's a soft fork that is going to take effect in November, (presumably on November 17). It is called Taproot.
Bitcoin and Lighting networks already have the capacity and ability to host smart contracts, but the taproot makes a few changes. It aims to improve the privacy of digital signatures and the functionality of smart contracts.
Picture 5. "Taproot " - search popularity according to Google trends
It looks like this search item is rising in popularity right now. The recent price surge of BTC to 57 000 $ and rising in popularity of the "taproot" search item suggest that the news of taproot fork going into the effect is already pricing in.
This may lead to a sudden (but small in value) crash at the date of the event and BTC bulls offloading liquidity on those who are buying after the Taproot fork goes into effect
More in this article: https://www.cnbc.com/2021/06/12/bitcoin-taproot-upgrade-what-it-means.html
Despite all of that, I am somewhat bullish on Bitcoin in the long term
There are the following reasons
The first is that Bitcoin is still maintaining its position as the №1 Cryptocurrency in the market. Being the first crypto founded definitely helps, but the thing is It succeded in spreading its brand and association to the Cryptocurrency market and Decentralized finance as a whole
Just, imagine if an average person, unfamiliar with Cryptocurrency hears the word "Cryptocurrency", the most probable thing that would come to the mind of that individual would be "Bitcoin", let's face it.
Second, the Developer community and the Influence of Bitcoin on all other coins technologically.
Bitcoin still has one of the biggest crypto developer communities. There are still a large number of core developers who are constantly working on improving the code of the network. This still ensures some viability in the future.
Bitcoin also has a core technological influence on altcoins. A lot of altcoins were created as hard forks of Bitcoin or their modified versions of Bitcoin.
When considering its technological influence, the original Bitcoin whitepaper still serves as a primary guide for creating new cryptocurrencies.
Third, Bitcoin has successfully rebranded itself as a store of value.
Look, it may be disputed that whether It is an efficient way of storing value, but the idea of that use has been spread quite widely. Bitcoin is still viewed as a safe crypto investment choice with long-term growth potential. The fact that It is stored on a decentralized blockchain and the funds can be accessed anywhere only fuels that idea of a "digital store of value". (Although I do understand that some other coins can do that more efficiently, with better additional features).
Fourth, Bitcoin has the most or one of the most secure networks among Cryptocurrencies
There are about 13738 nodes as of the time of writing this post (according to this tracker)
There are more than 1 000 000 miners (article)
The network's hash rate is about 145 EH/S (tracker) and its mining difficulty is about 19.89 Trillion hashes (source)
but...
The real reason that I am being bullish on BTC in the long term is the price behavior it exhibits due to Quadrennial halving cycles. Given all of the facts, BTC still has the vitality to continue its hypes at least in 2025 and 2029.
Beyond 2029 I am not able to be sure whether BTC will have some potential to rise, being able to enter into hypes, or even be relevant in the market at all
What could be done in this market?
In the previous post, I gave an estimate that BTC's price may find its lowest point in April 2022 or somewhen in Spring 2022
Is BTC itself in its pure nature a good investment? Probably not.
Altcoin and cryptocurrency derivatives provide much better returns. Investing in these, while tracking the BTC and Ethereum as "market averages", may provide a starting point for creating a systematic Investing strategy for the cryptocurrency market.
One way, I would play the presumable crash in BTC is by buying Long term European style Put options with 8 months expiration period (European style options on average are cheaper than American style options)
but, that's a recent play. If the BTC would dip as planned, it is highly likely that BTC and cryptocurrency market would enter into the "Crypto Winter" period. A period of low volatility in the market, before it enters into the next consecutive hype.
Picture 6. Crypto winter 2014 - mid-2017
Picture 7. Crypto winter 2018 - mid-2020
Imagine that a Trader/Investor enters the market in the period of "Crypto winter". One should assume that at some date in the future that he/she could estimate the BTC and cryptocurrency market would enter into the hype again.
What would be possible good things to do in this market?
Total return swaps.
If an Investor/Trader assumes that this market has a generally upward direction, It would be interesting for him/her to buy a Total return swap. It allows obtaining the position without actually buying the underlying and it also allows for obtaining leverage. (Bill Hwang moment could probably come to mind, but if considering such a move to this particular situation It's worth a look)
Now, I haven't found any platform/ broker or a party that would offer this product, If anyone of you knows, any party that offers something like this, then please, let me know in the comments.
Long-term call options. If someone were to make the same assumption that is mentioned above, Long-term calls could be a great instrument. The same thing as with total return swaps, It allows to obtain the position without underlying and It opens the room for leverage. Moreover, such an option would limit risking funds to the amount of premium paid. However, in this case, the timing would be important, but it's generally easier to time on a long term scale than on a short term
Deep value investing in altcoins. The term deep value investing is not really that common in the context of Cryptocurrency as of now. I stumbled upon a video of one person, applying his investment method that heavily focuses on the Fundamentals of Cryptocurrency. Now, he entered the market in a pretty favorable time for him (August 2019). This allowed him to make the gains presented in the video.
A good deep value investing strategy could be derived from a set of methods and rules that put their main focus on fundamentals.
Watching out for "Crypto Market averages" would be an important thing to do for estimating and timing the catalysts (the cause of the price change ) that would drive a specific altcoins' price higher.
Market advising and Asset management. Hey! If you can make money on the market by using your own funds, why not earn additional ones by providing your market advising services and/or managing other people's/organization's funds?
Although this does not specifically tell how to trade/invest in the market, It could be a solid way to generate income from the cryptocurrency market. Isn't it?
What I would do
Perhaps, I can make a draft of my plan in this post. How would the portfolio look like after April 2022? Let's give the values noted in percentages.
5 - 10 % Monero
I am not going to explain the full detail of this move, but what makes it interesting is that this cryptocurrency is designed for what it is exactly supposed to do. Serving as a means of exchange.
It is anonymous (unlike Bitcoin), meaning that is almost impossible to trace peer-to-peer transactions. It is highly unlikely to even know how many coins does a certain wallet contain.
It is designed to be private and in some ways, It could be a great store of value. Suppose you want to hide some sum of funds from everyone. What you could do is to buy Monero (anonymously, not in KYC exchanges), store it in your cold wallet. It does not have to be stored anywhere. The 24-word seed phrase would be your wallet. The tokens you bought, are being stored on the blockchain.
Your wallet could be accessed from any device, just by using the 24-word seed phrase. It is unlikely that anyone could find out the fact of your possession of Monero unless that person/entity stumbles on indirect clues/evidence of that possession.
There is a value in privacy, and it can be reflected upon the price.
25 % Bitcoin
This may sound odd, but some Bitcoin will be needed for derivatives. More specifically for selling Calls, according to strategies of covered calls, straddles, iron curtains and etc.
25 % Fiat Cash reserved for derivatives
The same goes over here. Cash will be needed to sell Cash secured covered puts and for selling puts for other strategies. Plus It could be used, for buying options and other derivates
30 -35 % Deep value altcoins
As I've explained above investing in Deep value altcoins while monitoring "Crypto market averages" could be a potentially lucrative endeavor.
Of course, the Total market capitalization of a coin has to be relatively small in order for the investment decision to be viewed as a deep value opportunity
10 % Fiat cash reserved for quick buys
There are always quick opportunities for buying something that might be temporarily in a hype.
To see, what I am referring to let's take a look at this page.
Picture 8. Binance announcing the listing of SuperRare (RARE). Time is shown in UTC + 00:00
Picture 9. Price of SuperRare (RARE) skyrocketing due to the announcement. Time is shown in UTC + 00:00
Picture 10. Binance announcing the listing of Adventure Gold (AGLD). Time is shown in UTC + 00:00
Picture 11. Price of SuperRare Adventure Gold (AGLD) skyrocketing due to the announcement. Time is shown in UTC + 00:00
There are bots and algorithms made to capitalize on these kinds of events, upon announcements and upon the listings themselves
There are a lot of other momentum tradings opportunities that could be spotted by scanning the web (scrapping Discord, Twitter, Reddit and etc.), spotting the available pairs on major exchanges, and buying the specific tokens
So what's next?
I am not a Bitcoin "Permabear" and I am not a Bitcoin maximalist.
I do believe, that there are going to be the next Bitcoin hypes in 2025 and 2029.
I am an opportunist who is playing the long game. I do believe the active involvement and research will only multiply the benefits of Investing in the Cryptocurrency market.
Further action and research have to be done......
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