Beyond The Blocks · Follow
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What to expect and how to approach the tide? I wish I was told this in 2020.
In time of uncertainty the wisest investors bet big.
This article contains a brief overview of current market condition for both: advanced investors and complete beginners. I couldn’t make it shorter, so make yourself a tea or coffee and dive in!
I remember May 2020, when I just bought my first Bitcoin. I didn’t know much about cryptocurrency. In fact it was completely new asset class to understand for me. All I knew was, that I bet against traditional financial system, which seemed unstable and rigged.
This article will include everything I wish I was told back in May 2020. Stay to the very end, cause this knowledge will save you money, stress and make a solid foundation to speed up your investing and cryptocurrency education.
What exactly defines a Bull Market? When does one start or end?
“Bull Market is a condition of a market, in which prices are rising or are expected to rise.” – Investopedia
Another definition also assumes 20% price rise in a period of 2 months, but it doesn’t apply to Bitcoin and Cryptocurrency market.
So how can we measure it according to this very market characteristics?
To understand where are we in the cycle we need to bring historical data to the table. I analised every Bitcoin Bull Run to have clear insight of current market state. At the end of this article you will find summary, that will include a tip, which I found the most useful to be successful in this market.
Every “Bitcoiner” knows what halving is, but not that many analyze this phenomenon. And this is crucial to know, cause it holds a secret to understand current market state and Bitcoin market cycles clearly.
Every halving takes 210,000 blocks, which is around 4 years.
For beginners: Halving is an algorithmic reduction of block reward by two (thus halving). It means, that miner will receive twice less reward for mining the block. This is one of the factors limiting supply and it occurs every 210,000 mined blocks.
Let’s get to the analysis.
Below is BTC price chart on weekly timeframe divided for epochs. First epoch started at the origin od BTC and lasted till first halving. I’m going to analyze every post halving epoch step by step.
- In second Epoch (between 1st and 2nd halving) it took around 12 months for BTC to reach new ATH.
- In third Epoch it took around 18 months.
- In fourth it took 11 months to reach first top and the second - 18 months.
Is the every-cycle-bottom also dependent on halvings? Let’s see.
- 2nd Epoch cycle low was around 18 months to next halving.
- 3rd Epoch the same.
- 4th Epoch low was around 17 months to the next halving.
I know we still didn’t finish 4th Epoch, but there are other tools, which can increase the probability of repeating history.
Technical Analysis has its friends and enemies. I treat every tool as useful if it works, at least 80/90% time. And RSI(14) does, especially on higher timeframes.
RSI It’s a lacking momentum indicator, which in range from 0 to 100 indicates if an asset is oversold (30 and less) or overbought (70 and over).
Anytime there was a cycle low, the RSI (on a weekly timeframe chart) indicated Over sold (below 30). Every epoch the same pattern occurred.
In March 2020, when the lockdowns were introduced both traditional market and Cryptocurrency market experienced flash crash. Even though the narration was that world is ending there was no new lows for Bitcoin. In addition, the bull run could be already starting. We’ll never know for sure, but it was very bullish that time already.
What other tools could help us minimize the risk?
Due to Bitcoin characteristics, we have the possibility of additional analysis: on-chain. If you’re not familiar with this, learn about any on-chain indicator here: Look Into Bitcoin website.
On-chain analysis is based on Bitcoin blockchain streams, thus name on-chain. There is many on-chain indicators, but I focus on 3.
NUPL
Net Unrealized Profit/Loss is perhaps most accurate on-chain analysis indicator.
It tracks if BTC is overbought or oversold by calculating Market Cap and Realized Cap. Higher the MC to RC is, the bigger chance for a pullback, especially when entering 50% range and extremely at 75%.
During every cycle we can observe a higher low is being formed according to NUPL indicator, which is long term bullish sign.
Rainbow Chart
This one is a great example, that some of these indicators are no longer valid. Assumption of BTC Rainbow Chart is, that price is always moving in range of the rainbow colors.
Not only BTC price didn’t reach the red area, but also it broke out from blue area, which happened first time in history.
Does it mean this time will be different? There’s always a chance, but statistically the possibility is lower than higher.
MVRV Z-score
The MVRV Z-Score is a Bitcoin chart that uses blockchain analysis to help identify when Bitcoin is either significantly overvalued or undervalued compared to its perceived fair value.
Whenever MVRV Z-score enters the upper band this indicates that we should expect the pullback. Similarly, when enters the lower band it indicates we could expect the cycle low.
Last BTC top (according to MVRV Z-Score) was perfectly rejected at bottom of red area.
History says yes. There are similar signs of premature Bull Market compared to data from previous cycles. “Trend is your friend”, so unless long term trend didn’t break it is said to follow it.
There’s still a crucial difference between now and then
Bitcoin was never in recession environment though. In this case there is no data to base on.
From one hand we’re facing tough macros, social and economic problems, which don’t work good for risk on assets. From the other, untamed inflation, loss of trust for governments as well as fiat money they issue and poor central banks policies pose great threat to what we call “money” nowadays.
I’m BTC long term bull due to its technology. I don’t buy short term market sentiment, but the asset, which’s technology solve global problems. Also it allows me to stay transparent as well as untraceable with all of the advantages of instant digital transfer and scarcity with Lightning Network.
There’s always a real chance for black swan event, but one of them already happened in march 2020 and BTC continued its rally as planned.
- Every time Bitcoin is due to halving there are very similar patterns occurring.
- During every cycle BTC reaches new ATH. It drives altcoins to follow.
- Every new ATH is more likely to happen between 11 to 18 months from last halving.
- The cycle bottom historically occurs 17–18 months before another halving. That would suggest we’ve already reached the cycle bottom.
- After every cycle bottom and yet before next halving there are flatter or deeper pullbacks.
- Global economic macros creates risky environment for Bitcoin market, which must be taken into account when making decisions.
Thank you for reaching the very end of this article! Here, my ultimate tip for being successful as an Investor in Cryptocurrency market.
Focus on the big picture, LEARN about protocols before investing, TEST them, USE them, engage in community and raise open questions if have any doubts.
And remember: the price of an asset is only a measure of market sentiment, not its value. Don’t follow the price, follow the utility of a protocol. If you get this – you’re the winner.
Successful investor buys assets one understands.
So dive into decentralization to understand if protocols you invest in solve actual problems. I assure you, this experience will teach you to stay calm and buy (not sell!) projects you believe in when there’s blood on the street.
Is it a financial advice? Of course not. This article was written for educational purpose.
