[Daily Discussion] - Sunday, May 02, 2021 Bitcoin Markets |
- [Daily Discussion] - Sunday, May 02, 2021
- Shark Tank's Kevin O’Leary Says Bitcoin Will Always Be Gold
- Bitcoin Weather Report: May Update
| [Daily Discussion] - Sunday, May 02, 2021 Posted: 01 May 2021 09:00 PM PDT Thread topics include, but are not limited to:
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| Shark Tank's Kevin O’Leary Says Bitcoin Will Always Be Gold Posted: 02 May 2021 03:52 AM PDT Shark Tank's Kevin O'Leary, shared his thoughts about Bitcoin in an interview saying "Bitcoin will always be the gold." He also acknowledged that Ethereum has been doing well also saying "Ethereum will always be the silver," which is not necessarily a bad thing. O'leary said Bitcoin will outperform other cryptocurrencies and is bringing out the interests from different institutions, bullish for bitcoin Read Full on https://cryptocrunchapp.com/news/shark-tanks-kevin-oleary-says-bitcoin-will-always-be-gold/ [link] [comments]  |
| Bitcoin Weather Report: May Update Posted: 02 May 2021 10:38 AM PDT As discussed in the last newsletter, the newsletter has moved to a monthly update format. [for the full post with links that work, see numbermath (dot) substack (dot) com ... all posts are free!] One of the reasons for this is that the LPPL model to track "bubble-like" price action is not modeling the current price well. This indicates that the Bitcoin price is no longer fueled by speculation on bubble-like price increases. There is still a possibility we are in a months-long consolidation period in an overall LPPL pattern, but as of now, it doesn't make as much sense to put stock into the LPPL model until another exponential move upwards in price occurs. So where does that leave the "Bitcoin Storm Tracker"? At the moment, these monthly updates will be more of a "Weather Report" than "Storm Tracker" as we will wait until price direction becomes more clear. While I thought it would be interesting to update the LPPL model fits each month, it's clear that the fits are not reliable, and publishing them might wrongly imply there is reason to believe an imminent price increase. All of that said, since the price has stabilized between $50k-$60k for the last few months, this shows tremendous strength in the current price level. In some ways, we may have found ourselves in the "eye of the storm". Just as the overall formation of a hurricane, typhoon, or cyclone has a calm area at the center, perhaps that's where we find ourselves in the current price action? The influence of institutions Something I've been thinking about recently is the influence of more institutional players applying their own price models to make trading decisions. A parallel development is the greater influence of derivatives, which did not have anywhere near the current volume during the last bull-run in 2017. Institution participation can have a stabilizing influence on the price. For example, let's suppose your are an institution that believes in the pattern that has formed through the last few bull-cycles: the bottom of the next cycle is a about 3x the ATH of the previous cycle. In you have a long-term view, it may make sense to sell above $60k and buy below $50k. If enough large market participants believe this, it could stabilize the fair price at $60k, effectively front-running the exponential rise in price. The resulting decrease in volatility is characteristic of larger markets, and would not be surprising to see in Bitcoin as well. That said, this particular pattern is only one of possible models market participants may be using. On-Chain Metrics As numerous on-chain analysts have been pointed out, coins continue to move from exchange balances to external wallets, and many of the wallets coins have been moving to are known to be strong hodlers. Interestingly, after a series of apparent sell-offs, miners appear to be holding. On-chain analysis shows that many are accumulating Bitcoin and hodling for the foreseeable future. So what isn't the price going up? I am not an expert on on-chain analysis, but I recommend the twitter feeds from glassnode, Willy Woo and William Clemente III. PlanB's Stock-to-Flow Price Model In the price model world, the stock-to-flow model has become the most precient. The idea is that the price is a power-law function of the stock-to-flow of Bitcoin. This means that PlanB fit a line to the log(stock-to-flow) on the x-axis and log(price) on the y-axis. The slope and y-intercept of this line are fit to the available data. It's important to note that this model is fit to historical data, such that the conversion from the stock-to-flow value and the price is a regression model. It assumes a power-law relationship between price and stock-to-flow. Furthermore, a moving average of the stock-to-flow price is used to model the transition from each price level. In 2017 this moving average explained the move from the two price levels in the first half of 2017, but then the price overshot the valuation. Since this moving average was selected after 2017, it remains to be seen if it holds for this cycle as well. So far it has been amazingly accurate, and may be self-fulfilling if market participants believe the model. Jurien Timmer at Fidelity has expressed their views of the price model while considering demand alongside supply. Recently, PlanB has even stated that since supply is known to the market, the fitted model is actually predicting demand. In the long term, it would make more sense for this demand to level out as in Jurien Timmer's version. My personal view is that modeling adoption as a S-curve is critical to estimate the long-term price floor. Overall, it will be interesting to see how this model stands up during this bull-cycle. Perhaps more interesting, however, is if this model becomes self-fulfilling as more institutions use it to gauge the current value of Bitcoin. Of course, one big problem is if institutions believed in this model, shouldn't everyone front run it? Would the current price make any sense given the Efficient Market Hypothesis? PlanB as written about this. PlanB's response is essentially: everyone may be overestimating risk, as risk adjustments keep people from believing entirely in these price appreciation models. In other words: Bitcoin price appreciation seems likely, assuming Bitcoin is not banned or a flaw in the code is not found. When it comes to investors, this is the thing keeping the price from being front-run, despite the apparent success of these models. The multi-trillion dollar question is if the assessments of risk are correct. Due to the Lindy effect, the longer Bitcoin survives FUD and other attacks on its value proposition, the less likely we are to overestimate risk. How long must Bitcoin prove itself for different types of institutions? I believe the Lindy effect provides a constant stream of new demand via adoption. Demand increases because the longer Bitcoin exists, the risk no longer outweighs reward among more and more potential market participants. As such, the simple passage of time at a particular price can drive demand. Derivatives Markets One of the more entertaining correlations is that the price appears to follow the lunar cycle. In actuality, I believe the monthly expiration dates in the derivatives market have lined up with the lunar cycle over the past few months, and not the other way around. But maybe there is something to the lunar cycle as well? 😄 Futures markets can have the effect of supressing volatility as market makers rebalance their spot and cash positions. However, the clearest tug-of-war between market makers is seen in the Option markets. On Deribit Metrics, after setting an expiration date, you see that they calculate the "Max Pain" price, the price of Bitcoin that would lead to option contract holders to lose the most amount of money. This would be the optimal outcome if you are writing these contracts, as you make money writing and selling them hoping they expire worthless. The influence market makers have on the market may not even be "conscious" in the sense it is outright manipulation, the "Max Pain" price happens to be an equilibrium where market makers may not feel the need to further rebalance their spot and cash positions, leading the price to settle there naturally. The "Max Pain" price will move around throughout the month as contracts are bought and sold. If you observe the spot price, it does appear to increase from contract close at end of the month to mid-month, and then begins to move towards the "Max Pain" price at month's end. Deribit and CME Group expirations have the largest volume, which occur 8:00 UTC and 15:00 UTC respectively on the last Friday of the month. As the price trade sideways, these are the critical dates to look out for. May is the new April? One last thought, the tax filing deadline in the US has moved from mid-April to mid-May. Could later than usual tax returns be a source of funds that flow into Bitcoin a bit later than has happened historically? My fingers are crossed that May is the new April and I will return to tracking the storm. Ok, that is it for the monthly weather report. So far it looks like Bitcoin has found a comfortable price in the $50k-$60k region. If the price begins to increase exponentially in the future, I will begin tracking it again with the LPPL model. Otherwise, hope you May is great! [for the full post with links, see numbermath (dot) substack (dot) com ... all posts are free!] [link] [comments]  |
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