The theory of market behavior is not generally respected by many participants. The livelihood of too many people hinges on behavior and skills market theory say are imaginary.
Fund managers can’t add value according to the text books yet the financial world is full of extremely well paid people who are positioned to sell their services on being able to see the future, which theory says is impossible.
You might say I’m one of those cohorts of witch doctors.
But in my defense, I am much more happy about predicting the past than the future because it is much easier to be right about the past.
Now theory says the past is not linked to the future so reading the past won’t give you a steer on what is going to happen next. I think, however, if you are confused about where the market is right now it is even harder to predict the future than if you understand how we got where we are.
Random is not a pure thing. There are levels of random and markets aren’t infinitely random, they are just very random and watching the past can help you map where you are in the age old market story of boom and bust.
Without doubt, Bitcoin and cryptocurrencies have bubbled and busted. It is very unlikely they will not bubble and bust again, and likely again and again.
So it seems important to know where we are in that cycle.
Right now crypto is in a consolidating period. When you think that major markets like China and India have in theory been knocked out, with major players like South Korea stepping back from a crypto-friendly environment of imminent nuclear megadeath, it is amazing that Bitcoin is still at $8,000 a coin.
Yet what do the technicals tell us?
Here is the chart. It shows high, low, open and close every day for a year:
Credit: ADVFNBitcoin/U.S. dollar price over the last six months
What you can see is that the daily range of the price of Bitcoin is shrinking from the wide levels of the end of the bubble and the length of most of the crash.
When markets reprice, that is to say the market decides an asset is worth significantly more or less than it was, the process is not instant and the move to a new price comes with volatility and this shows up in daily ranges. The bigger the range over a period, the less certain it is that the price being set is the right one. The closer to equilibrium, the small the range; and price equilibrium is the job of markets so as the price gets closer to consensus the range tightens.
This is what has happened in the last few weeks. Bitcoin seems to be finding its level.
This level won’t hold, of course, because stuff happens, but the more volatility decreases the more consensus is defining the real value today with as many variables as the market can get its head around. The more this stability builds the safer the valuation until something appears out of nowhere and knocks the price into a frenzy again.
So to me it is very bullish that Bitcoin is consolidating at these high levels because after a huge drop, unlike for example the dotcoms of 2000, the players haven’t packed up in disgust and left to lick their financial wounds.
The frenzy may have ended but the price is still high. That is very bullish for the long term and I’m acquiring crypto again and holding because even if the market tumbles again, this recent stability underlines the basic vigor of cryptocurrency that it indeed needs if it is to break into the true mainstream and take off to the true believers’ moon.
Read more at: Forbes
