May Q&A - Tools to Spot Market Tops, Whale Wallets, Mt Gox Impact.
Mt Gox coins are on the move, Whale Wallets are active, and the ever present cycle top is somewhere over the horizon. We also cover the error bars around onchain data, and how we can factor it in.
G’day Everyone, and thank you for all the great comments we received over the last month.
May really has been one the history books, with regulatory and political developments coming out of the US over the last two weeks alone were unthinkable just 12 months ago. There appears to have been a major backflip from the Biden administration, and I suspect this speaks to a recognition of the size and scope of the ‘Bitcoin voting bloc’.
In this month’s Q&A, there were a few distinct themes which emerged:
What is the impact of the Mt Gox coins being moved?
How does on-chain data account for self-spends and non-buys/sells?
Is Whale Watching a useful sport?
What tools should we use to try and identify the cycle top?
We will go over all of these topics in today’s written post and video, which ended up being ~50mins or so. We’ve split the video into 2 parts below in the article.
I will be starting up a regular post series for paid subscribers on Cycle Top Hunting moving forwards. We will assess and become familiar with a consistent set of metrics for identifying cycle tops, and the posts will demonstrate how my thinking develops as we hunt for signs and signals it may getting late in the game.
Disclaimer: This article is general in nature, and is for informational, and entertainment purposes only, and it shall not be relied upon for any investment or financial decisions.
Chopping Wood
I’d like to start with a quick market update on the Chop-solidation which is underway, and refer to a post I tweeted out the other day.
I find it interesting that price has continued to chop wood in this range despite all the positive news of the last few weeks. However, it very much aligns with my view that Chop-solidation, on the order of months, is a very likely path ahead.
I don’t use many technical analysis indicators in my work, however the Choppiness Index is one of the exceptions. Hashhunter rightly asked for a little more insight on how this indicator works.
The Choppiness Index is a directionless indicator which describes how many price candles have traded within the same range, over the last 14-periods. I think of it as the ‘fuel tank’, where high values mean we’ve chopped enough firewood and are ready to trend. Conversely, low values mean the trend is outta gas, and the market needs a rest.
When a market has trended for 14-periods, the Choppiness Index will be low, signalling we need to rest and consolidate.
The fuel tank can be refilled by trading sideways (consolidation), but can also refuel even faster if we trade counter-trend (a correction).
When the market has chopped enough wood, and corrected long and deep enough, the Choppiness Index will have recovered, suggesting we’re ready to trend once again.
Importantly, it works across multiple timeframes, which is the primary methodology I use it for.
On the bigger weekly (red) and monthly (green) timeframes, it suggests were in the process of recharging the batteries, and may need a bit more time (order of months) to fully regain our composure.
Bitcoin honestly looks very healthy under the hood, and I view this as the pouring of a new foundation, at a new altitude after an 18-month long uptrend.
