Timing Bitcoin for Maximum Profitability

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Timing Bitcoin for Maximum Profitability

There are endless ways to earn Bitcoin, and you’ll find the best featured on this forum. However you make your coins, your wallet will certainly appreciate their timely spending. For example, if you cashed out to fiat during most of 2015 when BTC was really cheap, you really lost out. Conversely, you had a lot more purchasing power when price was higher starting from Q3 2015 until now.

 

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All charts made with TradingView.

 

Leave catching day to day jitters in Bitcoin’s price to the professional (and not so professional) traders. The amount of time you’ll spend learning the intricacies of crypto markets, plus the frequency with which those markets will surprise you, dictate that your time is better spent on your core business. To increase your profitability without spending hours glued to real-time charts, it’s sufficient to monitor markets over longer timeframes, educate yourself in regards Bitcoin and keep up with events.

 

The Big Picture

 

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Chart published on the 20th of April. For updates, follow this link and click play.

 

Whatever your line of business, greater profits are achieved by timing your moves according to Bitcoin’s market phase. To use a farming analogy, you want to plant your seeds (buy or earn your Bitcoins) during the most favourable season; times of relatively low prices. You want to reap your Bitcoin crop, that is spend or cash it out, only when it’s ripe and valuable.

The trick is that Bitcoin’s phases aren’t nearly as predictable as our earth’s seasons. To determine Bitcoin’s prevailing condition, we recommend that you consider and weigh these price-driving factors:

1) Long term market charts:

Look out for the resolution of long-term support/resistance, chart patterns and trendlines, as these formations represent useful landmarks and coordinates when charting the market situation. Price can move very quickly once these levels are decisively breached.

If you don’t know how to read charts, it’s easy to learn. Always keep in mind that chart projections are best viewed as probabilities rather than predictions.

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This is a daily chart showing Bitcoin since late 2015 until now, late April 2016. The repeating cyan triangle pattern and red breakout line suggest upside. The annotations suggest too much time watching a slow market.

 

2) Bitcoin fundamentals:

these are the undisputed facts about Bitcoin which influence price, either directly or indirectly. Here’s a sampling: market demand as measured by reputable volume figures, the current hashrate which reflects miner investment and the occurrence of major events like code updates and the next block reward halving - all noteworthy drivers.

The current state of play of mining hardware technology and costs, as well as miner’s electrical costs, likewise figure into any serious attempt to establish Bitcoin’s fair value according to underlying, practical factors.


Some insights into the world of Bitcoin mining.

 

3) Bitcoin news:

The current state of the Bitcoin network and economy is also extremely important; an event like a blockchain hardfork could crash price, as could the seizure of the majority of hashrate by the Chinese government. On the upside, successfully expansion of the protocol (via SegWit, a Lightning Network or other developments) or the acceptance of Bitcoin by major retailers (such as Steam) are examples of events which could or should significantly boost price. Stay updated on the occurrence or probability of such major events!

Perhaps you still trust the mainstream media when it comes to matters of Bitcoin - probably unwise. It’s interesting to note that the press has become decidedly more bullish of late. When you notice articles cheerleading Bitcoin’s success on TV or in “reputable” publications, it’s a sure sign that a major, perhaps Wall Street-backed, pump is underway.

Another thing worth watching for in the mainstream press are major currency or financial events outside of Bitcoin; for example the 2013 Cyprus bail-ins were seen at the time as a major catalyst for Bitcoin’s price rise. Generally speaking, negative events in the world of traditional money (such as stricter Chinese exchange controls, bank failures and debt defaults) are beneficial to Bitcoin.

Finally, don’t rely solely on Bitcoin media for price projections. Generally such outlets only report on major price movements after the fact. That said, dedicated crypto news channels are often quicker to report impactful events and more insightful in their analysis than more general news outlets (with the exception of Zero Hedge).

Here are a couple of good places to find crypto-focused news:

Reddit’s r/bitcoin page, while heavily vote-manipulated, does a reasonable job of rounding up relevant reports from various Bitcoin (and mainstream) sources. Bitcoins.sx presents much the same information, minus the commentary, in the efficient style of the well-known Drudge Report news aggregator.

 

4) Sentiment:

if you can’t wrap your head around charts or the salient facts regarding this whole “blockchain thing” and its multiple nested complexities, your only option is to follow social cues from people you trust. You should strive to learn to broaden your knowledge of the factors making up the big picture, so as to establish and maintain an independent view. Those who get swept up in hype, FUD, groupthink or manipulation are likely the suckers in this particular poker game.

Sentiment may take the form of advice from a friend, colleague or family member whose technological sophistication and judgement you respect.

You may also base your sentiment on the prevailing news flow. Keep in mind however that the mainstream media tends to - pardon the phrasing - step on its dick when reporting on Bitcoin. And crypto outlets are not necessarily steeped in the highest journalistic ethics, correct for a degree of bias and even shilling.

Finally, you may also follow the views of **experts **within Bitcoin, such as developers, business leaders, big miners and various other movers and shakers. Recent experience has shown however that the relative contributions and competence of such characters, as well as their motivations and allegiance, should be considered alongside their pronouncements.

 

5) Experience:

the best filter of all. It ‘l take time and work to synthesise the above elements into a holistic market view. The more you endeavour to do so, the easier it becomes.

 

Practical Example of Market Timing: Playing the Current Market

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The market is now breaking out. If it breaches $470 it’ll likely test the $500 level.

 

All things considered, now is an exciting time to be holding Bitcoin, for several reasons:

 

1) Fundamental Factor 1: Increasing Technological Value

SegWit has been thoroughly tested and is on the verge of release. This update promises, among other things; the resolution of the transaction malleability issue, the extension of Bitcoin’s scripting language and an indirect blocksize increase.

SegWit also lays the groundwork for the implementation of the Lightning Network, which will aid tremendously in scaling Bitcoin, as well as allowing near-instantaneous and virtually free (micro)transactions.

These and other improvements (such as Schnorr signatures) will re-affirm Bitcoin’s pre-eminent position as the most secure, desirable and sophisticated cryptocurrency. They will also secure Bitcoin the honour of being the world’s fastest, cheapest, most open and flexible payment system yet invented.

 

2) Fundamental Factor 2: Contracting Supply

The reward miners receive for successfully mining a new block will halve from 25 bitcoins to 12.5 bitcoins sometime around July. (This process will repeat approximately every 4 years until around 2160, when the supply limit of 21 million bitcoins will be reached.)

The ramifications are that supply will tighten at a time demand is increasing, due to the points above and below. The laws of economics dictate that in such a situation, price must rise.

But! The extent to which markets have already factored this scenario into the current price remains to be determined... Markets definitely look to the future. They price themselves according to the likelihood of future events, as best understood through analysis of fundamental factors. Such events may be internal to Bitcoin or external, so be aware of the wider economic situation in the world.

As an aside, markets also price themselves according to current events; best analysed through intelligent study of news events, as well as and past events; best revealed via effective charting.

 

3) News and Sentiment Factor: Hardfork Issue Resolved

Scaling Bitcoin, to cope with high and increasing usage, is an issue which became a political football some years past; while Satoshi was still around even. Disagreement over when and how to scale Bitcoin escalated into an ugly row. Factions split from consensus and rallied around various competing technical (non-)solutions. This contention was perhaps inevitable - possibly even long-term healthy - but in the short term it created a lot of sour sentiment and negative news around Bitcoin. This led to the threat of a contentious hardfork; a potentially disastrous situation in which Bitcoin would divide into separate and incompatible versions. If there’s one things markets hate; it’s uncertainty.

However, it seems the breakaway group has failed to gain sufficient support among miners and users. In light of the bullish market and code development schedule, breakaway factions have failed to gain traction and no longer present a credible threat to Bitcoin’s unity. With harmony somewhat restored within the community, the downside risks are diminished.

 

4) Technical Analysis

As shown in previous charts, a triangle formation is concluding to the upside. Price recently pulled back to test the breakout. If it holds (as it appears to be doing at the time of writing) that will send a decidedly bullish signal to the market. Gamblers, speculators, traders and investors (there really is a difference between these four groups) will all take note:

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The breakout is re-testing the triangle and the resistance level at 440. Re-testing is common following a breakout as markets seldom move in a straight line.

 

Conclusion

In regards the halving and code updates, a cautionary note must be sounded. “Buy the rumour and sell the news” is a common trading adage. It implies that however positive the impact of such events, their occurrence may be met with selling. And of course, “stuff” happens on a regular and recurring basis. That said, holding onto your coins for now seems the wisest course. Decide your upside and downside price levels at which you’ll get out - either to take profits or prevent further losses.

Personally, I would consider an extended stay below 420 or 400 as a warning signal that price may be in for further downside. As for an upside target, I suggest waiting - insofar as your budget allows - for a big Bitcoin bubble to blow.

Comments

  • Any updates to your market view after the Craig Wright story?

  • OK, well let me put it this way; this is from January 29th, 2016:
     
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    As far as I remember this chart, the first big drop was when Gavin's protégé, Mike Hearn, pitched his quit-fit. The second time was when Gavin was pushing the Classic hardfork governance coup. The pattern was established even earlier. Anyway, all the major waterfall drops of the past year or even two coincided - like the text says - with Gavin's smiling face all over r/bitcoin.

    So the last time we were treated to Gavin's chipmunk grin, price didn't drop $90 or enter a 5 day slide. It fell $30 and recovered pretty quickly:
     
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    The multi-timeframe moving averages on this daily chart are still painting a bullish picture.
     

    What this says to me is: A) the market is becoming resistant to Gavin's bullshit and B) there's a whale group, centred around r/btc and Gavin, which is trying to spin this market to the downside. They're demonstrably willing to employ dirty tricks of all kinds; from propaganda to block spam attacks to social media manipulation to trolling the dinosaur press. They may well have a big position in Ethereum too.

    Each time these guys play a card, the market and the community see through it faster and pay it less mind. It took r/bitcoin (which seems to be mostly comprised of hodlers) less than an hour to debunk Wright's claims and call for Gavin's head - which they got. This indicates to me that bullish sentiment is building and won't be dissuaded by stunts and shenanigans. In turn, that implies organic demand is outpacing some well-financed, tech-savvy and influential players; a decidely bullish scenario. At this point, I feel there are few "weak hands" left in the market.

    For more, see Oleg Andreev's blog post, "Why I think hysteria about block size is market manipulation by big buyers." Here's a preview:
     
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  • CaseCase Posts: 2

    USD strengthened today on the higher possibility of a Fed rate hike. Gold and most other currencies weakened noticeably so it was great to see Bitcoin holding steady and even firming a little. Bitcoin is on the road to becoming a reliable store of value in these uncertain times.

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