TL;DR - Bitcoin seems to have been able to decisively stay above $60k this week, however, the price action shows continued consolidation. Alt-coins have arrived and the market cap of all cryptocurrencies continues to grow.
I’ve decided to scale back the LPPL model updates to once a month, my next newsletter will be May 1st, and then monthly after that. I will go back to weekly if the Bitcoin price resumes its exponential run. The reasons for this are explored a bit later in the post, but it appears the bubble-like price action that was forming back in February has settled down. The model’s confidence bounds have expanded dramatically, implying that the LPPL model is less informative.
Knowing Bitcoin and its hard-to-predict nature, this might indicate the price will skyrocket this week! If it does, and regular updates become necessary again, I will resume weekly posts.
All this said, I fully expect the bull-run to continue. Alt-coins have begun to make dramatic gains. The full “cryptocurrency market cap” set an all-time high just yesterday, led by our favorite meme-coin DOGE. I warned readers mid-April might get weird, and this is what we got. This energy has not found a way to Bitcoin yet, partly because Bitcoin is so massive. I’m extremely curious to see how maturing derivatives markets change volatility this cycle.
The total “crypto-market cap” should not be taken too literally, as the true circulating supply is a very difficult number to calculate for every coin, let alone Bitcoin1. Alt-coin dominance was seen towards the end of 2017, and indicates that new speculative market entrants are coming in. In particular, most coins listed on Robinhood appear to be making gains unexplained by changes to their fundamentals (however, Litecoin’s move to Mimble Wimble is an interesting development). This may precede a further heating up of the Bitcoin market, but for now, alts could steal the show in the immediate future, particularly those with a low market cap but easily accessed by retail (look at those listed by Robinhood, Paypal, Cashapp, Blockfi, etc).
I’m considering making a site where I may update the “Forecast” model fits more regularly, but without commentary. I will send out a special edition of the newsletter to let everyone know if I do.
I would like to remind readers this post is a purely educational exercise. I’m fitting models based on data and am probably wrong. Don’t construe this analysis as investment advice, I am not an investment advisor and you should seek one out before making decisions with your money.
The Forecast
The Model projects roughly sideways movement over the next week, with upwards pressure to possibly $80k. The LPPL model is designed to explain asset bubbles, and Bitcoin volatility has appeared to have cooled off so much in the last few weeks that it’s difficult to fit the super-exponential bubble model to the price.
As such, the LPPL model may not be the best model to use for the short term. The confidence bounds have expanded, further indicating that the model is less confident in the fit. I do not think this is bearish, either a revisit of sub-$50k or a wild run above $100k are about as equally likely according to the model. Interpreting this uncertainty growth, it’s possible the Bitcoin price continues sideways while alts continue their run in the next few weeks. If 2017 is any indication, Bitcoin will benefit from these runs in the monthly timeframe.
The Coinbase direct listing seemed to cause some volatility, but the Bitcoin price has largely stayed around the same levels this week. It will be interesting to see if those who sold Coinbase equity buy more crypto with the cash.
Critical Date
Nothing out of the ordinary this week. The CLIP plot above shows that the price action does not indicate we are approaching the critical date anytime soon. A sudden Bitcoin rally could change this of course, but there are no signs of a blow-off top, and an end to the bull-run is nowhere in sight.
Analysis: Alt-coins are here
The full crypto-market cap has been steadily growing since October. Compared to the price chart for Bitcoin, it appears that many new entrants prefer low-cap coins and are mostly in for speculative investment.
As such, despite the lowered volatility of Bitcoin, this indicates the market is still heating up and the bull market is not slowing down. However, the market has changed: much of the appreciation from here will not be supported by strong believers. If we do see a rapid appreciation of Bitcoin, we can expect a more severe correction since many newer entrants will not have the same conviction to hold during any dips. After the correction, the price could settle back down to around the levels seen before Bitcoin dominance started to fall (~$50-60k), so I think it might make sense to take some profits above this level (not financial advice). But remember: an irrational market can go much higher than anyone expects!
My personal view is things are going to continue getting wild in the alt-coin markets, which will trigger another Bitcoin rally in the coming weeks or months. Institutions and other sophisticated players may anticipate this, selling into any Bitcoin price rises, keeping bubble formation in check. The same market forces will probably not happen in the alt-coin markets, and a bubble could form across the various alts easily accessible to speculative retail.
Analysis: LPPL model back in hibernation
This is the LPPL model fit before applying the Monte Carlo uncertainty analysis. The current fit is not great, we expect the average residual error to be zero, but increasingly there has been a persistent bias. As such, I believe the LPPL model can be put partly back on the backburner.
I’ll be updating less frequently, and am currently exploring options for creating a place to update the model without regular updates and commentary. I’ll return to weekly once it looks like the price action justifies it. In a way, I’m poking the honey badger, the price will certainly skyrocket now that I’m scaling back the updates… 😂.
In the meantime, thanks for reading!
Bitcoin has an upper bound of circulating supply based on mined coins, but we don’t know exactly how many coins have been lost forever, which would reduce the market cap in real terms.
Thanks for the content as always. I would look forward to a telegram or maybe discord channel to get more frequent updates on the model and general outlook of the market! Consider it!
Best Regards