Crypto Facts & Fantasies (2020 Thesis)

It’s a 2020, a new decade and dawn for bitcoin and crypto assets! Looking back at the last year, there were many great developments made and familiarity as well as knowledge grew regarding them too. Notably, bitcoin and crypto assets gained the spotlight as they were discussed and debated over by the most prominent leaders of the world. The markets all performed well too. Generally speaking it was a year that was hard not to have a successful strategy that wasn’t just sitting in cash, but bitcoin and the investment grade crypto market still shone out as the clear winners versus the traditional asset classes. Technically though, the traditional markets were given some extra juice in the tank with assistance as the Federal Reserve retreated from their 2018 tightening and instead cut rates while eventually pumping in additional liquidity by the end of last year.

So in the spirit of the new year, it seemed appropriate for a new and updated version my thesis from 2019’s Crypto Facts & Fantasies for 2020. My best hits were calling the bottom “around $3200” and it retesting those lows before staging a new bull market as well as “smart money” investors like banks, endowments, family offices, financial advisers, pensions, and other institutions taking their time before getting regulatory clarity or due to some limitations given the need for knowledgeable talent. One point that seems like a miss was the stance that an ETF not being all that important for the growth and development of the market, but the issuance of new products such as futures and options is certainly a welcomed consolation. Since the last edition of Crypto Facts & Fantasies though, bitcoin is alive and well continuously running in silence earning a reputation as a secure asset for low-cost transactions that are peer-to-peer (e.g. permission-less). Once again I am confident in restating that despite the investment grade crypto asset market being dwarfed by traditional asset classes, it will find itself being equally if not more valuable than all of them in this next decade.

Overall, last year was very positive for the space but there still was a fair share of setbacks along with improvements that led us to this point. A large blow dealt to the community was the animosity from the current US President and his administration regarding their legitimacy. Though, one could argue Donald Trump and his cabinet taking aim at bitcoin and crypto assets as well as the Libra project actually proved they are forces to reckoned with seeing that they took the time to acknowledge them. Not only were these arguments accepted into the public debate forum of Twitter, but it grew to see the floor of Congress this past summer. It should be proof that they will have an impact for better or worse on our current fiat reserve currency system in the years to come. Although it may not carry as much weight as it did at in the first edition, my price call with a time horizon ending 2020 (maybe being a year or so too soon) for bitcoin to reach $60,000 – $100,000 still presents an opportunity with tremendous upside down the line and may need to take some time before doing so with new all-time-highs as the main focus this year.

In a continued effort to publish more often and help demystify the crypto space to present more meaningful content that helps transparency as well as decision-making, I am publishing the second edition of Crypto Facts & Fantasies.

Without further ado….

1. Despite being below it All-Time-High, it has performed better than traditional assets1. Bitcoin is in a bear market
2. Bitcoin, and other crypto assets with fixed supplies, may fluctuate more than reserve currencies in their prices, but unlike the latter they cannot be created “out of thin air” or printed more than the set hard cap coded into the algorithm 2. “Winter is coming” again for bitcoin and crypto assets
3. Central banks are already working and testing out solutions to issue and manage their own central bank crypto currencies (or “CBCCs”)3. The money of the future NOT being digital
4. The vested interests that control the current issuance and printing of all major reserve currencies will not allow any non-banking corporate entity get ahead of their ability to create a digital reserve asset without a fight4. Libra or any stablecoin’s launch being a success
5. Similar to the current internet having many protocols, so will the “Internet of Money” that will have a variety of them to serving different purposes (i.e. BTC being digital gold, ETH as programmable money, and many more purposes). There’s also forked protocols that modified the core algorithm of another for specified purposes that hope to gain more adoption from their so-called “enhancements” and should be approached with caution and scrutiny5. There is more than one bitcoin and it’s “better” than the original
6. Seeing how young the market is there is a benefit to having clear guidelines and guardrails for general purposes, but any restrictions may seriously hamper an opportunity for enhancing our current faulty infrastructure 6. Decentralized Finance (or “DeFi”) under strict regulation is good for the industry
7. Last year, JP Morgan created and issued their own stablecoin that would be native on the Ethereum blockchain for settlement since they have seen client interest in investing and trading these assets 7. Banks and other legacy finance institutions continue to miss out on potential returns and new revenue streams
8. As the bitcoin and crypto critic Warren Buffett once wisely said, “the best holding period is forever” and it applies to many assets but even more so the one’s with such upside potential as bitcoin8. Trading bitcoin and crypto assets is better than just simply buying and “HODL”-ing
9. Bitcoin, ethereum, and other emerging investment grade crypto assets have grown with increased infrastructure, oversight, and ubiquity to receive a retail product following the creation of futures markets and availability on reputable crypto asset trading platforms9. A bitcoin and other investment grade crypto assets not getting a respective ETF for investors based in the United States
10. It would be more costly and difficult for bitcoin to physically shutdown or become worthless than it would to be worth many multiples more than it is trading currently 10. Bitcoin is going to fail, hit zero, or collapse after being corrupted or suffering a network shutdown

Similar to last year, I am excited to see how this round of facts and fantasies materialize, or don’t, eventually and how they impact my own theories, views, and strategies.

It feels as if there is something BIG coming. As the market found itself in a lull this past December, it looks to be like the bottom from its 2019 Summer high that may lead to another larger and powerful move with tremendous upside coming ahead. The recent bottom looks to be around $6450. Due to market developments as well as global turmoil with Iranian tensions, the price has move north of $8000 per bitcoin. It even tested a major resistance point of $8500 before fading back and some rallying more at the time of this writing. I wouldn’t be surprised if bitcoin found itself quickly over $10,000 leading up to the block reward halving coming up sometime this Spring or took its time bouncing back to retest its recent lows as everyone argues over whether or not it is priced-in. Either way, we will have to wait and see how it all works out.

Have a great 2020, and to the moon!

– JH

My TradingView Bitcoin Chart and Model

I. Open a TradingView account to use (*free lite-versions available)
II. Choose the “BTC” trading pair that corresponds to your fiat currency
III. Select the time frame to fits your analysis (*4HR+ is standard)
IV. Choose Indicators & Strategies to overlay on the chart
V. Customize the Settings to change the view to your preference

First Steps
This short post is dedicated to creating the chart that I look at and view almost every day to watch bitcoin. Once you have your TradingView account set up and ready to go, let’s get started in recreating my chart and if you’d like can take it on your own from there. Click on “Chart” on the upper tab of the page to begin working on the layout.

Currency Pairs
Since I’m in the United States, the bitcoin to fiat pair that will be best for me is the United States Dollar or “BTCUSD” that has coverage from Bitfinex, Bitstamp, Bittrex, CEX.IO, Coinbase, Gemini, and more crypto exchanges providing trading data. My go-to for my view is Coinbase since they handle a large portion of the total volume and likely have the majority of American traders and funds on their platform. Once the desired pair is selected, the corresponding chart should open.

Fitting the Screen to Time and Price
Next, I will immediately click on “log” and “auto” in the bottom right hand corner of the chart to put it on a logarithmic scale (because bitcoin has been know to move “super-linearly”) and so it will automatically fit the view for me. From there, you can click on the time frame directly the right of “BTCUSD” ticker box in the upper left hand corner of the chart to pick the time interval of your choice. On my chart, I like to choose the “4HR” interval since it roughly covers just more than a year when the chart is open in full-screen view and completely zoomed out which can be done by hovering the cursor over the chart and scrolling down on the wheel of the mouse.

Indicators & Strategies
From this point, it really comes down to personal preferences and as said before the layout is yours to customize as you please and it may be helpful refer to YouTube as a source for how to really make your charts look nice too. My chosen presets are to start with searching the “Lazy Bear” strategy (which now appears to premium preset) for a fancier weighted stochastic indicator of the volume. The ones that really matter most to me are the Volume (Vol), Linear Regression (Lin Reg), and Bollinger Bands (BB). You can read more about the way I set them up including their reasoning as well as statistical significance below.

Finishing Touches
It should be mentioned too that on my chart “Candles” are used with countdowns to the bar closing under the price label, so to have them on your chart click on the box next to the Time Interval set to “4HR” instead of using another plain-looking line that can easily get confused with other indicators. These box-and-whisker candles are great because they allow you to see where majority of the volume is (box) as well as the highs and lows for each candle (whiskers on each side). I also am a big fan of the “Dark” color theme to help save my eyes and pixels while having the chart up for an extended period of time.

Bonus: Pro Tips
My Strategies & Indicators are tuned specifically as follows for the resulting chart seen above and they are set to have the Volume at 1 (easy to tell actual volume), Linear Regression at 3.078 for the upper deviation and -1.282 for the lower deviation and the maximum count of 2000 (allowing the regression to have 1 degree of freedom at the top and infinite degrees of freedom at the bottom), and the Bollinger Bands are set for 200 length and 2.95 standard deviations (about a 33 days long with a 99% confidence interval). I choose to smooth out my Lazy Bear stochastic indicator if it means anything to you and have it set for a Channel Length of 20, Average Length 42, Over Bought Level 1 of 120, Overbought Level of 2 106, Over Sold Level 1 of -120, and Over Sold Level 2 of -106 for my preferred layout view. Finally, in my latest chart I used the Fibonacci retracement tool under the pitchfork menu (on the left-hand side of the page when not in Fullscreen mode) to plot the line as close to the approximate bottom all the way up to the approximate top (or vis-versa for a bear market) to display the corresponding resistance points that are between the most recent trough and peak. Also, the longer time frames like 1 day and 1 week with these settings adjusted accordingly usually produce very nice and intriguing charts.

Let me know if you have any comments or suggestions.

Happy charting!

This post is not intended to provide any investment, financial, legal, regulatory, accounting, tax or similar advice, and nothing should be construed as a recommendation to buy or sell nor a solicitation of any investment or to engage in any investment, strategy, or transaction. An investment in any strategy involves a high degree of risk and there is always the possibility of loss, including the loss of principal. Nothing in this post may be considered as an offer or solicitation to purchase or sell securities or other services.