Over the past decade, the gains from investing in Bitcoin have dwarfed most other investment categories.

While a quick glance at short-term Bitcoin action can seem daunting, such short-term price movements are best attributed to stochastic movements or geometric Brownian motion.

Traditional technical analysis is often filled with disclaimers every single time, and for every price action that resembles a certain textbook, there are countless others that don't"according to plan"conduct.

Additionally, looking at Bitcoin price action at a macro level yields something more dissectable using data science. The analysis shows that it is going through market cycles that generate subsequent lower ROI while taking longer to realize those ROI. In other words, Bitcoin’s macro trends suggest that each market cycle is lengthening and ROI is decreasing.

With annual losses of more than 80% after a speculative bubble, it really makes people believe that the timing of entering the market is also important, not just how long you stay in the market.

The time value of money matters as we fight to beat inflation.

1. Bitcoin is at"stage"stage

The graph above shows the price of Bitcoin, and the"non foam"Logarithmic regression of data and fit of speculative bubble price highs. When looking at prices at a higher level, the length of time to build up momentum and the formation of speculative bubbles becomes apparent and easily identifiable.

To better understand these trends, we can calculate the percentage difference in price from the logarithmic regression fit of fair value, which is a monotonically increasing function (Figure 2).

2. The explosive power of the market cycle is getting smaller and smaller

The figure below shows that during each subsequent high price point, referring to the fair value regression curve, the explosive power of speculative bubble formation is getting smaller and smaller.

In fact, the percentage difference between the first price high in 2011 and the log regression line was about 6000%, while the second price high in 2013 was only about 3000% above the log regression line.

The third speculative bubble reached its peak in 2017, exceeding the regression line by about 1000%. While these three numbers certainly don't constitute a clear trend, we can at least speculate based on the current data. For example, 6000/3000=2, 3000/1000=3. If this trend continues (hypothetically, of course), dividing the percentage from bubble 3 to bubble 4 by 4, in about three years (2023) could see Bitcoin overvalued by about 250%.

Figure 2. Bitcoin price vs. non-bubble data"fair value"Percent Difference for Logarithmic Regression Fits

If Bitcoin is overvalued by 250% after 3 years, we can determine its approximate corresponding price. Based on the current regression curve, the fair value of Bitcoin in 3 years time is about $40,000.

If Bitcoin was overvalued by 250%, then we might expect the next bubble high to be around $140,000. Of course, there is a lot of uncertainty in this, and the actual high price may vary by several thousand yuan. However, these thousands of dollars are nothing.

3. Each market cycle is longer than the last

Now you might be wondering where the idea of ​​longer cycles comes from.

After all, the cryptocurrency community mostly preaches Bitcoin's"four-year cycle". However, apart from the fact that most cycles are at least four years, there is basically no evidence to support this idea. Because of this, many investors are affected by the recent bias (Recency Bias) instead of looking at the information revealed by the data.

People tend to judge the future based on recent historical experiences and trends in their own memory, and this has been proven correct in many cases. But if you only look at the phenomenon and don't understand the essence of the problem, when the situation turns a corner, you may make a completely wrong judgment and be unable to extricate yourself. This cognitive bias is called"Recency Bias"(recency bias").

Instead of figuring out what the data says and then writing it, many people write stories and manipulate the data to support what they write. Figure 3 is the return on investment plotted over a one-year period, from which it can be seen that whether it is from bottom to top, bottom to top or top to bottom, the cycle is getting longer.

4. The highest probability of the highest price of Bitcoin is in 2023

Instead of measuring from the bottom of the market cycle, we only show the ROI over a one-year period; this means calculating the price of Bitcoin every year. This shows us another angle, that price changes from downtrends at the macro level take longer in each cycle.

The highest price point of the next cycle is most likely to be in 2023, the earliest is the end of 2022, and the latest is the middle of 2024. Obviously, no one can tell you exactly when Bitcoin will reach this new paradigm shift, but we can at least be prepared that the price high will likely be much later than 2021.

If we visualize the data by dividing the Bitcoin price by year, we can observe several expansion and contraction phases. Figure 4 shows us the time period when the price of Bitcoin is trending up or down on a yearly basis. This trend suggests that we are likely to soon begin a multi-year expansion phase.

That said, it might be a little unfair to show prices in yearly intervals, as this is an arbitrary way of presenting the data; however, the point being made here is that this is just a way for us to better understand the macro trend in Bitcoin prices yet another tool.

5. We are nearing the end of the build-up phase

Since we can't predict exactly when Bitcoin's price will top out, nor can we accurately predict its price, I've constructed a risk indicator for Bitcoin to better identify time frames building up and speculative bubbles.

Figure 5 shows the price of Bitcoin, but color-coded with value-at-risk. Although the gut reaction may be at some stage"or"or"sell all", but the systematic strategy is the dynamic dollar-cost averaging method, that is, increase buying when the risk drops to close to 0, and expand the scale of selling when the risk is close to 1.

epilogue

epilogue

Obviously, all of these graphs, data points, and conclusions should be taken with a grain of salt. No one can tell you when the price of Bitcoin will reach a high, and no one can tell you when is the best time to buy.

But we can use math to help us better determine where we stand on the macro trend. Finally, the data brings us several important revelations:

1. The value of Bitcoin is fair based on the regression curve 2. The ROI is declining with each bull market cycle 3. Market cycles tend to be lengthened 4. We are probably years away from another price high. 5. Bitcoin may be coming to an end

With all of this in mind, we only have three market cycles to draw from. We still need more data in order to draw more accurate conclusions.

Some things, time will give the answer.