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Bitcoin’s NVT and On Balance Volume turn Bullish
There are a lot of trading and investing strategies and many of them involve trying to avoid top and bottoms and just get into the meat of the move. The most powerful impulses at reduce increase gains/time. These strategies do not try to do the heavy lifting of buying the bottom or potential reversals. To such an end on bitcoin I have cobbled together a strategy founded on a core tenant of economics, the Quantity Theory of Money. Almost ever modern economic failure as been at the abuse of this economic theory, but that is nether here nor there.
Quantity theory of money
Here is the Explain Like I am 5 (ELI5):
All other things being equal if a system prints more money the price of good and services goes up. Also, if transaction speed up then the prices go up as well. Also, All other things being equal if the money supply goes down then prices go down. If transaction speeds slows down then price goes down. So, if you have the power to influence any of the following variables in the next section you can basically make yourself rich at will, given a little patience.
More complicated version (which is still a simplified version)
en.wikipedia.org/wiki/Quantity_theory_of_money
M*V(t)=P(t)*T
How The NVT Works with the Quantity Theory of Money
Bitcoin is a payment system, called bitcoin, and the currency of the bitcoin network is also called bitcoin. When someone buys bitcoin they are buying currency of that network to use that currency network at a later point in time. The question is when to buy the currency and when to spend.
This version of the NVT is very useful as it can help us determine when the currency is relatively cheap. When the NVT is in the green the assumption is that M*V(t) is low. Since we know that M increases at a steady rate in the bitcoin network we know that price being in the green is mostly a function of velocity. There is a lot of debate in economics about the extent that M and T can be manipulated, and just how far. Some people assume that velocity is fixed. With as much data as we have now, that assumption is moronic.
Anyway, we look to buy when velocity is low and spend when velocity is fast.
NVT Conclusion
History has shown that when the NVT begins to touch the red zone that price action begins to heat up. Velocity is increasing and continues to increase until bitcoin is so hot that most people cannot afford to buy it, or resist the temptation of selling it. The current indicator action suggest rapid increases in price are coming for the next 500-700 days.
On Balance Volume
The on Balance Volume can be a great tool within itself, but there is some difficulty in using it with bitcoin, because the supply of bitcoin is always increasing. This is why indicators on top of indicators can be so useful. We can clearly see that when OBV is below the 100 SMA that bitcoin is in a bear market and when price finally closes above we are in a bull market. Of course, crypto bull markets are plagued by 50-70% pull backs but technically they are bull markets all the same. (And one more reason to have a pull back strategy).
When the OBV passes below the 100 SMA it is a sign of continued sell pressure. In other words, it is already a bit late to be selling. When the OBV passes above the 100 SMA it is a sign that the selling pressure is letting off and the market is about to shift its overall momentum. This is especially true over higher time frames like the weekly or monthly.
Conclusion
I think it is clear we are in a crypto bull market that is picking up steam. On January 15th of this year I posted the idea Four Simple Reasons Bitcoin Bear Market Ended This Week when prices were at 20.8k and prices have not returned to that level. (I tried to link the idea but it showed over them main chart.)
That idea used many of the same indicators that this idea is using. I am not in bitcoin. O have, as they say, moved up the risk curve into lower market cap project I favor now. I hope they run early and I can rotate out of them into other projects.
I don’t think I will be able to sell the very top of this crypto market. But I do think I will be able to sell high after being in the impulse of the move and then buy back at much lower prices. Rince and repeat every halving cycle.
Quantity theory of money
Here is the Explain Like I am 5 (ELI5):
All other things being equal if a system prints more money the price of good and services goes up. Also, if transaction speed up then the prices go up as well. Also, All other things being equal if the money supply goes down then prices go down. If transaction speeds slows down then price goes down. So, if you have the power to influence any of the following variables in the next section you can basically make yourself rich at will, given a little patience.
More complicated version (which is still a simplified version)
en.wikipedia.org/wiki/Quantity_theory_of_money
M*V(t)=P(t)*T
- M is the total amount of money in circulation on average in an economy during the period, say a year.
- V(t) is the transactions velocity of money, that is the average frequency across all transactions with which a unit of money is spent. This reflects availability of financial institutions, economic variables, and choices made as to how fast people turn over their money.
- P(t) is the price level associated with transactions for the economy during the period,
- T is an index of the real value of aggregate transactions.
How The NVT Works with the Quantity Theory of Money
Bitcoin is a payment system, called bitcoin, and the currency of the bitcoin network is also called bitcoin. When someone buys bitcoin they are buying currency of that network to use that currency network at a later point in time. The question is when to buy the currency and when to spend.
This version of the NVT is very useful as it can help us determine when the currency is relatively cheap. When the NVT is in the green the assumption is that M*V(t) is low. Since we know that M increases at a steady rate in the bitcoin network we know that price being in the green is mostly a function of velocity. There is a lot of debate in economics about the extent that M and T can be manipulated, and just how far. Some people assume that velocity is fixed. With as much data as we have now, that assumption is moronic.
Anyway, we look to buy when velocity is low and spend when velocity is fast.
NVT Conclusion
History has shown that when the NVT begins to touch the red zone that price action begins to heat up. Velocity is increasing and continues to increase until bitcoin is so hot that most people cannot afford to buy it, or resist the temptation of selling it. The current indicator action suggest rapid increases in price are coming for the next 500-700 days.
On Balance Volume
The on Balance Volume can be a great tool within itself, but there is some difficulty in using it with bitcoin, because the supply of bitcoin is always increasing. This is why indicators on top of indicators can be so useful. We can clearly see that when OBV is below the 100 SMA that bitcoin is in a bear market and when price finally closes above we are in a bull market. Of course, crypto bull markets are plagued by 50-70% pull backs but technically they are bull markets all the same. (And one more reason to have a pull back strategy).
When the OBV passes below the 100 SMA it is a sign of continued sell pressure. In other words, it is already a bit late to be selling. When the OBV passes above the 100 SMA it is a sign that the selling pressure is letting off and the market is about to shift its overall momentum. This is especially true over higher time frames like the weekly or monthly.
Conclusion
I think it is clear we are in a crypto bull market that is picking up steam. On January 15th of this year I posted the idea Four Simple Reasons Bitcoin Bear Market Ended This Week when prices were at 20.8k and prices have not returned to that level. (I tried to link the idea but it showed over them main chart.)
That idea used many of the same indicators that this idea is using. I am not in bitcoin. O have, as they say, moved up the risk curve into lower market cap project I favor now. I hope they run early and I can rotate out of them into other projects.
I don’t think I will be able to sell the very top of this crypto market. But I do think I will be able to sell high after being in the impulse of the move and then buy back at much lower prices. Rince and repeat every halving cycle.
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