Long-term trendline update

With the market finally starting to show more permanent signs of green after the pullback, it's time to update the long-term trendline again

Bit Brain loves his long-term trendlines, regular Bit Brainers will have seen quite a few of them already. As a firm believer in long-term logarithmic growth in the crypto market, I like to track that growth on the charts. I do so by means of trendlines.

These trendlines require constant tweaking and updating as new information becomes available. I have been accused of "fitting curves" before, to which I must reply:

"Yes, I am fitting curves, that's exactly what I'm doing."

The better I can get a curve to fit the data, the greater the chance that that curve will make accurate predictions of the future market. So I will keep improving my curves, keep incorporating the latest price data, keep "fitting" them in a never ending quest to make them more accurate and thus more capable of accurately predicting the long-term trends to come.

The last time I took a look at the major trendlines was about a month and a half ago, just after the bear market had expended itself. That post can be found here. It's time for an update.

Let's start with a look at the crypto Total Market Cap chart.

From https://coinmarketcap.com/charts/

The logarithmic growth is obvious, even to the completely untrained eye. But to extract something from the chart that is a little more useful than just a "general up-trend", we need to do some very basic Technical Analysis on that curve. All I really want to be able to do to it is to:

• Establish a base curve
• Define the limits of the price movement

This can be more challenging that it initially appears. The first problem is: "what to use?" The basic choice boils down to Total Crypto Market Cap vs Bitcoin alone.

Because Bitcoin was so dominant in the crypto market for years, it essentially was the crypto market. There was no real point in differentiating between the two. But in the last year-and-a-bit this has changed. Bitcoin has lost a huge chunk of market share. Some believe that this is a temporary situation. Bit Brain does not. Bit Brain believes that as blockchain technology comes into its own, the many "use cases" for it will come to the fore and all the other coins and tokens will continue to steal market share from BTC. Take a look at Bitcoin's historical market dominance and how that is now changing:

From https://coinmarketcap.com/charts/

A problem for me is that "Total Crypto Market Cap" is not an index I can find anywhere on an analytical platform (if someone knows of a place I can analyse total market cap, please let me know. And no, I'm not willing to pay to do so.) This limits me somewhat in terms of being able to apply all the fancy TA tools to Total Market Cap, but that doesn't really matter. I believe that a seasoned trader should be able to eyeball a chart without the need for all of that frippery, though obviously it has its benefits, especially when trying to explain something to someone else (unless they happen to be psychic).

Because of this I often substitute BTC for Total Market Cap. The approximation allows me to look at finer detail and to use the TA tools, but it should be borne in mind that the curve will be skewed due to the loss of BTC's market share (as we shall soon see).

Another problem with crypto is "Where to start?" While "At the beginning" may seem like an obvious answer, it's not a very useful one. The CMC charts go back as far as April 2013, but only start showing volume from December of that year. Some BTC charts on TradingView start within the last couple of years. Bitstamp goes back to 2011, but is the data there of any value to us? We shall see.

None of these issues will stop us from conducting our long-term trendline analysis, but they should be kept in mind while looking at the charts. Enough chatting, let's look at charts:

From https://coinmarketcap.com/charts/, modified by @bitbrain

This is the same logarithmic CMC chart from above, with the addition of a trendline. I don't like it. It doesn't look right, does it? It looks like a poor attempt to average the data, while failing to take various other factors into account. Surely we can do better!

Switching to TradingView allows us to construct curves and do some "curve fitting". We are forced to use the BTC chart, but it's good enough to use to approximate Total Market Cap.

Bitstamp exchange on TradingView goes back further than the history logged by CMC. Let's add in that historical data and take a look at what we get:

Made by @bitbrain with TradingView

I took the liberty of adding in an approximate average trendline. It doesn't really help either, does it? If anything, it's made things a little worse. Why did that happen? Because Bitcoin in its very early days was in "anomaly" territory. An outlier on a chart where the data is statistically questionable due to the small sample sizes from the very few trades that were taking place in 2011/2012. I don't want this data, it's unreliable and it is going to corrupt our charts, so I throw this part away whenever I look at trendlines:

Made by @bitbrain with TradingView

...which puts us right back at the start. With a straight trendline running parallel to these two big peaks and the large centre trough. Let's look at Trading View without the extra history:

Made by @bitbrain with TradingView

It look almost like the CMC chart, as it should. But I have a big problem with this chart, specifically with my own trendline. What it seems to suggest it that we have just finished another peak and should now drop off into another long through below the trendline! Now you can call me names and accuse me of being in denial, but I don't believe that for a second.

This is where TA really shows its limits and where the intelligent trader will step back and look at fundamentals instead. they will look at the rapid rise of altcoins, the decline of FUD, the beginning of legal, regulated trade for large investors such as hedge funds, the buy-in of major banking institutions and families, the uncertainty of the future of fiat currencies, the increasing awareness of crypto worldwide, the failure of crypto bans in various countries etc. They will see that there is practically zero chance of crypto stagnating in the medium to long-term future and they will know that a rise is imminent. They will know that this scenario is not a realistic one:

Made by @bitbrain with TradingView

$8800 Bitcoin at the start of 2019? Hah! Buyers should be so lucky!

Look, I'm not saying that prices will suddenly jump up and stay above the straight trendline again, but I do not expect them to make that big dip below it like they did before. But then this isn't really the trendline to use anyway...

I've strung you along for long enough now, it's time to show you what the charts should look like. But the journey was a necessary one. You need to understand where the data comes from. You need to understand why we build the curves the way we do. You need to know that because that knowledge will give you confidence and faith in your convictions with regard to future predictions.

Before I show you the final chart, remember one thing. It is a BTC chart. Since December BTC has lost about 20% of the total market share! It's lost about 50% of the market share in the last 15 months! This is vital to take into account because it affects the curve of the charts. Were we dealing with total Market Cap charts (as we should when looking at crypto as a whole) then they curves would turn upwards far more steeply towards the end. So after all that, here is my latest long-term trendline update:

Made by @bitbrain with TradingView

It's not Total Market Cap, it doesn't start in 2011 and the end of it is not curved upwards nearly enough, but now you know why.

Were it to be perfect then the top end would be far thinner. The left hand border trendline (max price) would move closer to the centre line because the Total Market Cap peaked about a month later than BTC did. The right hand border trendline (minimum price) would move closer to the centreline because of BTC's recent loss in market share. The main centre trendline would also be steeper toward the top end.

But as a rough tool of market movement for the foreseeable future, these trendlines will do just fine for now, and they should do very well if you are only interested in the performance of BTC.

Yours in crypto,
Bit Brain

DISCLAIMER:
I am neither a financial advisor nor a professional trader/investor. This is not financial advice, investment advice or trading advice. Unless otherwise stated, all my posts are my opinion and nothing more. Crypto is highly volatile and you can easily lose everything in crypto. You invest at your own risk! Information I post may be erroneous or construed as being misleading. I will not be held responsible for anything which is incorrect, missing, out-of-date or fabricated. Any information you use is done so at your own risk. Always Do Your Own Research (DYOR) and realise that you and you alone are responsible for your crypto portfolio and whatever happens to it.