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How to prepare for the end of the bull run, Part 1: Timing


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How to prepare for the end of the bull run, Part 1: Timing​

"Do we have all the tools to time the top? We've got probably the best amount of insight you could possibly have."​

Andrew Fenton
by Andrew Fenton
September 3, 2021
in Features

Bobby Lee “blames” his brother Charlie — the founder of Litecoin — for causing the 2017/2018 Bitcoin price crash.
He’s joking of course. Sort of.
Charlie famously sold the last tranche of his Litecoin holdings in December 2017 for $350 each.
Bobby remembers seeing the news hit Twitter. “I was like, gosh, that probably marks the peak,” he says.
“I said to him jokingly, like ‘you just caused the end of the bull market’.”
Of course, Charlie wasn’t the real reason the bull market ended, but it was a stunning piece of market timing, given he sold the last of three tranches of LTC at almost the exact top. It was no fluke either, as Charlie had predicted in early December that a “multi-year bear market” with 90% drawdowns was imminent.
The question is whether ordinary crypto traders and hodlers can follow Charlie’s lead and sell out at the next market peak, allowing them to buy back in and accumulate more at the bottom.
It’s a difficult feat to pull off and most people are more likely to follow the footsteps of podcaster Peter McCormack, who famously got caught up in the hype of 2017 and watched his Bitcoin portfolio skyrocket to $1.2 million… and then plunge back to near zero after he was forced to sell his stash to pay the bills in the depths of crypto winter.

Some of the biggest brains in crypto have been working on this problem, from onchain analyst Willy Woo to David Puell of Puell Multiple fame and Decentrader’s Filbfilb and Philip Swift. Around 2018, they began devising metrics and indicators based on historical patterns to help determine when the peaks and troughs will be approaching.
There is a range of views as to whether timing the market is even possible. Bobby Lee swears by the halving price cycles, while Quantum Economics’ Mati Greenspan and Wolf of All Streets’ Scott Melker believe it’s best to follow sensible rules on profit taking and portfolio construction that don’t require you to predict events in advance.
The unpredictability of markets was evident while writing this story, which I started writing in April and then had to put it on hold for four months after news out of China and Elon Musk’s Twitter account nuked the markets and made the bull run seem like a distant memory.
Spoiler alert: All of the commentators interviewed agree that you should try and take profits on the way up.

Every crypto bull run I've seen has been followed by a bear cycle. The market needs time to consolidate. That's just my experience from 7 years of watching this space.
How low and how long it will be is TBD. People need to be aware of this possibility and invest responsibly. https://t.co/ozcR11N68o
— Charlie Lee [LTC⚡] (@SatoshiLite) December 11, 2017

History lessons: Four more years​

Bitcoin hasn’t been around long enough to draw any firm conclusions from the historical record, but there’s a widespread belief it moves in predictable cycles related to The Halving.
That’s when the block reward Bitcoin miners receive is cut in half every fourth year, which reduces the issuance of new Bitcoin. The theory is that less Bitcoin equals higher prices, and during each halving so far, the price has bottomed out in the lead up and hit new all-time highs afterward.
Lee has been a proponent of the idea for almost a decade and presented the concept during a December 2013 talk at Stanford University.
“I’m a simple man,” says Lee, CEO of Ballet and author of the new book ‘The Promise of Bitcoin’. “I can’t predict the future but based on my gut intuition and based on my 10 years of experience on this, I think these price cycles mimic the block reward halving. It’s a true economic lever that happens to Bitcoin, where the production rate goes down by half.”
“In each case, the price movement upwards happens on a delayed basis compared to the block reward halving.”
If the theory is correct — and it seems to have worked out so far — it only accounts for supply and not demand, and it’s still not that helpful in determining when markets are set to peak. The first halving saw the price bottom a year before and peak a year after. The second and third halvings saw the price bottom and peak more than 500 days from the halving.
April’s peak only marked an increase of three times over the previous high, meaning Lee thinks this cycle still has a long way to go.
“In my experience, bull markets don’t end up nearly just three times the previous high, they easily go 10 times, 20 times, even 30 times. So, conservatively, if it goes 15 or 16 times the previous high, that takes us to $300,000.”

Topper and popper​

There are two things you can do with this information: You can try and sell out at, or just before, peak prices. Or you can just hang on, with the expectation that prices will invariably rise even higher in four years’ time.
The second option is a lot easier. It’s particularly tricky to recognize the peak of the market because most people get carried away with euphoria at their stunning portfolio gains. Lee says rapidly inflating prices is actually the best indication that the top has arrived.
“If it doubles within a 24-hour period, then for sure that’s the peak,” he says.

Crypto trader Scott Melker, better known as The Wolf of All Streets, agrees. He began investing in Bitcoin in 2016 and had a front-row seat for the 2017 bull market and subsequent crash.
“I don’t think that there was much sentiment among the masses that the music was going to come to an end anytime soon, to be frank,” he says.
“Retail was piling in towards the top, believing that the Bitcoin price was going to $100,000. And obviously, it stopped at around $20K. I think most people failed to make any profit and rode the entire market all the way down through the crypto winter.”

On-chain and technical indicators​

The dramatic crash from the 2017 all-time high inspired numerous analysts to devise tools that could help predict the next one, explains Decentrader co-founder Filbfilb. They picked through the blockchain and market data over the past 12 years to determine the relationships between profits, participants, supply and the market’s ups and downs.
“There are some really brilliant minds who came up with some fantastic on-chain derivative tools to allow us to try and understand how different market participants might be behaving,” he says, adding:
“David Puell, for example, Phil Swift, Murad Mahmudov… we sort of came up with all this stuff in the depths of the bear market to make sure that we’d be able to call the next top.”
Filbfilb says that crypto markets are almost unique in the amount of data that’s available to chart, due to the radical transparency of the blockchain.
“Do we have all the tools to time the top? We’ve got probably the best amount of insight you could possibly have if you compare us to something like the market for gold, where it’s just impossible to see that sort of data.”

The MVRV Z-Score (LookIntoBitcoin.com)

Three of the best​

There are about a million different tools available, but in Filbfilb’s opinion two of the most important are the Puell Multiple which looks at how in profit miners are and the MVRV-Z score which looks at the current price relative to what each Bitcoin was purchased for. Both of these charts can be explored for free.
“The MVRV-Z score is very good because it tells you how in-profit the investors are,” he explains.
The idea is that if the average price market participants bought Bitcoin when it was at $1000 and the price has now increased to $20,000, they are much more likely to cash out than a market in which most people bought Bitcoin at $15,000.
“If the MVRV-Z score goes up to the upper band, it means that all holders of Bitcoin are in supernormal profits versus the time when they bought the Bitcoin. So, that is something which would lead you to believe that people might be imminently thinking about taking profits and going and buying Lambos.”
While this chart might stop working if we enter a period of hyperinflation, it has been backtested and, so far, it has correctly indicated the top within about a week. So, when your hairdresser or pharmacist starts doling out advice on which coins you should go all-in on, it might be time to start consulting this chart more frequently.
Filbfilb says another very valuable tool is the Puell Multiple, which shows how profitable miners are today versus how they’ve been for the last 365 days.
“If they all of a sudden went into this massive supernormal profit basis, then they’re a business at the end of the day and they’re likely to dump their coins,” he says. “From an investor’s point of view and from a supply point of view, both of those are very important.”

The Puell Multiple (LookIntoBitcoin.com)

Hodlers don’t sell cheap​

Decentrader’s other founder Philip Swift adds that the 1yr+ HODL wave chart is another useful indicator that’s based on the market psychology of HODLers.
“It is an on-chain tool that shows the proportion of Bitcoin that has been HODLed for at least a year. There is a clear cyclical pattern where the 1yr HODL wave line has trended inversely to price over time. That is because in bear markets, HODLers accumulate and don’t want to sell their BTC at cheap prices. So, the 1yr HODL rate rises.”
“As we progress into bull markets, those HODL’ers want to realize their profits as price increases. They start to sell their Bitcoin which we can see by the Bitcoin leaving their wallets. This brings down the 1yr HODL level,” he explains.
“The 1yr HODL level is currently sitting at 53% and is likely to be around 47% when we finally top out. So, we have a long way to go before the end of the cycle.”

1yr HODL wave chart was briefly down on the site but is now up and running again
It continues to show that HODL'ers have no interest in selling at these levels. Expectation is for much higher prices
I don't think that HODL line will significantly drop until +$100k #Bitcoin pic.twitter.com/ucqGZX7590
— Philip Swift (@PositiveCrypto) August 13, 2021

Most people probably won’t have time to learn and understand all the other different tools, simply because there are so many. Technical analysis charts include two year MA multiplier, 200-week moving average heatmap, stock to flow model, Pi Cycle Top indicator, golden ratio multiplier, Bitcoin profitable days and BTC logarithmic growth curves.
On-chain indicators include RHODL waves, RHODL ratio, advanced NVT signal, relative unrealized profit/loss, Bitcoin network momentum, reserve risk, active addresses sentiment indicator and spent output profit ratio.
Decentrader has developed a meta-tool called Bitcoin KPI which assigns scores of out of 100 to each chart. “It’s really difficult to go through 50 different charts to get you and then try and consolidate that into actually what’s going on here,” says Filbfilb, adding: “So, what we’ve tried to do is create like a high-level view.
“All of these things get pulled into one snapshot. And then you get a score. And you can see how far through the cycle you are. How overheated is the market,” he says.

Decentrader’s Bitcoin KPI tool.

A note of caution​

Of course, there are a few provisos with these tools. Many are based on the premise that it is Bitcoin leading the entire crypto market up and down, which will probably be true, but it’s within the bounds of possibility that Ethereum might overtake it as the market-leading cryptocurrency.
And, as the China mining FUD and Elon Musk’s tweets demonstrated in April and May, these indicators won’t save your stash from a black swan event that could cause the markets to crash and potentially usher in a new bear market.
Quantum Economics founder Mati Greenspan points out that history sometimes rhymes but it does not predict the future.
“People like to get confused and say, ‘Oh, well, just because this has happened X amount of times, then just because X has happened then Y will happen afterward.’ It doesn’t always mean anything.”



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Sell or hodl? How to prepare for the end of the bull run, Part 2​

“People should be taking profit on the way up just as you should be dollar-cost averaging into an asset on the way down.”​

Andrew Fenton
by Andrew Fenton
September 8, 2021
in Features

To read Part 1 of “How to prepare for the end of the bull run,” click here.

So, you’ve made a million bucks this cycle and you’re trying to work out how to transform those life-changing gains into money in the real world before the inevitable crash.
But at the same time, you don’t want to sell now and miss out on potential upside. So, what should you do?
For Quantum Economics founder Mati Greenspan, the answer is simple: Be optimistic. He’s not an advocate of trying to time the market.
“As somebody who has been trading my entire life — I mean, way before cryptocurrencies — you’ll find that it always pays to be optimistic, and pulling out your money from the market has almost never been a good long-term strategy. Not for any market over almost any time frame.”
Greenspan points out that even those few people who bought Bitcoin at the top of the 2017 bull run are up 250% just three and a half years later.
“Anybody who was wise enough to foresee the crypto winter and took all of their money out, when do you get back in? Nobody can time the markets to a T. The best we can do is to kind of figure out, given the information that we have, what are the best investments to make over time.”

Mati Greenspan
Quantum Economics founder Mati Greenspan.

No one can predict the top​

Unlike Decentrader analysts Filbfilb and Philip Swift in Part 1, Greenspan doesn’t believe it’s possible to use on-chain indicators to accurately foresee the end of a bull run. He warns that unexpected events like bad regulatory news from China or a tweet from Elon Musk can occur at any moment, sending markets into bear mode.
Filbfilb says that this is why good traders don’t just look at one type of data but consider on-chain analysis in the context of sentiment, cyclical data, technical analysis and everything else to gauge where the market is headed.
“If you’re sort of sitting around waiting for some on-chain analysis to tell you the answer, and we have a black swan event, you’re not going to do anything about it in time,” says Filbfilb. He adds that even black swan events don’t present major issues for sophisticated traders, pointing out that the March 2020 “Black Thursday” crash had been foreshadowed for weeks:
“If that kind of thing were to happen again, as a trader myself, I would have enough time to take action. I’m in and out of the market all the time.”
“For me, it’s a much more fluid situation. I’ve got other tools, like I know how to hedge. I’ve got other different ways of managing risk, which means I don’t necessarily have to sell my Bitcoin in order to get myself into a position where I can cover any downside risk.”
Needless to say, it takes a lot of hard work, time and training to be able to play the market like Filbfilb. What about the rest of us?
Filbfilb recommends taking enough profit to keep yourself happy in the downturn. “If you’ve made life-changing money, consider changing your life a little bit now. For me, I personally have done that — I’ve taken some money off the table,” he says.
“What that’s allowed me to do is to sort of be able to hold on for the rest of the cycle, potentially to much higher prices.”

Scott Melker
Scott Melker is the Wolf of All Streets.

Profit from profit-taking​

Scott Melker, also known as “The Wolf of All Streets,” agrees that taking profits on your trades all the way up is the key to success, whether at predetermined levels or more randomly. “People should be taking profit on the way up just as you should be dollar-cost averaging into an asset on the way down,” he says.
“I’m a firm believer that once your investment has doubled, take your initial investment off the table. So, if it was $100,000, now you’ve got $100,000 to play with, and you have absolutely no risk.”
This has the added benefit of reducing the chance that you’ll make a big mistake by selling too early, too late or too much, when you believe the top has arrived.
“You know, when you’re taking profits, every time you sell something you’re taking the pressure off your future decisions. Which is mentally a very good place to be.”
He adds, however, that you are allowed to have diamond hands with your high-conviction, long-term holds. “I buy Bitcoin for my kids — I am not worried about cycles,” he says.

The constant process of adjustment​

Greenspan’s approach is to take profits when he needs the money, and he switches his allocations from coins that have had a big run-up to newer projects he believes will perform better in the future. He tends to take profits 10% at a time at various stages — back in Bitcoin or to cycle into new investments.
“You can limit the downside in your portfolio while maintaining upside potential through diversification,” he says.
While he’s not convinced it’s even possible to identify the market’s top when it occurs, he points out that it’s usually fairly obvious when you are in a bear market or bull market — so, you should act accordingly.
“Prices are going down, and they’re expected to go down: That’s the time to reduce exposure. I don’t see any reason to try and pinpoint the top,” he says.
“We can recognize when we’re in a bear market — that’s the time to hunker down. So, take things in, consolidate your portfolio, take off the leveraged bets,” he adds.

this JPEG of a tulip is selling for $3.2 million pic.twitter.com/7ppboKsBwO
— Turner Novak (@TurnerNovak) August 29, 2021

Having witnessed the end of the 2017 bull market, Melker says that peak euphoria and overly bullish sentiment from retail newcomers are the most reliable top signals.
“Sentiment will be a better indication than charts,” he says. “We saw it in 2017 when people who have never heard of crypto before and still don’t understand it are telling you how they need to buy it.”
He recalls a friend’s nanny buying “shares of Ripples” after seeing it on CNBC in 2017. “Those are pretty major top signals,” he says.
“If you’re looking at a chart, maybe it’s a shooting star candle on the monthly where the price went way up and comes all the way back down and had this long wick up on massive volume bigger than anything you’ve seen previously. Those are the kinds of things you look for. There’s peak euphoria and then the price not being able to advance on that euphoria.”
While the excitement around dog tokens like Shiba Inu and memecoins on Binance Smart Chain seemed like top signals a few months ago, Melker believes that crypto is now big enough for bubbles to expand and pop in various pockets of the market without tanking everything. He points to DeFi Summer along with this year’s rise and fall — and rise again — of NFTs as examples.
“Things like DOGE and Safemoon are their own insular bubbles, in my opinion, but I do not think that they’re indicative of a larger bubble of the entire market,” he says. “If we see that sort of behavior on Ethereum or Bitcoin, it will be time to take notice.”

BTC market cap since 2013
Bitcoin’s market cap has gone up and up since 2013.

Zoom out​

Greenspan says the focus on trying to pick the end of the cycle distracts people from the bigger picture. The way he sees it, the market has essentially been in one long bull run since the global financial crisis. Sometimes the price gets a little ahead of itself and pulls back temporarily, but the overall trajectory is up.
“What happened in 2014 for Bitcoin, the same thing happened in 2018 — it got ahead of itself,” he says. “I don’t think we’ll see another crypto winter like we did those two times.”

This is actually something on which all of the interviewees for this piece agreed: None of them foresee an 80% drop with a protracted grind along the bottom as was seen in 2018/2019.
“I think we’ll see some healthy corrections, but we’re continuing up,” says Melker. “I’ll be surprised if Bitcoin does not reach well into six figures in this cycle.”

Bobby Lee is the author of The Promise of Bitcoin.

Bobby Lee, CEO of Ballet and author of The Promise of Bitcoin, believes BTC is on its way to becoming a global reserve asset like gold, silver and bonds — that it’ll be worth millions and held by nation-states. “Bitcoin, in my mind, is worth at least one, two or even several million dollars,” he explains.
So, if you share this view, if you hodl for long enough you’ll become a winner. Even if you don’t, Lee advises to not give in to the temptation to try and sell out at the top so that you can buy more at the bottom.

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“It’s not possible — no one can catch the top,” he says, adding that not even his brother, Litecoin founder Charlie Lee, picked the exact top in 2017 to sell all of his stash.
“If you ask my brother, I don’t think he caught the top. […] He unloaded his Litecoin, but he didn’t unload all his crypto,” he says.
“The way to profit is to hodl all the way up to $100 trillion. But most people want to take some money off the table as it goes up. So, the prudent method is to set aside small amounts you must sell at fixed price intervals going all the way up to a million dollars.”

This time, it’s different?​

Increasingly, crypto’s best and brightest are starting to think that the era of four-year market cycles may be coming to an end and that the market is actually moving into a “supercycle” as mass adoption arrives. With institutions adding Bitcoin to their balance sheets and central banks embracing modern monetary theory and printing endless dollars as a policy, the industry is certainly entering uncharted waters this time around.
“There’s an argument are we going into a supercycle, which means that Bitcoin will effectively become the store of value,” Filbfilb says. “And if that happens, we may be in a much longer cycle.”
“If the dollar continues to be debased, etc., then there’s no reason why anybody would really start dumping their Bitcoin because there’s nowhere for the value to go.”

In a macro cycle context, long term investors are still climbing towards their peak accumulation, which marks bottoms. Early signs to me that the bull market may continue into 2022 and BTC is in the process of breaking free from the 4 year internal cycle from the halvenings.
— Willy Woo (@woonomic) August 18, 2021

Melker also believes that Bitcoin could potentially be in a supercycle and notes that time in the market beats timing the market.
“If you believe in Bitcoin one day will be six figures, if you believe it’s going to a million dollars, […] you just start buying,” he says. “If you invest money that you can afford to lose, and you do it with a long time frame in mind, then you don’t even have to be concerned about the top.”
“Like any other market in history, the best way to approach it is to slowly put money in that you will never need to touch and let it go to work for you for a long period of time. That’s how people have acquired generational wealth in the stock market since the beginning, and it should be no different with Bitcoin — except it’s accelerated.”



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Nobody ever went broke from taking a profit.


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Looks fairly cyclical.