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Worried About Bitcoin’s Price? Let Data Lead the Way

Bitcoin reveals the truth


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Mark Helfman

2 years ago | 7 min read

As a bitcoin writer, I get a lot of people asking whether “now” is a good time to buy bitcoin.

(Spoiler: it is always a good time to buy bitcoin, but some times are better than others.)

Check any website, social media platform, and chat group and you’ll see most people are obsessed with bitcoin’s price.

Nobody can predict that, no matter how many YouTube videos they publish or how many Twitter followers they have. Statistical models are great, but there are many and they all disagree with each other.

I’ve found the best insights come from looking at what people do with bitcoin and how those actions have historically led bitcoin’s price to change. After all, bitcoin doesn’t make its price go up and down, we do.

To figure that out, follow the data.

Bitcoin reveals the truth

Thanks to the transparency of bitcoin’s blockchain, we can see changes in HODLing behaviors, money entering and leaving exchanges, gains and losses among bitcoin wallets, and lots of other information that correlates to long-term price movements.

We’re talking about big shifts that play out over weeks and months, not days and hours.

It’s pretty compelling data.

Glassnode Academy has a great run-down of the different types of data here: Glassnode Academy.

Also, LookIntoBitcoin has some good charts and simple explanations. While its charts strip out a lot of nuance and detail, they simplify the data nicely (and for free, unlike the charts I use).

Very briefly, I’ll review my favorite data, then offer a suggestion of how to put this data to good use.

Scroll down to skip the charts and get to the bottom line.

Spotting the big market shifts

Data abounds and you can look at bitcoin from many, many directions.

I prefer to look at five charts — Puell Multiple, MVRV Z-Score, HODL Waves, Percent Supply in Profit, and aSOPR.

This data can’t tell you anything about the day to day movements in price. They look for big, long-term shifts in what people do with bitcoin. That is all that matters.

Puell Multiple

The Puell Multiple compares the price of newly-mined bitcoin to its market value at a given time. When the Puell Multiple goes way up, miners tend to dump on the market. Extreme readings suggest miners have a lot of bitcoin to unload. As a result, the market crashes.

Here’s an example of what the chart looks like, courtesy of LookIntoBitcoin:

Puell Multiple

MVRV Z-Score

MVRV Z-score measures the difference between bitcoin’s present price and the price people bought it for. When the score goes up, more people have big gains. As a result, they sell. Bitcoin’s price crashes.

Here’s an example of what the chart looks like, courtesy of LookIntoBitcoin:

MVRV Z-Score

HODL Waves

HODL waves show the amount of bitcoin that hasn’t moved over a certain period of time, displayed as waves on a chart.

Whenever long-term HODLers drop sharply, it means true believers, OGs, and whales have started selling. When that selling gets extreme, expect a crash.

Different charts break the waves down in different ways. Here’s an example of what the one-year HODL wave chart looks like, courtesy of LookIntoBitcoin (the pale line is the HODL wave):

One-Year HODL Wave

Percent Supply in Profit

This measures the percentage of bitcoins that are worth more now than when their owners bought them. When it hits 95% or higher, a crash always follows.

Here’s an example of the chart, courtesy of Glassode:

Percent Supply in Profit

aSOPR

aSOPR captures the value people put on their bitcoins based on how they exchange them with each other. When it trends up, bitcoin’s price tends to follow. When it trends down, bitcoin’s price tends to drop.

Here’s an example of the chart, courtesy of Glassnode:

aSOPR

Um . . . what? That’s a lot to take in . . .

Yes, it overwhelmed me, too, when I first started digging into it.

With this in mind, I designed a plan for myself and other long-term investors to spot market tops and bottoms simply, with a fair amount of confidence. It’s my plan for making the most of bitcoin’s bull market, which you can see here:

To follow that plan, you don’t need to know about any of the data or charts I just talked about. I simplified everything into three lines on a price chart, updated in real time.

Combined with a clear execution strategy, my plan makes sure we take advantage of the crashes while also getting out of the market once we get near that big, multiyear market cycle peak that always comes after greedy, impatient people enter the markets just looking to make a quick buck at our expense.

With my plan, you would’ve sold bitcoin when its price was in the three ranges circled in this chart of bitcoin’s price since 2011, below:

Price chart of bitcoin from mid-2011 to October 2020

Meanwhile, you would have missed the bear markets and bought each dip along the way.

The best laid plans . . .

While it’s nice to have a plan, keep in mind, my plan is designed for people like me who truly believe in bitcoin, will happily never sell, love any chance to use it, and only want to make sure we’re making the most of this amazing opportunity to stake our claims to the financial networks of the future.

We know once bitcoin’s price goes up for long enough, greedy people will probably swamp the market. Prices will boom. At that point, OGs, whales, and fake maximalists will sell their stakes, crashing the market and sending prices down for many months, possibly years.

(We have data on that, too.)

I may be a true believer, but I’m not a dumb believer. I’m not going to let other people crash the market and run off with my family’s wealth.

Also, it’s not certain to work that way forever. Sometimes patterns end. Correlations fail. History doesn’t always repeat — or even rhyme.

Build your own plan

For those reasons, you need to think about your own needs and create a strategy that works for you. There is no bad time to buy bitcoin.

If anything, once we get to the top of this next market cycle, you will feel like you didn’t buy enough, no matter how much bitcoin you have.

If you can spend some time learning about how to use this data, you can put yourself at an advantage, regardless of what the price does.

For example, instead of stacking sats when the price goes to $12,500, you will know to wait until the price drops to $10,000 or less — not because you’re guessing or trading, but because you will see very clear data suggesting bitcoin should crash sooner than later.

As a result, your money can go further.

(In this case, you’d get 25% more bitcoin for waiting.)

You can also know when we reach the end of this bull run. The data is clear.

Look beyond the money

Of course, anybody can make a plan. The question is, does it fit your goals and your mindset?

Do you really care about bitcoin or are you just trying to make more “fiat” money? What other assets and income do you have? How much can you put into the market and still have money for emergencies? Do you have adequate savings or strong cash flow? Do you have a lot of debt and not much savings or income?

Also, keep in mind, while you can pretty well predict the big market movements, you can’t predict the price.

When you see the percent supply in profit hit 98% and the aSOPR trend down while the relative strength index tops 90 and fear/greed index hits 80, you know to expect a significant crash — but you don’t know how much higher bitcoin’s price will go before it crashes, nor when that crash will come.

It’s possible — though not likely — that bitcoin’s price doubles before crashing 30%. Meaning, if you wait, you will still end up buying bitcoin at a higher price.

The data just puts the odds in your favor.

On top of that, buying dips doesn’t mean you always get the lowest possible price. Between one dip to the next, prices will go up. Within a dip, prices might go down further. Dips are your lowest-risk entries, not necessarily bitcoin’s lowest possible price at any moment.

No plan is perfect

For an asset as volatile as bitcoin, you can’t worry about the day-to-day swings.

In the end, you will never catch every top and bottom, every high and low. The point is to make the best decisions you can.

When you buy Bitcoin, are you buying when the risk is low and the upside is high? When you sell, are you selling at a time when you can feel confident the market will not recover?

There are many ways to skin a cat, but most serious investors would not focus on timing or price.

Instead, think about your overall goals and values. Have a clear investment thesis. Manage the risks involved with bitcoin. Follow the data.

Let the traders worry about timing and prices.

With good data, we don’t have to wonder about halvings, watch the charts, take profits, or chase after pumps.

We can use or hodl bitcoin as we want, go about our lives, and know that over the long run, we’ll be better off for it.

Relax and enjoy the ride.

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Created by

Mark Helfman

Crypto is Easy Newsletter

I help average people make the most of crypto markets. Writer of Crypto is Easy, a Top 10 newsletter on Substack. Also the author of three books and a top bitcoin writer on Medium and Hacker Noon.


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