It’s important to put into context the duration or time-frame when we refer to markets. Is Bitcoin in a bear market?
We have to think about risk and movement in markets across multiple durations. There are always trends and currents flowing. We need to breakdown these movements and patterns into distinct timeframes. Markets are fractal in nature. Similar patterns emerge over and over on different timeframes. Smaller micro trends keep building into the larger macro trends. Understanding this multi-duration and fractal design of markets allows us to analyze markets better and improve the trading and investment process.
I want to explore the differences in trends across multiple durations for Bitcoin and compare that to a more established market like the S&P500. Many pundits, talking heads, and headlines recently have touted that “Bitcoin is clearly in a very deep bear market right now” and “Bitcoin ‘Death Cross’ Lures Market Bears”. These types of characterizations ignore the long-term timeframe. It also fails to describe the intermediate-term weakness compared with the trend of the higher time frames. Bitcoin has not entered into a bear market longer-term. We can clearly see this when we analyze price on a logarithmic scale. (See below chart).
The logarithmic scaling is a nonlinear scale. Prices are plotted so that the scale is not positioned equidistantly. Instead, the scale is plotted in such a way that two equal percent changes are mapped as the same vertical space or distance on the chart. This allows for a better visual of the moves that happened further back in time, as opposed to the linear chart where the most recent run up overshadows previous bull moves. We can see in the above chart that there clearly have not been any major long-term lower lows, which by definition is the correct way to define a down trend – lower-lows and lower-highs. Here we see BTC has made consistent long-term higher-lows and has held the uptrend.
Conversely, if we look at the S&P500 index over the last few decades, we can see in the below chart what a logarithmic chart making Lower Lows looks like.
Both recessions, the one in 2000-2001 and the great recession most recently in 2008-2009, produced very clear weekly patterns of lower lows and lower highs. That is what a real bear market looks like. Even the US GDP periods of growth slowing in 2011 and most recently in 2015/2016, we saw slowing but not an official recession. Lower lows also printed on the SPX. Clearly when we put these long-term price charts in perspective, we see that Bitcoin remains in a long-term bull market. Only the intermediate-term trend turned down the last several weeks and months.
Here is a linear chart of BTC that shows the initial move down to $6k in February, followed by the retest of this same area last week. This is the exact spot that price needed to hold in order to maintain this long-term bullish posture of higher lows.
Now when we look at the intermediate-term trend of Bitcoin, this is indeed a bear market on the 4 hour time frame. We can see the market in a pattern of lower-highs and lower-lows.
Understanding multiple durations and timeframes is key to structuring successful trades. At BlockEdge Capital, we see a clear long term opportunity at $6k and $7k and have been buyers. Once we see BTC finally turn back up to bullish on the intermediate-term, more momentum should return on the upside. We will begin to get more aggressive with our position sizing and adding to our long term core positions.