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The trend identified is the logarithmic growth curve [LGC]. It’s a phenomenon
to be found elsewhere in nature - something first exhibits explosive growth,
then sees that growth increasingly taper off until eventually achieving a
plateau. If the developing market price of Bitcoin exhibits an LGC, then this
suggests that Bitcoin, an incredibly intricate technology, is also [or more
strictly, it’s market price] is something of a force of nature [this makes sense
when you think of a market as a great mass of people that bid up and down
prices]. The nature of this LGC has been previously discussed in an article two
years ago, where not only was the LGC first analyzed, but also used in a more
technical sense in order to predict price development. Those predictions made
back then have largely been confirmed. This current article is something of a
companion piece to that previous one.
https://medium.com/max-exchange/bitcoin-the-logarithmic-growth-curve-by-
dave-the-wave-a2ef93b02df1
Where technical analysis seeks to predict future price, the logarithmic growth
curve [LGC] provides an over-arching model for such predictions. Like any
model, it should perform by having both predictive/ testable and explanatory
aspects to it. In doing so, models serve to set out a rational case for a
reasonable belief in something, which, in our case, amounts to whether longer
term investment in Bitcoin might actually make sense at this particular point in
time.
Where gold has been fully capitalized over millennia, BTC has only had a
decade to get going, and so is currently in that rapid process. It is this rapid
process of capitalization that the LGC maps – first you see explosive growth,
and then that growth, while remaining explosive, diminishes in relative terms.
And of course, this is what you want from an alternative currency that is to
function as a store of value - eventual price discovery and relative stability.
With the capitalization of a nascent currency in mind, the more interesting
chart that compares Bitcoin and gold is that which removes the third party of
USD altogether - one that simply prices BTC in gold per se.
Figure 4. Bitcoin as priced in gold.
Here also, you see a logarithmic growth curve [LGC] developing, and one
predictive of price direction. It further supports the notion that Bitcoin is in the
process of capitalization. It also serves to further confirm the LGC as seen
developing in the BTC/ USD chart.
As Bitcoin matures in the marketplace, as it becomes increasingly capitalized,
as liquidity increases, so too you’d expect to see a decreasing volatility in the
macro cycles. And this is exactly what has been observed in the past.
Extrapolate that trend, and price eventually plateaus, in relative terms, in the
not too distant future. Looking at the LGC [figure 1], this may take a couple of
decades. For the investor, this involves the notion of a diminishing ROI [return
on investment]. Though the gains may no longer be astronomical, they are still
projected to be stratospheric. And what is lost in the ‘wild west’ that was the
early days of bitcoin, may be gained by seeing it mature into a more stable
store of value.
Once the dual nature of Bitcoin is established, as both a currency and an asset,
in much the way that gold is, any investor attracted to gold as part of their
portfolio is likewise going to be attracted to Bitcoin… with the added benefit
that this nascent currency has yet to be fully capitalized. Securing a position in
both gold and Bitcoin offers that diversification which is always a fundamental
consideration of any conservative portfolio.
Returning to the USD chart. As discussed, Bitcoin can clearly be seen to track a
long-term trend, the LGC. For two years now [original article linked], price has
tracked along a predicted narrow band at the base of the converging channel.
This lower band I refer to as the ‘buy zone’. Currently, price is near the buy
zone, and so an investment in a few tranches over a reasonable period of time
would be appropriate insofar as one considered the LGC the long-term trend.
The following and final chart shows the relative appreciation of both Bitcoin
and ETH as priced in USD.
After explosive growth [arguably two cycles in one as compared to BTC], ETH
has managed to keep pace with BTC since the bottom put in near two years
ago now. Along the lines of diversification, and the strategy discussed above, it
certainly seems a reasonable [if more speculative] investment to layer in on
top of BTC. The same could be said of other alternative coins such as NEO,
ADA, and LINK, to name just a few. Depending on how speculative one wanted
to get, they would rise like a great chain of speculation from the base that is
Bitcoin. The cyclical history of Crypto essentially maps the rise and fall of this
speculative excess, one that no doubt the more fleet-footed trader is more
comfortable with than the investor.
This article has hoped to not only illustrate the case for a conservative
investment into Bitcoin via the chart, but to also give a rationale as to why that
investment could make sense given the uncertainty surrounding the larger
macro-economic outcome. In both an inflationary and deflationary world,
Bitcoin should continue to perform well [even if volatile] as both an inflation
hedge and a form of liquidity, albeit a nascent one. It has not been my aim to
give some proof, with fundamentals or with mathematics, as to the value of
investing in Bitcoin, as the wary and seasoned investor is more than likely to
give a wry smile and then run a mile when faced with such certainties. Rather,
it’s been my aim to provide a pragmatic outlook on BTC, with a predictive chart
and a macro explanation. Just as investors might want to buy gold as a hedge,
as insurance, as diversification, and as a store of value, so too they might want
to consider buying Bitcoin. Of course, there are no certainties, and all bull
markets climb a wall of worry, though Bitcoin’s wall of worry I believe, is the
logarithmic growth curve.
For further charts and information feel free to follow me on Crypto Twitter
@davthewave where I post charts regularly on Bitcoin. If interested further in
the more speculative alt coins, and wider strategies of the trading and hedging
of Crypto currencies, I can be followed on my subscription-based Twitter
account @davthewavealts.