Why Bitcoin Could Crash to $12,000

I always say that charts are a great way to predict the past. Surprisingly, this can make them very useful. They can’t predict the unpredictable, but – as we know – the past has a big influence on the future because signal and noise are nested, and when you can measure the underlying signal, it’s a guide to what happens next. Perfect markets are random, but few markets are perfect, especially these days with markets “curated” by regulators with their liquidity rigging.

People are not only fooled by randomness, but they are also often unaware of signaling as well. You may act casual, but you’re still in your car at roughly the same time and going to work in roughly the same place. Even if you randomly parked your car in a different bay when you arrived and adjusted your chair a little to how you sat the day before, today’s drive is not random. Signal and noise are rolled together and signal is normally a large element of what goes through everything which makes things quite predictable. Sure, you might break down on the way to the office, get called home for an emergency, or have a “moment” and go fishing instead, but essentially the signal is a pretty high component of your wavefunction.

It’s the same with stock charts, which is why moving averages are so popular. The less efficient the market, the bigger the signal. I consider crypto to be a fairly inefficient market, and it certainly has been. It has therefore suited my technical analysis quite well. You can see the noise in the bitcoin chart and you can see the fractals in it, which are themselves the result of partly non-random events.

Fractals are a bit of a mystery to people, but you can imagine them this way: get a sheet of copper and a ball-peen hammer; hammer loose on the sheet as much as you like. Pretty soon you have a fractal pattern on the copper sheet that is very recognizable and somewhat repetitive in a hard to predict way. This is because the pattern is created by roughly the same action, acting on roughly the same metal substrate by roughly the same hammer face with roughly the same force within a defined area. Nature is full of these fractal patterns because the rain falls in roughly the same way on roughly the same mountain and roughly the same waves wash up on roughly the same shore and roughly the same wind blows on roughly the same fluffy cloud and so on. In the markets, it’s pretty much the same people, making pretty much the same decisions in about… you get the idea. This injects fractals into charts. “About” is the random element, the rest is the signal.

Of course, a big ol’ meteor strike will destroy the party, markets and all. However, these processes produce patterns that reveal the processes themselves.

So here is bitcoin’s chart.

I have drawn some speculative lines. I have been extrapolating this level of $12,000 to $13,000 for a very long time – one way or another. The track record of my scribbling career is here on Forbes to see, and it’s not too bad. If you care to go back here on Forbes, you’ll see me calling crypto off its 2020 lows and calling it back under $20,000 again.

In a sense, I am comfortable with the $20,000 level for bitcoin and am just resisting the temptation to start a slow accumulation program at these prices. As a bitcoin and crypto believer, I see long-term prices will be multiples of current levels, so buying now and watching the price halve is no big deal; the losses will wash out later. But I resist, I’m not that good as an investor. I prefer to stay away for now with a strong intuition that there is another leg down.

BitcoinBTC
can break towards $10,000 at any time, but underestimating the time it takes for an asset to fall to a low is an easy mistake to make.

Then there’s a big metaphorical asteroid out there that could turn things upside down in crypto, and that’s the etherETH
eum V2 launch (the merge), which is currently scheduled for release in September. Friday’s (August 19, 2022) dump was likely driven by options expiration, so until the Ethereum (proof-of-stake) fork passes, crypto generally remains a waiting game.

My view is that we appear to be in a bear market recovery and that the final bottom of the bear market has not yet been established, nor has there been a satisfactory moment of capitulation. For uncertain investors it must be a game of wait and see, but for traders there is still a lot of noise and volatility to trade and they have no reason to stop their risky endeavours.

I leave the fun to the traders and wait.