Cryptoverse Weekly #7: Four Crypto Buy Signals Make a Trend: +68%, +44.7%, +42.7% and +23%

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Bitcoin Mining Hashrate Model projects +68%

During the last four weeks, we have turned decisively constructive on the crypto market (see here, here, here and here). Historically, the crypto market tends to fall into a low until approximately 18 months ahead of the next Bitcoin mining halving reward change. The next halving is projected to take place in March 2024 which forecasted the low for some time around September 2022 (+ / - 2months).

During those pre-halving consolidation periods, we projected that Bitcoin prices would tend to decline by -60% and subsequently, this would bring negative news and exposing bad actors along with it. Driven by data, we have turned bullish a month ago as several of our investment and trading models have turned constructive on the market. In our view, there is a strong likelihood that the rally would continue.

Last week, we showed that our Bitcoin Mining Hashrate Model has triggered a new buy signal. Over the last decade, this model has flashed 11 times ‘buy’ with 10 of those signals showing positive returns after three months (average return +68%) and after six months (average return +108%).

This hashrate model tries to capture the moment when Bitcoin mining companies have plugged in their machines again as it has become profitable to run a mining operation after they have switched them off before. It’s very difficult to argue against those odds, in our view.

Ethereum Short-Term High Model projects +44.7%

As we mentioned last week, Ethereum prices have also reached a new short-term high and during similar occasions, Ethereum rallied, on average, by +44.7% over the following two months.

The odds also appear very strong for this signal with only one negative price return during the last ten observations. A potential catalyst remains the ETH2.0 Merge which has been projected to occur during the week of September 19, 2022, by ETH Foundation developer Tim Beiko.

Therefore, we have a ‘news’ item catalyst (the Merge, potentially coming around September 19th after several delays) as well as a ‘price’ catalyst – a short-term high.

Ethereum Price Range Model projects +42.7%

Ethereum prices have shown remarkable resistance during the last few weeks while various protocols and investment firms declared bankruptcy and the risk of a fire sale was high, according to some commentators. With declining fee revenue and a lack of user participation, notably within the NFT sector, Ethereum’s ability to generate fees which could be passed on towards Ethereum holders has become low. At the same time, staking ETH has become risky.

But there is more positive price action: Ethereum has also broken out of a consolidation period which triggered a new price range signal. During similar occasions, Ethereum prices had an average return of +42.7% over the following two months based on 10 historical observations with 9 of those showing positive returns (90%) hit ratio.

The projected future returns are also quite strong based on the ten historical precedents as notably the only negative return was observed in May 2020 when the signal return was just -1.1% while the average return has been +42.7% over the following two months.

Ethereum’s Seasonality Model projects +23%

While Ethereum has only been in existence half a decade ago, the time window from mid-July to mid-September (two months), appears to be quite favorable. Historically, Ethereum prices have traded +23% higher during those time periods with 5 out of those 6 ‘summers’ showing positive returns (83% hit ratio).

So overall, we have presented four different models: one model to project prices for Bitcoin (+68% over the next three months) and three for Ethereum which project prices to rise: +44.7%, +42.7% and +23% for the following months.

While Mark Twain is credited for saying that ‘History doesn’t repeat itself, but it often rhymes’ – we believe in ‘investing with odds in your favor’ applying appropriate risk management, there is now arguably an attractive risk / reward opportunity for being exposed to crypto and its upside.

These models are just a continuation and confirmation of the bullish (constructive investment) view we are having for the last four weeks already. Therefore, we continue to hold the conviction that this is an opportune juncture to switch from market neutral strategies towards ‘market exposure’ strategies to capture the upside.

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