I have heard many predictions about when to buy bitcoin and when to sell it.
As a HODLer and user with a long-term outlook, I can’t get too wrapped up in those. It’s hard to predict the future, even when you know what’s going to happen!
Sure, I have my own prediction, but that’s more of a thinking exercise to get a sense of how high and how long this thing can run. I’m no fortune teller.
I try to make up for that with a sound strategy based on data and a strong investment thesis. If you’re subscribed to Crypto is Easy, you know what that is. If not, read on.
Life is never perfect . . .
In an ideal world, bitcoin would continue to grow naturally and organically, with its price rising forever (though not in a straight line up).
Of course, that’s not realistic. People will not allow bitcoin to grow naturally and organically. They’d rather use it to make money.
As a result, we get big market cycles where bitcoin’s price goes really, really high and then crashes for a year or two. Greed pushes it up, fear pulls it down.
Follow the data
Fortunately, smart people have gathered lots of data on bitcoin. Almost twelve years’ worth, as of today’s date.
Thanks to the transparency of bitcoin’s blockchain, we can see changes in user behaviors, money entering and leaving the markets, gains and losses among bitcoin wallets, and lots of other information that correlates to long-term price movements. We can use that data to get a good idea of what to expect in certain situations.
With that data, I designed a plan for myself and other long-term investors to spot long-term market tops and bottoms with a fair amount of confidence.
After fooling around with the data for a while, I realized we only need to look at two indicators. Once those two indicators flash specific signals, the peak is near.
What are the indicators?
MVRV Z-Score and Puell Multiple.
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 actual gains. They sell, leading to a market crash.
Puell Multiple compares the price of newly-mined bitcoin to the market value at a given time. When the Puell Multiple goes way up, miners tend to dump on the market. As a result, the market crashes.
Here’s what their charts look like (skip if you hate charts):
Combined with some key moving price averages, we can use this data to pretty accurately predict the big market shifts—peaks and valleys. While we can’t know prices or timing, we can know with pretty high confidence which way the winds are blowing. Then we can prepare accordingly.
Using those signals
It’s hard to look at those charts and make much sense of them, and I don’t have a good way to explain the moving price averages.
For that reason, I put together a plan for subscribers of my newsletter, Crypto is Easy, for “When to Buy” and “When to Sell” bitcoin. With this plan, we can spot the market cycle peak and navigate the ups and downs along the way.
Backtesting the plan
If you had followed my plan in 2017, you would have sold half of your Bitcoin at about $16,000 and most of the rest between $14,000 and $19,000. The price peaked at about $20,000.
If you had followed my plan in 2013, you would have sold half of your Bitcoin at about $760 and most of the rest between $705 and $1,050. The price peaked at about $1,100.
Meanwhile, you would have bought each dip along the way.
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Looking at the big picture
Keep in mind, I’m happy to HODL and use my bitcoin forever. In fact, I hope to do so! My plan makes sure of two things:
- We take advantage of the dips.
- We protect our wealth from greedy and fearful people who will crash the markets once we get to the top of the next bull run.
Bitcoin crashes 2-3 times each year during a bull market. Our goal: take advantage of them when they happen and not get caught up in the FOMO between crashes.
As a result, we can chill, HODL, and use bitcoin however we like, with confidence that its value will go up and that we will sell before the next big, multiyear market crash.
Crypto is hard. Let’s make it easy. Relax and enjoy the ride!