Is It Time for the Top?

Throughout the year, the Weiss Crypto Ratings team has been beating the drum over the parabolic cycle and the upcoming parabolic blow-off top. It’s an exciting time for crypto investors.

But as late-cycle corrections spread fear, uncertainty and doubt through the market, many investors are wondering, “Can I time the top?”

Timing the market is tempting. Selling at the peak to maximize profit opportunities has obvious appeal. But Juan Villaverde says he resists the temptation. According to him and Alex Benfield, attempting to time the market is full of hidden drawbacks.

In our latest Weiss Crypto Sunday Special, Chris speaks with Juan and Alex to get to the bottom of what investors should be looking for to maximize their profits and reduce their exposure to risk when it comes to timing their trades.

You can watch the interview, or continue reading for the full transcript ...

Chris Coney:

Hi there, guys, and welcome to this week's edition of the Weiss Crypto Sunday special with me, your host, Chris Coney. I have two guests today. I have both Juan Villaverde and Alex Benfield. So guys, welcome back to the Sunday Special.

Juan Villaverde:

Thanks for doing this, Chris.

Alex Benfield:

Thanks for having us back.

Chris:

Nice meeting you guys. So very topical topic today. We're going to talk about timing the top of the crypto market. That's something that seems to be swirling around social media these days. A lot of hubbub about: Are we in a bad market already? Is it going to roll over any minute now? Have we rolled over? And do we have three months, six months to go, another year? Is it an extended bull market? Is it supercycle? All this sort of stuff. So that's what we're going to dig into, that sort of stuff, and provide the viewers as much value as possible.

So let's start off. I've got a whole list of ways that people use to time the top. And this is really just intended to show that it is not simple and that there are vastly different opinions about how to time the top. So the first thing I'll say, and Juan will probably agree with this is, the first mistake anyone could make is trying to get the exact top. So, better to sell 10% too early or 10% too late. That means you captured 90% of the market. That's a fantastic result, right? So, desperately, anxiously trying to get the absolute top … that's greed and that's a recipe for disaster. What do you guys think of that?

Juan:

100% agreed. I never try to do that. You can get lucky and catch some tops, but it's just luck.

Alex:

You're subconsciously trying to hit the top.

Juan:

Of course, you don't want to give up anything ... personally, my own trading strategy and what we offer in our services is, we try to get out after the top because it's easier to know after the fact. It's far more predictable, let's just say, what's going to happen after a top. And it's easier to identify than trying to capture or getting out of the market before it tops up, because there's many potential tops during a parabolic run.

And by the way, this is one of the things about tops. They all end in parabolic blow-off tops. So once the market is going parabolic, all bets are off, valuations really don't make a lot of sense. So don't try to attach some type of meaning, fundamental value, to price action. Markets just get irrational. And you usually see, along the way to the top, many even severe corrections that kind of look like this could be it.

So just because it’s gone up a lot, doesn’t mean it’s topping out. That’s one of the things that crypto has taught me. So, from my own perspective, I get out after the fact. I'm comfortable with that. I know I'm going to give up. I think you’re generous there with 10%, Chris; you usually give up 20%, but that's fine.

Chris:

OK.

Juan:

Cause you're up 500% in the past month, so that's okay. I can give up 20% of that.

Chris:

You're at 400% in that case, instead of 500%.

Juan:

There you go.

Chris:

... to be sure, right?

Juan:

Yeah, exactly.

Alex:

Yeah, and another thing you can do is to sell out in chunks. Like dollar-cost averaging out of market.

Chris:

Now that's strategy. That is strategy right there.

Alex:

Well, it's a simple strategy, right?

Chris:

That's an excellent point …

Alex:

You're covering your bet a little bit.

Chris:

We take the ball, though. That's absolutely critical because this is actually part of the two parts of it. There is analysis and the strategy.

So, analysis is all the things I've got listed here. People look at how many Google searches are being done for Bitcoin (BTC, Tech/Adoption Grade "A-"). All these indicators, like number of days after the halving, pie cycle top, the two-year moving average, the Bitcoin rainbow bands and all this sort of stuff, that's all technical analysis, indicators analysis.

But even if that does pick the top, the question is then strategy. Exactly how are you going to take your money out, right? Is that like you sell it all at the top, you sell it halfway up to the top. Do you ladder out, ladder in? That’s strategy, which is actually separate to analysis. So that was a very important thing for people to consider as well.

Juan:

Equally as important is to stick to your strategy. Once you have your strategy planned out, make sure you stick to that. That's a psychology of training as well. It's every bit as important as the other two aspects, because most people have a good strategy. These tend to be simple, like legging out of a trade, like slowly reducing your exposure. These all make sense, like dollar-cost averaging in a bull market. These all make sense.

Most people don't do them because they don't have the will to follow through with what they said they would. So, plan the trade and trade the plan.

Chris:

Which is fine, but …

Alex:

You can get caught up in motion …

Chris:

I was going to say …

Alex:

... at the end of the bull market, too. You think it might have a little bit left in it. You still keep going up or you feel that the market hasn't topped out yet, but you have to have some sort of plan that you're following.

Chris:

Especially if you…

Alex:

Even if you sold half your position and you think that there's still more upside to the market, at least you've now taken some profits.

Chris:

Yes. The thing is, it's like, what's is that Mike Tyson quote, "Everyone's got a plan till they get punched in the face." It reminds me of that. Cause everyone wants to be a boxer until the first lesson, and then they're like, "Oh, it's not for me."

So where am I going with that? This is the problem with people who are well-schooled in traditional investing. And Juan, you might actually admit you’re at the mercy of this a little bit — it calibrated your expectations of what is reasonable price depreciation.

So, when you see these ridiculous gains, it almost goes beyond the limits that we’re mentally programmed with. And my point here is when it goes truly parabolic, it’s almost like the deer in the headlights scenario where it totally overwhelms your mind … and you’ve never seen anything like this before. What do you do in that circumstance? And that’s the danger of your plan being thrown square out of the window.

Juan:

I struggle with that to this very day, this whole expectation of what’s considered to be reasonable in crypto. And this is why I have my own personal plan. I’m not saying this is what people need to do, but my own personal plan is to wait for the market to tell me that it’s topped out because I cannot rely on my instincts, because my instincts tell me that no, this thing has already gone far enough.

I study market cycles. I've seen what a true parabolic blow-off top looks like. I've studied each and every single one of them in Bitcoin, for example, or in Ethereum (ETH, Tech/Adoption Grade "A"). And I know that when you're living through it, when you're going through it in real time, you're not going to know. And if you come from traditional markets like I do, traditional finance … yeah, it really throws you for a loop. It really challenges your perception of what you think is possible.

Chris:

So you've programed that strategy, basically, into your timing model, right?

Juan:

Into my timing model, knowing that I'm not going to be able to know, because for me, a 100% rallying a year is a lot. And these things go up 10x, 100x. Once someone says 400x in some presale, I'm like, “What? How is that even possible?” It really challenges your preconceptions.

Chris:

Absolutely. I was going to make another point about that … there are two axes to consider as well. And this is your influence, Juan, about looking at the horizontal axis, which is the time axis, right? Or vertical axis, however you want to say it. So when you look at a candlestick chart, there's a time axis and a price axis. And up until I started learning from you, it was all price axis. And then you start predicting prices and doing technical analysis, purely on price.

And that's what everyone talks about … $500,000 Bitcoin, $1 milion Bitcoin, $100,000 Bitcoin. And people even still ask me now, "Chris, what's the top price going to be?" And I now say the same thing every time. I say, “The top isn't a price, it's a time. Because if you sell the top and buy the bottom, you don't really care what the price is. You just want to make sure you catch those peaks and troughs, right?

Juan:

Amen.

Chris:

But that's actually swung me far away from price as a consideration. I might be 80/20 now. I'm at 80% time analysis and 20% price analysis.

Alex, how do you think about that?

Alex:

Yeah, it's definitely harder to time the top of a market using price. And it's a lot easier to time the bottom using price, because I think it's a lot easier to figure out the real value of an asset during a bottom of a market, then figure out the speculative value at the top of a bull market, right? Because, as Juan said, once you start getting close to the top of these bull markets, price gets irrational. So it's a lot harder to pick your price targets on the way up than it is to find on the way down.

Chris:

That's a good call.

Alex:

For me, timing the top of bull market's, you're taking into consideration some technical analysis and some data science metrics, but a lot of it is the feel of the market. When people start getting overly greedy, irrationally bullish … those are signs that you might be close to the top.

Chris:

That's a good one.

Alex:

I don't think that we're there right now. I don't think I'm experiencing any of that, but timing the top's a lot harder than timing the bottom, right?

Chris:

That's good.

Alex:

It's a lot easier to tell when you're at the bottom of the market, in my opinion.

Chris:

That makes perfect sense, because you've got froth at the top, and the bottom, by definition, is the bedrock of hardcore HODLers who are holding not for speculative value, but for fundamental value. Until all the froth has been cleaned off, you've only got those hardcore people who have an absolute certainty in the future of the asset and its fundamental value.

It washes out all the weekends or whatever you want to call them, the froth off the top. So that's a very, very good point indeed. Very good point, indeed. Yeah.

It's actually probably more important to time the bottom. This reminds me of something I learned from property investing, which is, it's an axiom that says you make your money on a property when you buy it, because if you can negotiate a property purchase at 25% or 30% below market value, you've almost locked in 30% profit before you've even added any value to the property. So if even at the bottom Bitcoin might be undervalued at … what was it, Juan? $3,200, something like that?

Juan:

It was basically $3,000.

Chris:

Right, so whether that's undervalued or not, that washed out all the sellers at that point, right? And then off we went again.

Juan:

I was famously stuck waiting for $2,000 when it went to $3,000, but eventually I got in at $4,000. One of the things that I wanted to say about bottoms too, is that the topping process will last only a few days, right? The market is only going to stay a day or two at the top, whereas in the bottom, sure, Bitcoin can crash to $3,000 from $6,000, where it spent most of 2018, but then it spent months around $4,000. So you can tell well after the fact, months after the low has been made; "Hey, I think we've made a low here," because price action tends to look different. And the way I summarize that is that crypto specifically makes rounded bottoms ... so it spends a long time bottoming out. And that's why it tends to be easier to say, "Hey, I think prices have made a low here."

And this is an example of the recent bull market, but the same was true in 2015. Bitcoin bottomed out in late 2018 at $3,000. You had months to get in at $4,000. But guess what? March 2020 went down to $4,000 again. So you have plenty of entry opportunities.

And when I saw Bitcoin back at $4,000 in 2020, I thought, "Hey, I'm going to get in." So it gives you a lot of opportunities to get in at those good prices, whereas the top, not so. You only had to have maybe a week, maybe a couple of weeks to get out around the top after that the window closes, because price is going to crash right after making that blow-off top. So there's that to consider.

Chris:

Yes. So I just had a massive epiphany or an innovation: Going back to my two axis thing, have you not noticed that limit orders are based on price? Why isn't there a time limit order?

Juan:

I would love for there to be one.

Chris:

That would be cool, right?

Juan:

Most people don't look at time, which is one of the things I wanted to say here. This does not come from me — I actually studied this from Gann, the famous market timer from the early 20th century, William Gann. He said in his writings that time is more important than price. And I didn't know what that meant initially, but then after studying time cycles, essentially, for many years, I have noticed that markets tend to be far more regular when you look at time.

When you look at price, it's a little all over the place. But when you look at the timing aspect of it, they're actually far more predictable.

So it is almost like magic because you're making these forecasts or these predictions about future direction of prices that make it seem like something. And all you're doing is counting days, counting time, instead of counting price. And when you count time, you notice that it's actually far more regular than prices are. They are, in my opinion, a lot harder to predict. That's why a lot of models or technical analysis tends to fail, because it's harder to assess future prices. But it's easier to predict which directions price will move, generally. It may not sound like it, but it is easier once you start counting.

Chris:

That's why I think your cycles model is more of a natural science because I always think about farming like the four seasons. So you know when your wheat is going to grow, when it ain't going to grow. But the yield, same phrase we use when investing, the yield like the height of your wheat and how much you're going to get out of it. You don't really know, but you know you're going to harvest in the fall and plant in the spring and all that kind of stuff, right?

Will Bitcoin hit $200,000, $300,000, $400,000, $500,000? That's like, will my wheat be one meter or two meters or three meters high? No idea, right? You know what I'm saying? It's sort like that.

Juan:

Exactly, that is true. Time is more predictable, funny enough.

Chris:

What about usual mistakes people make … like buying in the denial phase or what they call “bear traps” like dead cat bounces and relief rallies? Cause didn't we see one of those in the last cycle?

Juan:

Well, one of the patterns that I look for is what I call the 1929 Pattern, because in the 1929 crash, every major blow-off top had the same configuration. It's a similar pattern. You make these blow prices rally nonstop for a while. They make a top, then you have a quick, severe crash. Then you have a relief rally.

That one sucks most people in because they think, “Oh, here we go again.” And for a good reason — it's happened before, the only difference is that one crash tends to be the worst of them all. But it's hard to tell. However, once you have that relief rally, if prices cross the low made right before that relief rally, there's no coming back. The top is in.

This is a little piece of advice … that's when I like to get out because you do not come back from that. If you have a blow-off top, a crash, a rally that makes a lower high and then you cross the low right before that rally ... If you close below that low on a daily closing basis, for example, prices do not come back from that. This is a very repeatable pattern I'm telling you. You can pull up any market. They all look the same. We always have the relief rally, prices fail to make a new high … and that's the kiss of death, essentially.

Alex:

So that's the lower high, lower low ...

Juan:

Lower high, and then a lower low. Once you have that lower high, lower low, that's it. That's when you get out.

Alex:

Yeah, it's easy to get sucked into that dead cat bounce, because what typically happens when you get toward the top is that you have a few straight days of plus 10% gains, plus 15% gains. And prices spike really, really fast to get to the top. And then you have a drop that's just as fast as well, followed by another rally that's just as fast. So you're now thinking that this is just how the market has become; the market just moves fast now.

Juan:

And the relief rally is quite strong too. So it's easy to get trapped.

Alex:

Yeah, you buy into that dead cat bounce, but it's because your perception's been skewed to thinking that the market just moves that quickly.

Chris:

I'm totally with you. And this is almost like it's a trick of the mind because it happens so soon after the all-time high, that you look at your portfolio and the same thing that was happening in the run up to the all-time high — like 30% gains a day, I remember it from 2017. Every day, day after day, you're looking at double-digit [gains], 20%, 30%. You're like, “eh?”

And looking back, I didn't realize how short a time that actually was. It seemed like a lot longer than it really was, but just like day after day after day. So it reminds you of that, and you think, “Oh, we're going back to the top.” And then it doesn't.

Juan:

Exactly. And on the way to the top, you never see a lower high and a lower low, you just never do. So this is why it's actually quite easy to tell that, no, something's changed because you do not see this during a parabolic blow-off.

Chris:

But that's the denial, though. That's the denial, you’re like, "It'll be alright."

Juan:

Yeah. Well, this is why you have models and you try to stay objective, right?

Now the other thing is timing. Timing plays a key role here because we had one such blow-off top earlier in 2021. And that was not the top. And the reason you can tell that is because you can look at longer term cycles and say, “Well, crypto assets have never topped out in May.” So, do I think there's going to be a May top so soon after we made the low? The low at that point was 14 months prior to that. So you have the low in March 2020 and 14 months later, you make this blow-off top. And this is why timing is important. Just from a timing perspective.

Back then, a lot of people said, "Well, do you think prices are going to come back?" And I said, "Yes, why?" Well, the main reason is because we have never seen a bull market that is this short. And so I'm just not going to bet on the outcome that this was the shortest bull market in history when, fundamentally speaking, it made no sense. There were more people involved than ever. Somehow this is going to be the worst of them all? No.

Now, it can happen, but this is why timing plays a key role. You should not bet that you're going to have a bull market or a bear market that’s duration is less than it usually is. And that's what you notice that crypto is actually quite predictable. These bull markets tend to run for two years. So you just wait for that … for that clock to hit two years.

Alex:

Going back to that point about the dead cat bounces, I just took a look at the chart and in the 2017 rally, we had prices going parabolic, essentially, from Thanksgiving. So Nov. 28 until it hit a high mid-December, and then that dead cat bounce. The top of that dead cat bounce was only 39 days after the price had started going parabolic …

Chris:

That's the lower high you said.

Alex:

... on Thanksgiving.

I'm just saying that's how fast the market can move. You can go from the top of the blow-off top through the first old trap, and then to the dead cat bounce top in 39 days. So, there was so much volume in that period that it's easy to make mistakes.

Juan:

Yeah. And you should not get sucked into the whole psychology of the market because that's the hardest thing to do. Once you give in to the euphoria of the moment, you're lost. You're going to get trapped along with everybody else in the crash that is soon to follow.

So you need to look at it … at least, I try to look at it as objectively as I can. This is the way things top out. This is what it looks like, knowing what it looks like. It helps me at least understand when to get out because I know what I’m expecting. And when I see it, I’m like, “OK, this is a pattern. This is what happens. This is how you act.”

Alex:

If you would've sold out your positions just a little after the market started to go parabolic and just sat out the market for a month ... you probably would’ve performed better than the majority of traders. If you would’ve sold in early December after seeing the market go parabolic a little bit, and then just stepped away for a month, you probably would've skipped the entire dead cat bounce. I mean, you would've outperformed most traders.

Juan:

That's true.

Alex:

Because Bitcoin was trading at $10,000 to $15,000 at that point. And it didn't touch those levels again until well after the dead cat bounce; it never touched those levels until this new market.

Juan:

Yeah. Based on that, an easy strategy could be once you start seeing double-digit rallies, like day after day, you know that you're reaching some type of end, some type of culmination. And so you can just say, “OK, if I start seeing this, these double-digit rallies, I'm going to start selling because this is what I know a top looks like.”

It's not going to feel like a top. It's going to feel like it's going to go on forever. And you're going to hear a lot of people saying that there's more people involved than ever before. And that actually is what creates the top. When everybody gets sucked into a market, the bull run stops. Why? Because there's no one left to buy. You need people to constantly get in. It's like a Ponzi scheme, right? Not saying the markets are a Ponzi scheme, but there is an element to it where you need people to constantly get in in order for prices to constantly move higher. What happens when everybody is involved? There's no one left to buy.

Chris:

 Everyone's fully committed their capital, right?

Juan:

Exactly. So when, when people start selling, because eventually someone's going to say, "Hey, I think this is good enough for me. I'm going to get out." No buyers are left, and prices have nowhere to go but down. Until …

Chris:

Well, that's no different to like the bond markets or traditional assets, except that we have the fed with new capital being created all the time, or not capital, that's a lie.

Juan:

The same is true. Well, right.

Chris:

So, it's not capital.

Juan:

Once you start printing money, sure. If you start printing money, it distorts this equation. There's always new capital ready to come in and this is why we have not seen a bull market … Actually, [I] don't want to go off on this tangent, but the reason we haven't seen a significant bull market since 2008 is, what happened in 2008? They started printing money. And we have not seen a bear market since because there's always a new pool of money ready to reinflate the bubble, quote, unquote, ready to keep the Ponzi scheme going.

The same is true of governments. They all sell debt, new debt, in order to pay off old debts. And we have reached a point where there's no more money left. So, we're just going to print more of it. This is why I always bet on central bank money printing because, hey, if they don't, the whole thing unravels.

There's no such thing in crypto, so when everybody has gotten into this market, everybody who would have ever considered buying bitcoin has bought bitcoin, guess what? Prices crash. This is what happens.

Alex:

And another thing though, none of our followers should be falling for a dead cat bounce at this point because everybody should be all in at this point.

Juan:

You know that's not going to happen.

Alex:

Nobody has any capital left to throw at this market.

Juan:

Who's going to buy to push prices higher then? Like you do not want this to happen.

Alex:

None of our followers.

Juan:

None of our followers, but I'm saying if there's no new pool of money to get into a market, then the market has nowhere to go but down.

Alex:

No, no exactly. There are new investors to come, I think, between now and the top of this bull market, we're going to get new investors in.

Juan:

Newcomers, weak hands.

Alex:

And a lot of retail is still — you know — not fully invested in this. But I'm just saying most analysts on crypto Twitter, any insiders, they're all fully invested at this point.

Juan:

Oh yeah.

Alex:

And in fact, some of them are … There are analysts that have started to dollar cost average out of this market. Just to be fully transparent.

Juan:

Well, good for them. God bless them.

Alex:

Right.

Chris:

So, here's an interesting point. Even when we do get to the top …

Alex:

Hey, that's also a sign of capitulation, right?

Chris:

Well.

Juan:

It is, it is.

Chris:

What is …

Alex:

It's also a sign that there’s still upside because people are getting little too fearful.

Chris:

You mean right now with the pullback.

Juan:

Yeah.

Alex:

Yeah, exactly. Right now.

Chris:

Sure, sure, sure, sure. Totally. But check this out. Say we hit the top, whatever that price is. Imagine what percentage of saturation that will be, right? Because only people who have discovered, say, Bitcoin or crypto and then sufficiently educated themselves, got a broker account or whatever, will have invested at that point.

So, once you're saturated — with everyone who is aware of it and willing to put money in — that's the point where it stalls. But even at this point at the very peak of the market, the saturation globally is still going to be relatively small compared to imagine if everyone on the planet had a Coinbase (Nasdaq: COIN) account and could invest, then you're talking like hyperbolic.

Juan:

Right but I think this is a … well, this is why I think people say — and I fully agree with this — that there is a long-term bull marketing crypto because there's still a lot of people who have never even heard of this, funny as it sounds. So, there's still this reservoir of capital ready to be deployed into this market long term.

But I think in the short term, you do see capital or new capital dry up essentially. That's why I say everybody who's going to buy [is] in this cycle — meaning everybody who has at least shown some type of interest, who at least knows somebody who invested in it, who has considered doing it, because prices tend to have a way of attracting people. So, if people see Bitcoin, it's ... I think it's called reflexivity?

Chris:

Reflexivity.

Juan:

Reflexivity, where the fact that prices go up draws people, which makes prices go up, which draws people, which makes prices go up.

But guess what? That ends at some point because you run out of people.

Chris:

It's the concept of …

Alex:

Right. But every bear market, we always have more people in at the last, the bottom of the last bear market.

Juan:

100%. But bear markets end the same way, right? I mean, it's like everybody sells, prices fall, then people sell, then prices fall, then people sell and eventually, you're left with the diamond hands — the people who are not going to sell.

Alex:

Right, but the reflexivity of Bitcoin is what drives adoption of Bitcoin, right? So, I've heard this talked about a lot of times before and you're right. If prices go up, it draws new market participants in, which turns prices, sends prices up, which brings in new investors. And this drives the overall long-term adoption of Bitcoin as well, right? Of course, you hit the top of the bull market and some people leave, but they jump right back in during the next bull market and bring in new investors along with them. So, it's just part of the Bitcoin adoption curve.

Chris:

It is.

Juan:

Yeah. And not everybody leaves, like you said. People stay. You're lured by these crazy price action. But then a lot of people discover a lot more crypto, and they stay. I mean, I think all of us here …

Alex:

Right? You came in during 2013 bear market, or bull market, right? And then I was one of the people that jumped in during 2017 and none of us left.

Juan:

Exactly.

Alex:

There are plenty of investors that did leave, but [a] few people stayed.

Juan:

And this is how you build a community.

Alex:

Exactly.

Juan:

Yep. So, yeah, but in the short term, you do have these dislocations in markets where, okay, the buyers can overwhelm until you run out of buyers. And then the sellers overwhelm because, again ... And usually, the last ones to come in are the first ones to go out because these are the ones who wait until the last second to get in. The only reason they reluctantly agreed to participate in this market is because prices were going up double digits every day when they see that has turned and that is no longer the case, guess what? These people are not committed.

So, they are the first to leave, and they leave en masse because they have losses, they have no experience. They don't believe in what they're doing. And so, these are the so-called “we cans.” So, this is what makes the cycle really.

Alex:

So that's, that's gauging market sentiment really in a way, right? Which is my new favorite way of timing where we're at in a market cycle, right?

Juan:

Mine, too.

Alex:

I have a background in data science. So, I used to at least spend a lot more time gauging out these different data science metrics like MBRV, like stock-to-flow. I don't use any of that anymore to be honest.

Juan:

Just use Google searches.

Alex:

I take a look at stock-to-flow every once in a while. And it's a nice directional indicator maybe. But I can't say that I truly depend on any of those data science metrics moving forward.

Chris:

 So let's talk a little bit about price targets people been talking about for Bitcoin [and] Ethereum. So, we just mentioned stock-to-flow model there, which is [a] popular one for people using  a price-oriented axis. It's not really a time-oriented axis. You can use it for timing, but it's not really factored into the model. The timing aspect of stock to flow is from the blockchain. So, it's not really … it doesn't time like a clock; it times based on blocks, which is slightly different.

Juan:

Sure.

Chris:

So, this is —

Alex:

It's based on the halving cycles, right?

Chris:

Right. Exactly. But I mean, we say Bitcoin's blockchain is 10 minutes, but that's an average. So it's not really 10 minutes. So it's not really time based. It's block based. So Plan B, stock-to- flow model: I looked it up, it halves at a $107,000 right now. That's the price that stock deploy says we should be at. And that's the regular stock-to-flow model. Then there's the cross-asset model, which has us at $255,000.

Juan:

Right. So basically, I … Again, I'm not an expert in stock-to-flow, but I have heard Plan B speak in a few podcasts before. And to me, it's just based on a wrong set of assumptions. Number one being — well,  I think it's interesting — this notion of the more scarce the asset becomes, the more valuable it will be. I think there's something to that, definitely. I mean, he makes the point that this works in commodity markets. In fact, I think the model itself is commonly applied in commodities markets. So that's, that's cool. OK. It's a framework.

But I have heard him say a few times that there's constant growth baked into this model. In other words, he said something along the lines of, well, Bitcoin goes up tenfold, right? It's always tenfold. Now you're thinking, well it goes from $100 to $1,000. Wow that's crazy! But going from $1,000 to $10,000, somehow that's crazier, but he made the point that no, that's actually how parabolic runs go.

In other words, the growth is constant, and it's only [the] prices that tend to go up more and more because it has constant growth.

Chris:

So, you're talking about, like, log scale, say.

Juan:

Right, exactly. Meaning like if an asset goes up tenfold every year, then yes. On an absolute basis, it's going to go up more and more. First, it's going to go from $10 to $100, but at some point, it's going to go [from] $10,000 to $100,000 [and] that is going to work from $100,000 to $1 million.

That's going to be crazy, right? It's going to sound crazy. But in fact, it's just constant growth. The problem is if you look at Bitcoin bull markets, there is no constant growth. In fact, Bitcoin goes up less and less over time. This has been, I've said this before, Bitcoin's worst bull market to date. And it makes perfect sense. It's bigger than before.

Chris:

Best liquidity.

Juan:

Yeah. So Plan B has admitted, “Yeah at some point this is going to stop working. This is not going to work forever.” I think it stopped working already. I don't think it's working anymore. Bitcoin has had, like I said, it's worst bull market from a timing perspective. I'm maybe biased a bit on my own model, looking at the timing of previous cycles. And I will say without a doubt, this is this worst bull market. So it has never been this bad in terms of price appreciation, in terms of amount of time going down and correcting … also its worst bull market.

So … this makes perfect sense to me personally because I'm not expecting constant growth. I am expecting every bull market to be a little worse because eventually Bitcoin's going to be a stable asset. You know how it's like people say, “Well, what's the cure for all this volatility in crypto, because I can't adopt this asset if it's going to crash 50%.” It just needs to grow more.

And once it's larger, it's going to take a lot more capital to move it in either direction and it's going to become a stable asset. So we're seeing that already. It makes no sense to me to have a model […] whose core assumption is, I'm expecting this to grow at a constant rate because of X.

Then again, I may be wrong, maybe that's not what he's saying. I have heard him basically make that point before. Maybe that's not the case. Again, I'm not an expert, but I … if it's off today and it's off by predicting higher prices and we actually have, well, that tells me that there's something baked into the model that is assuming that the asset can grow forever at a constant rate. And it's just not the case.

Chris:

Well, it's underperformed stock-to-flow in the last cycle and then it suddenly snapped back up to it in the parabolic phase and overshot it.

Juan:

Right, of course. Yeah. Again, we could be having this conversation two months from now: It got up to the model. But I do think that, and again, he has said that, too … [that] eventually [it] will stop working.

Why? Because it's not going to keep growing at a constant pace. My only point is we're seeing that today in 2021 … in the 2020–2021 bull run, we saw that happen. Bitcoin rallied less than in previous cycles.

Chris:

Well, I'm going to do a shill now. And I'm going to say, as the liquidity in Bitcoin gets higher and the volatility gets lower, it makes it harder to squeeze profit out of the market. So say if you bought it in the 2013 cycle, you might not need any advanced analysis to make money because it was just, like, ridiculous.

But … the smaller the swings, the more intelligent you're going to have to be with your timings. And you're the man, right? So I'm basically saying that the need for your expertise is going to increase in Bitcoin, in my opinion.

Juan:

Or you can just move on and trade different assets, I guess. Think if you are still having a phenomenal bull market, especially compared to Bitcoin's, doing very well.

Chris:

Well, that's the same point though, because the number of, at the same time, the number of assets is exploding, making it even more difficult to pick winners. Like, do you remember, I don't know if you were around when … what was it called? Oh, there was all kinds of old assets. I remember OmiseGO was an old one, Stellar. There was … there was some, I can't remember it now.

Juan:

ICO mania?

Chris:

Well, no, just like before even ICOs came along the coin market cap Top 10 had all these classic coins in it that. Like, what was the one with the collared coins on Bitcoin? Not compound. It was something like that. Counterparty.

Juan:

Autoparty. Oh man. Remember, that's old-school. Yeah, I remember that.

Chris:

So how long I've been in the game? Point is that now you just cannot keep up. No one can keep up unless you've got a lot of resources. So as Bitcoin volatility goes up — sorry, volatility goes down, volume goes up — and then the returns are obviously less. You have to go to more exotic assets, but which one do you pick? There are tens of thousands of them.

Juan:

Number two; you can go for number two. Like for example, right now from a trader standpoint, I'm more interested in Ethereum because it has liquidity that … I mean, it's … Again, I may be wrong here, but I think it's more liquid than Bitcoin was in the last cycle today. And so it's still having that crazy bull run that you come to expect of your favorite crypto assets that Bitcoin kind of doesn't. I'm fine with that, by the way; I'm over way Bitcoin. I love Bitcoin. This is not to trash Bitcoin in any way. I like the fact that it's more stable. I was expecting that to happen. And I like that because that means, well, maybe I don't sell it all. Whereas Ethereum, I'm not so sure.

But you're always going to have this sector of the market where there's more speculation. And as a result, there's more risk and also more reward.

And the same thing was true also in traditional markets. When I started trading, it was all about technology stocks and the Nasdaq in the U.S. stock market. But it used to be about the Dow. Everything was about the Dow Jones, Dow Jones, Dow Jones. Nobody cares about the Dow anymore because it's too stable. It's too boring, right? So speculative interest — and this is something a trader that I learned with taught me — tends to move to the hottest sector. And you always have this hottest sector that produces more rewards than other sectors that are more established.

This is a way of saying that this speculative fever will eventually move on for Bitcoin. It will be as boring as gold is today, but there's going to be other things. Maybe it's the metaverse; maybe it's something that hasn't even been invented yet. I do think that maybe ... I think that this is more of an Ethereum bull market than it is Bitcoin’s.

Again, I know that's blasphemy for some people, but I do think that there's more interest in Ethereum. It's like this was its moment to shine, whereas that was not so true in the last cycle. It was more Bitcoin. Now Ethereum is clearly a more established asset.

Clearly, there's more speculative interest in Ethereum. I can prove that, too, because funding rates on futures, which is what I trade the most, tend to be higher in Ethereum anyway. So there's more speculators involved. And so eventually we're going to move on from Ethereum and Layer-1s, too. It's going to be some crazy speculative corner of the market where everybody just flocks to that. So I don't know where I'm going with this. I guess I'm saying do not —

Chris:

That's maturity, right?

Juan:

That's maturity: Do not focus on the one focus on the one asset; just move on to wherever the people are, because that's where you're going to get most returns.

Chris:

It's like speculating on bonds.

Juan:

Mm-hmm [affirmative].

Chris:

Who does that, right?

Juan:

No one. Exactly. Yeah, exactly. And then it was stocks and now it's crypto. Let's face it, stocks are boring, too.

Chris:

There we go. Cool. So, let's wrap it up by saying that you can do one or the other here, or blend the two. You can either take an objective mode of analysis by looking at things like stock-to-flow, on chain indicators and that kind of stuff. Or you can do it subjectively, which I suppose is more individual technical analysis, but I'm going to share your model again, Juan, because that is kind of the best of both worlds. It’s an objective algorithm, but it also constantly takes in what I'd call subjective data in what's happening day by day by day, and then takes that in day by day by day, rather than anything, any other model.

Juan:

Right, but the downside is — well, to me, this is not a downside at all because I'm more of a market timer; I don't care about price as much as I do about time — but the model will not offer solid price predictions. This is by design. So it's not going to be off by some amount; there's a price.

The flip side of that means it's listening to what I think is the right signal, which is time. It's paying more attention to the timing of things rather than what price are we at.

So it's never going to be, like, off because it's supposed to be at $150,000 right now, and it's only [at] $60,000. Actually, that's fine with my model. Bitcoin can top out this bull market at $70,000 or $80,000; doesn't matter. It will not break the model. That's perfectly in line with the model.

If the model sees the pattern that is usually associated with a top, it can be right here or it can be a $100,000 from here, and there's [the] price. But not being so fixated on price allows you to be more flexible and also allows you to time that top a little better.

Chris:

So if [some]one — me — can let go of the greed, then that might actually end up making you a better return overall.

Juan:

Absolutely. I think you have to be … Again, you just have to work off of a good model and be objective.

Chris:

There we go. Right. I'll take that as your closing comment. Well, Alex, you got any closing comments, anything you haven't mentioned yet that you want to stick in the show?

Alex:

I mean, no ... Like, this is a difficult thing, timing the top, and even the best analysts can sometimes make mistakes at it. But like you said earlier, you really make your money buying the bottom. Right? So how do you buy the bottom? How do you already do your due diligence when you enter the market? You're already in profit, right? So [we] might miss the very peak, we might sell 20% too early or too late and miss that last little bit of profit. But had you bought early enough, you're already in a good spot here. So.

Chris:

I like that one. That's good.

Alex:

You know, learn your lesson, and focus on the next bear market. Focus on buying the bottom.

Chris:

Yeah. Don't lose interest in the bear market. Because as Alex has just said there, if you bought the bottom and then sold halfway through the bull market, you'd still make a very decent return safely. So then it's like, wait for the next bear market, pay attention.

Because what I know happens as a content creator: I watch my YouTube analytics just fall off a cliff in the bear market. Everyone lost interest and I'm, like, that is the worst time to lose interest because then of course you don't get back interested again. Those people don't come back interested until the prices really start soaring, and that's long after the bottom is in.

Juan:

Yeah.

Chris:

So, we'll leave it on that note. Guys, thank you very much for joining me for this week's edition of the Sunday Special. I'll walk your way back again sometime soon.

That's going to do it for today's edition of the Weiss Crypto Sunday Special with Juan, Alex and Chris Coney. Until the next one, it's bye for now.

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