Often we only focus on the short term. Not surprisingly, it is nice to see when bitcoin rises hundreds of euros in an hour. Nevertheless, it helps to keep an eye on the long term as well. And as far as that’s concerned, bitcoin is in good shape; the top still seems a long way off.
This analysis is a summary/deepening of the list of analyst Byzantine General on Twitter, he shared a list of dozens of reasons why he is positive about bitcoin in the long term.
My bull case for #bitcoin thread.
This will be a summary of some of the more interesting reasons why I’m bullish mid to long term.
TLDR at tweet 25.$BTC
— Byzantine General (@ByzGeneral) September 26, 2020
Bitcoin is still undervalued
If we look at various indicators, bitcoin is still undervalued. So the bitcoin price still has enough room to rise.
One way to find out is via the bitcoin contango Index. Contango is a term that comes from the traditional financial world, it means that the price of bitcoin is higher on the futures market than on the spot market. On the chart below you can see the four-hour chart of bitcoin, below that you can see the bitcoin contango index.
How does this indicator work? First, it is useful to know the difference between the Futures market and the spot market.
With bitcoin futures you speculate on the price of bitcoin, without owning bitcoin yourself. This is possible, for example, on exchanges such as BitMEX. On the spot market you can buy bitcoin directly, think of BTC Direct and BLOX.
If there is contango, then the price of Bitcoin Cycle Review on the futures market is higher than on the spot market. In that case the value on the contango index is higher than 0.
The opposite of contango is backwardation, which means that the price of bitcoin is higher on the spot market than on the futures market. In that case, the value of the index is lower than 0.
On the chart you can see that the bitcoin contango Index is currently lower than 0, so there is backwardation. Often this is a favourable sign, the price has then found a bottom. You can see this on the green lines on the price chart and on the indicator.
Long-term summit not yet in sight either
The bitcoin contango index gives you an idea of the short term. But the price chart also looks favourable in the long term. Below you look at the bitcoin price from 2011 up to and including now. The lines below and above the price is the 2-year moving average multiplier. This sounds complicated, but this indicator is actually quite simple. You can use it to discover tops and bottoms.
Moving average stands for moving average, or moving average. So the two-year moving average gives the average price of bitcoin of the last two years. This is the green line you see below the price chart. The red line is the same line, but multiplied by five.
The information you can read from this is relatively simple. Does the price go below the green line? Then bitcoin has found a long-term bottom. That is a great moment to buy bitcoin. But if the price rises above the red line, then it is time to sell. This is often followed by a major correction.
At this moment the price still moves between both lines, closest to the green line. The price still has plenty of room to grow.
Other indicator tells the same thing
Another indicator that shows roughly the same is the 200WMA heatmap. This indicator is based on the monthly growth of the 200-week moving average. This moving average sounds random, but this line indicates the trend of bitcoin for the long term. Never before has the bitcoin price closed the week below this line.
The dots on the graph indicate the percentage of the 200-week moving average growing per month. Is this percentage higher than 10? Then the dots will turn yellow, orange or even red. That is the time to pay attention, the average then rises too fast and often there is a correction afterwards.
But that is still a long way off. The dots are still coloured blue, which means that the 200-week moving average increases monthly by 2 to 6%. That is a healthy increase; the top still seems a long way off.
Sentiment is negative while price is high
It is also striking that sentiment is negative, while the bitcoin exchange rate is higher than USD 10,000 (EUR 8,554). A negative sentiment does not sound good, but in that case you often have to think the other way around. Or as Warren Buffet says: ‚Be fearful when others are greedy, and greedy when others are fearful‘. In fact, this is a good time to buy.
The negative sentiment is evident from the social sentiment indicator of analysis company Santiment; the orange line is at its lowest point in two years. Investors are now even more negative about bitcoin on social media than if the exchange rate had only been 3,100 dollars (2,651 euros).
Alternative’s Fear & Greed indicator also shows that there is still fear on the bitcoin market. In addition to sentiment on social media, this indicator is a weighted average of other factors. Think of price volatility, trading volume, trends on google and the market dominance of bitcoin.
The fact that fear reigns while the price is still high is favourable. This means that the price of bitcoin could actually rise in the coming weeks.
In short: in the short term the price can move a lot but in the long term the future looks bright for bitcoin!