As a follow-up to an article recently written [namely, ‘Cycle Theory Revisited’], I thought it would be timely to review the larger theory of the Logarithmic Growth Curve [LGC]. Where the arguably invalidated theory of a lengthening cycle discussed in the previous article was one that belonged to the medium-term time frame, the LGC theory belongs very much to the long -term time frame. And though the lengthening cycle [and all multi-year cycle theory for that matter] looks increasingly dubious [see ‘Cycle Theory Revisited’], the LGC is still very much alive and kicking. That said, with this current parabolic spike up, price is now at a point that is testing this even longer term theory/ model [see ‘The Nature of TA - Objectivity’ for why predictions on the longer term time frame are more likely to eventuate than those on the shorter term]. And this is exactly what you want to see - the strength of a theory resides in its capacity to be tested by some set of crucial circumstances in the real world [in our case, price development in the market]. And in the passing of such a test, the theory is even further confirmed/ corroborated/ validated. As I’ve often mentioned, any ‘model’ or ‘theory’ that keeps itself safely beyond some real world criteria that could invalidate or falsify it, must relegate itself to the sphere of pseudo-science [following Karl Popper on this]. And so, with the longer time frame in mind, let’s first review the LGC theory, then see its strength in recently [as far as the long term is concerned] predicting a certain track for price and having that track [so far] confirmed, and finally look at the conditions which might invalidate it, or further confirm it, going forward.
1] A reading of this first LGC article at the end of 2018 [and on the capitulation] gives much of the theory and of course the prediction.
In conclusion, I’ve hoped to illustrate the nature of the growth curve as it relates to both the long term trajectory of Bitcoin, and the medium term price direction at this juncture. Bitcoin may be at, or very nearly at, the end of the corrective and final phase of this current cycle. Going forward, I expect to see price stabilize along the log growth curve [traced here as support] for a year or so, an extended period of accumulation before the next move up through the channel, where price will reclaim its previous all time high.
In short, its novelty lay in predicting the LGC as support in a more technical manner, where before it was perceived as a mean of prices. And where before that mean of prices was classified as a log regression curve, this article went further in viewing this regression as a logarithmic growth curve proper. As a model, this provided the notions of both a converging channel at the top [reducing macro volatility] and a plateauing of price, both of which are required if there is to be price discovery and stability at some point. The larger macro idea at work here, explanatory of the model, is a nascent currency in the process of capitalization, which comes in the speculative cycles [or waves] on the medium term time frame. I’ve since questioned this notion of multi-year ‘cycles’, but this on no way impinges on the long term LGC].
2] And so to a review of its performance since 2018 as per the chart below. This can be summarized in three critical junctures. First, it predicted that the bottom was indeed the bottom [first article above written Dec 12 with price at 3.2K, the week of the bottom].
Second, with the what seemed an anomalous spike to 14K in 2019, it predicted a retracement of price back to the log growth curve [what I termed ‘the buy zone’]. Price indeed retraced. Third, the prediction that price would find support in the buy zone, which was the base of the LGC, and so should be bought. And sure enough, once again the bottom of the log curve provided support as predicted. Up to this point, the theory has been tested solidly and performed well. The chart speaks for itself. And where at the recent bottom it was severely tested [to potentially be invalidated - always a good sign of a theory/ model], now at the top it is being tested again. Which brings up to the final part of this article.
3] Price has currently put in a solid run to near top of the channel. Where the previous ‘premature’ spike [‘premature’ on the basis on the medium term Lengthening Cycle theory] was considered something of an anomaly, this second and larger spike, makes what was thought anomalous before as something more regular - where 2019 could be seen as a curiosity [on the basis of Lengthening Cycle theory], this second spike arguably throws this medium term theory into doubt, which was covered in my recent ‘Cycle Theory Revisited’.
The main point of that article being that multi-year ‘cycles’ are likely to be replaced by more frequent ‘speculative episodes’, this being due to a basic and generally accepted principle of markets - an increasingly liquid and mature market equates to reducing volatility. Such a reduction would predict grand cycles, like great ice sheets, to break up as they enter a more liquid market. All of this brings the longer term LGC back to the forefront of modeling, where the orthodoxy of multi-year cycle theory in general may become somewhat redundant.
Price has effectively traversed the long term LGC channel a lot quicker than the medium term Lengthening Cycle theory predicted. And so finally back to the LGC chart, and in particular the converging channel that has so far been effective in predicting the price range. As the following chart shows, LGC would predict price to top out at around the 68K mark. Of course it could also temporarily over-shoot [as previously at the bottom it under-shot].
So crunch time it is for the LGC channel, just as it was last time. To finish, I’ll include a zoomed out view of the LGC. Though this may not offer the multi-million dollar price tag that the moon-boys are thirsty for, it does offer some macro concepts as to the endgame for Bitcoin. You have here in the plateauing price of BTC a path toward price discovery and increasing price stability, which you’d want to see in a mature currency. You also have here in the converging channel a lessening of macro volatility as you’d expect to see in an increasingly liquid market, and one very much involving diminishing returns [relative to the returns previously lower down the curve]. All of these functions of the logarithmic growth curve are definitive of a nascent currency in the process of capitalization. I’ve as yet to majorly doubt that price will play out in something like this manner. Though of course, built into every model and theory is the ‘minor doubt’ in so far as it could possibly be invalidated. This is as it should be, and is why we always hedge both our positions and opinions.
Until next time,
Stay safe out there,
Dave the Wave.
Karl Popper - The Logic of Scientific discovery
Thomas Kuhn - The Structure of Scientific Revolutions