Bitcoin Showing Signs of a Classic "V" Bottom/Reversal 12/20/18

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Unless you've been living in a rock you've seen (probably experienced) a Bitcoin decline of nearly 50% in November and a recovery of over 20% over the last week. 

 

But is this a "V" recovery or a dead cat? Is it the capitulation and then recovery, or something else?

First off we won't know for a long time (see the disclaimer at the bottom), but to get clues we need to look at the volume.

The evidence so far shows that we are forming a very classic "V" shaped bottom.  In other words, this is what a "V" bottom looks like, but only time will tell. 

 

If you have been following me on Twitter I've been trying to educate people on the differences between "traded value" and "traded volume". In crypto, people seem to report "traded value" as "traded volume". It seems to be a common mistake on par of people believing a market maker means a whale sized market manipulator. 

Traded Value = $ Traded

Traded Volume = BTC Traded (or shares traded if in equities)

For example if you hoped onto a Bloomberg machine you'd see that they show both, traded value and traded volume. It is important to distinguish between the two. 

 

So what are the signs that we might be forming this beautiful V bottom?

 

Exhibit 1: A record breaking volume period

We are currently experiencing record breaking volume. There is NO doubt about that. This chart shows 3 day average volume in orange vs price. Our volume is higher now than the euphoria period, it is higher now than any major dip we had pre November. 

 

 190903265-083ed9bcc62039f4f444df289f381ef6838330c5892eea105a4fc62cc6774ec6.png

 

 

 

Exhibit 2: No, it isn't becauce of price!

A common criticism that this higher volume period has gotten in the crypto world is that it is only due to the lower price. Here is a comparison to two other periods (in the 2017 euphoria) that prove that criticism false. We are in an extraordinary volume period. 

 

190903265-2eb97f8f097fb10d0a2e0bca983726f1e221860655196ed2b5395d15e8df5df5.png

 

 

 

Exhibit 3: Today is the highest volume day ever!

Today, 12/20/2018 had more bitcoins traded than any other day in its history. 

 

190903265-505d693db3d0053582604d55a3e8cc4ff2e9f8c1e9a2445217871f30325611ea.png

 

Exhibit 4: The makings of the V Bottom

On this chart we have BTC Price on the right axis with a volume change indicator on the left. The volume change indicator is (3 day MA of volume/365 MA of volume). In other words, how much higher/lower (in % terms) is the most recent volume compared to the average volume over the last year.

First off you can clearly see the spike in volume at the capitualtion event. Volume was well over double what the average volume was during the year.  Then afterwards we have the 20-25% recovery the records the highest volume event in bitcoin history.

 

190903265-95702b4affa0495b298816db1dd41ed7715f29d8837ca49bb40e50692a4f2966.png

 

 

Exhibit 5: Capitulation vs Recovery

Here we see some stats during the capitulation period vs recovery. The return stats shouldn't be too unfamiliar for any of you, but the volume numbers may be shocking. 

Remember capitulation requires a large drop on massive volume, and the recover of the "V" requires a large bounce on large volume. We have both here. 

 

190903265-55bdb04c8f32652125522da43c0e40f38b0022fceafae5312c6c6ba4c573e815.png

 

 

Now for the fun disclaimer:

You NEVER know when a bottom occurs until well after the fact. Very often dead cats (bull traps) look very similar to a V bottom. Volume is obviously higher which suggest the chance of reversal is higher, but you never know. In fact I wouldn't "claim" bottom until ~6kish, many bears won't until ~10kish, and there will be plenty that won't until we reach ATHs. So to be clear, I am NOT calling a bottom here. It is way too soon for that, but we are showing the beginning signs that it may be in the works. 


Crypto Quantamental
Crypto Quantamental

Professional Investment Manager w/ an unhealthy obsession w/ crypto. Follow me on Twitter @cryptoqf


Crypto Quantamental
Crypto Quantamental

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