Statistical analysis of bitcoin (BTC)

In January 2023, our statistical analysis of bitcoin (BTC) opened up the next possibility “to imagine a strong upward recovery in the price of bitcoin”. We also left open the hypothesis that “mid-2023 could prove to be another possible risk zone”. Indeed, the exit from the bear market is now confirmed. The bullish rally was particularly pronounced and exceeded many expectations. Decryption of statistical signals.

An exceptional exit from the bear market

We have already discussed the statistical mechanisms that caused the exit from the bear market. In October 2022, before the FTX affair, the statistical study showed two things:

• First, that “Any further sustained bitcoin decline would be relatively unlikely”. Moreover, “BTC volatility will be associated with a further downside move that would be relatively limited, or a sustained upside reversal”.
• Then what “Any downward movement could be either intense or brief”.
• Finally, one could assume in January 2023 that “the probability of witnessing a variation of plus or minus 10% in the coming weeks is relatively very high to date”. This was confirmed to us by the significant magnitude of the increase.

As of the fall of 2022, many indicators thus let us predict a probable exhaustion of the downtrend. And all the price projections towards $10,000 seemed relatively unlikely to us. The exit from the bear market was thus made by an intense decline which was brief and which prompted an exit from the trend by powerful upward variations. If the statistics have been of great help in reading the trends observed, it is also relevant to properly decipher the current situation.

bitcoin (BTC): too high, too fast?

The question that now arises is whether the rise observed up to $30,000 was not premature. For this, several statistical tools are used.

The reasonable deviation from the moving average

A first fundamental element is given to us by the moving average. Indeed, the 100-day moving average framed the bear market well. The breakout of the moving average also framed the exit from the bear market very well. Thus, the graph below shows the price of bitcoin (BTC) in gray, the 100-day moving average in black, and the difference between the price and the moving average in blue.

As a result, it first appears that the exit from the bear market was very gradual between August 2022 and January 2023. A false breakout was recorded in November. Then, the current gap between the price and the moving average is around $5,500. Therefore, this discrepancy is not statistically excessive. At the height of the bull market in 2020, the deviation from the moving average even rose to $20,000. In such a configuration, the current price of bitcoin would be above $41,000. There is therefore currently no excess in terms of course levels.

The statistical strength of the market is running out

One of the major indicators at our disposal to measure the strength of the market is to accumulate daily variations. Indeed, if the rise is not sharp enough or not long enough, then the indicator will show cumulative variations which will be a signal of weakness. An indicator below 0 reflects the persistence of a bear market when an indicator above 0 reflects bullish strength. Moreover, the cumulative variations are generally highly channeled (between -40 and 40 for bitcoin).

We observe quite clearly that the bullish signal was observed from the beginning of January 2023. We specify that it was “well of a positive signal”. Now, the price of bitcoin (BTC) shows significant statistical weakness. Therefore, any further decline (the absence of a rebound on current levels) would trigger a corrective movement in the following months. This technically ends up where the former slant resistance has become slant support (see last part).

Extreme variations could reappear

Bitcoin (BTC) is a volatile asset. The observed trends are usually driven or completed by what are called “extreme variations”. That is to say, variations large enough to reverse the psychology of investors. Thus, the graph below shows the price of bitcoin (BTC) in black. Extreme bullish variations are represented in green, and extreme bearish variations in red. Extreme variations here correspond to variations that have a (theoretical) probability of 1% of occurring. We immediately observe that these variations are much more numerous than they should be (the graph should display 18 lines if the statistical distribution was a normal distribution!).

The study of this graph shows that, on average, extreme variations occur in reality every 6 to 7 weeks. Sometimes several months can pass without any extreme variation, which in itself is a sign of uncertainty. The last extreme variations recorded date back to mid-March. In this context, we understand thatextreme variations are likely to take effect in the coming weeks. These violent variations that we can expect would, perhaps, be of a nature to stimulate a trend for the summer of 2023.

Moreover, the latest extreme variations (green lines on the right of the graph) are clearly bullish and clearly confirm the entry into a new, more bullish market.

A bitcoin (BTC) struggling to outperform indices

We have seen that bitcoin (BTC) has started a bullish process. Despite everything, this rebound remains ” modest “ compared to the stock market. The bitcoin / Dow Jones ratio is still in a 0.6 // 0.7 evolution channel. The rebound of the Dow Jones has been less visible since the beginning of the year, but the two assets tend to follow a relatively symmetrical trend. The idea that bitcoin (BTC) really outperformed stocks is therefore not verified in reality.

In addition, we saw above that the rebound observed on bitcoin (BTC), although virulent, was not abnormal. In reality, the trough observed in November and December (“rounding bottom”) was ” unnatural “ and it was too short to be permanently integrated into the moving average. It is therefore appropriate to consider that the bullish recovery was rather made from $20,000. In this case, the recent rally in bitcoin (BTC) is indeed not extreme on its own. The study of the ratio therefore confirms this conclusion. This also amounts to writing, to a certain extent, that the bullish potential of bitcoin (BTC) on a 1-year horizon is greater.

Matching technical configuration

Finally, the statistical study can be indirectly visualized by the technical analysis. The oblique line on the graph represents this slanting resistance line, now slanting support lineactive since September 2022. The break of this oblique line in the short or medium term would give us the target zone of $21,500 approximately. A first major support is also identifiable at $24,850 approximately. In the reverse pattern, the recent stagnation could trigger a bullish move towards $29,500 then $33,000 and beyond by extension. But from what we have said, without sufficient bullish force, this scenario still looks disadvantaged.

Finally, we will note that the rise has been built quite cleanly. The first break (first yellow circle) represents the break of round bottomwhose highest objective gave a course at $27,600. The other signal was given to us by the pendulum observed around the trend line (second yellow circle), of which the price target sent us to $29,500. One will notice following these movements the formation of a shoulder-head-shoulder, relatively imperfect on the first shoulder. Despite everything, the latter would be likely to confirm either a downward break, or, due to its downward inclination, to confirm a continuation of the rise towards the stated thresholds.

In conclusion

Ultimately, the price of bitcoin (BTC) follows regular statistical mechanics. The recent evolution of the price of bitcoin confirms by far the exit of the bear market, and allows to glimpse a new bullish force more durable. The study of bitcoin statistics reveals three major conclusions.

• Firstly, the rebound impelled since January is not “abnormally powerful”. The statistical behavior of bitcoin (BTC) still leaves room for maneuver in the technical movement impelled since January.
• Then, the bullish strength of this bounce wears off. In the absence of new sufficiently bullish variations in the coming weeks, a corrective movement would be more and more likely. A sufficient rebound in bullish variations would, however, be a favorable signal for a third wave of increases, which in absolute terms would still be less likely at present.
• Finally, extreme variations in the coming weeks are quite likely. Since January, these variations have been essentially bullish (these are increases of more than 11% in one day). A resurgence of volatility cannot be ruled out between now and June. Which is also useful when knowing that bitcoin (BTC) is often a harbinger of volatility in stocks.

All of this is consistent with the observation that the rebound in bitcoin (BTC) has not particularly outperformed that of traditional markets. Finally, the technical study also shows conclusions close to our statistical observations. A return below $25,000 would mean a more lasting corrective move, when a breakout of $33,000 would obviously be a very bullish signal. The future of the trend will be given by the magnitude of the variations (the statistical forces) recorded in the coming weeks.