Comparing a Standard to a Shortened Cycle

Dear Readers,

Nothing more dampens our enthusiasm for the most astronomical prices on the one hand, and the desire for certainty on the other than the words ‘parameters’ and ‘model’ as used in the title. And yet, in examining these ideas we have something [never everything] to hang our hats on as far as realistic projections of future price action goes. This has to be of interest to traders and investors as opposed to the promise of instant riches that are too often portrayed from the marketing perspective. Of course, that is itself part of the market, yet a great part of profiting from this market is to take a more reflective approach.

The aim of this article will be to review not only the way in which cycle theory may play out going forward within the LGC [logarithmic growth curve], but is also a review of that cycle theory itself. This is to further illustrate that from the perspective of the LGC model, that has proved itself over time, all cycle theory is secondary to the LGC model, where the macro model is given more weight. I’ll first look at the standard 4 year cycle as it would apply to the LGC, and then go to look at a variation on this theme; for it is just as likely that there will be some variation even as that variation continues to be shaped by the LGC channel.

The Standard 4 Year Cycle

As posted recently on Twitter, this is how a standard 4 year cycle would play out based on time, technicals [fib extension], and the LGC. It all looks so simple and straightforward, and accordingly, this has to make it a little problematic as the trader/ investor always asks whether it could really be that easy, given that the market likes to keep us guessing.

Also something to note is that the impulse wave up as sketched here looks flat and elongated, not reflective of the drama of a steep speculative parabola. Given the ‘ideal’ picture above, time now to look at a variation on this theme.

Variation - a Shortened Cycle

The main theme is continued price development within the LGC channel, the variation is within the 4 year cycle itself. Given the market is maturing, the investor is compelled to ask at what point the 4 year cycle will break, for at some point it must. Even the previous cycle became a little problematic as it took many subscribers to the 4 year cycle by surprise insofar as a ‘blow-off’ top failed to eventuate. Indeed, if we take the longer term MACD into account as below [a momentum indicator], on both the weekly and monthly chart, then arguably on the basis of momentum the bull market stalled a year earlier as marked.

The weekly MACD crosses bearishly on the first peak [March ‘21], the monthly MACD crosses bearishly as price moved up on the second peak [August ‘21]. Of course, this was neglected by most as with the 4 year cycle in mind many were looking for that blow-off top. The irony is that 4 years did mark a top of sorts… even if only a nominal one of price [barely] as opposed to a more substantial one with a lack of both momentum and a blow-off top in mind.

Add to this the anomaly of the ‘mini-parabola’ of early 2019, where price approached previous highs well ahead of the 4 year schedule, and the assumption of subsequent 4 year cycles is starting to look shaky. In some ways, the previous 4 year cycle starts to look like a transitional one between the more standard cycle seen previously and something more broken up and random going forward. This point was explored some time ago here:

….what about halving, the mechanics of increasing scarcity, surely it’s the primary force behind the market. To which I’d reply, it may not be the particular mechanics of scarcity at all that is of significance to the market here, but scarcity per se. It is scarcity itself [just as gold is scarce] that will lead to the increasingly frequent episodes of speculation, and it is this speculation that wreaks havoc with the chart [or our neat ideas on how the chart should develop]. As speculative episodes become more frequent, so too might they become a little more restrained in their magnitude. In the aggregate, the volatility will reduce - what could be considered in this ‘cycle’ as increasing intra cyclical volatility, as relative to the previous cycle, may also be read as a breaking up of that grand cycle altogether. In contrast to this, the current ‘cycle’ could also be considered a transition of sorts…

What if we were to bracket out altogether the assumption of a 4 year cycle, and instead rely solely on the technicals within the LGC? Within the confines of the LGC, what might a shortened cycle look like?

Interestingly, as a side point, we may have the further simplification of the theory [always desirable in theory] - instead of just diminishing returns, we could have diminishing everything, cycles included.

Perfectly feasible is a run to the top of the channel next year, which would front-run the conventional 4 year cycle by a year - a repeat of the shortened cycle as measured by the peak on the MACD as opposed to the 4 year halving cycle. The primary technical factor at play here is price continuing in the current channel [shaded] to previous all-time-highs, and from there going parabolic.

Also of interest in the scenario of shortening cycles [or speculative episodes] is the shortening length of the parabolic spike, once all-time-highs were achieved. If the sequence is to be followed, such a move may only be sustainable for a few months [as 4 denotes the sequence on the chart]… though this would still have the effect of pushing price high into the 100K range.

Something else to consider here is that the current price is currently not too far off its previous highs in real/ logarithmic terms. With market psychology in mind, reaching those previous highs will no doubt provide an added impetus to yet higher prices…. and the parabolic run.

A yet further factor is that this is highly contrarian. Near no-one has something like this on the radar. And yet if we look back at the history of Bitcoin, price has often taken the larger market by surprise as it rips to the upside.

Summary

Given I’m not clairvoyant, I have not intended to say that this cycle must be a shortened one. Rather, what I’ve intended to say is that if the cycle were shortened, it should not take us completely by surprise - we’d be well prepared for such an eventuality as having envisaged it as a weighted possibility beforehand. Such an exercise as this also has a distancing/ critical function whereby one does not become too locked into or attached to a singular outcome. Remember, from the practical perspective, we should be allowing for various futures to unfold as opposed to keeping our eyes on a linear and pre-determined course.

Over and above the variation outlined here in regard to cycles is the relative constant of the LGC model. This is in less need of reassessment given both its satisfactory performance since 2018, and its more general price prediction [cycles, whatever their length, are moving within this channel]. The crucial question, in my mind, is whether 4 year cycle theory will likewise give a satisfactory performance going forward. Of course, the 4 year cycle should still remain the default position until it’s invalidated, yet if it were this would come as no great surprise as was predictable.

Until next time,

Stay, relatively, safe out there,

Dave the Wave.