Current BTC Price in the Context of the LGC Model

Dear Readers,

With BTC price currently stuck in a multi-month range, we can easily forget that it is also currently pushing all time highs, and where the current price was also first reached back over 3 years ago. Though psychologically we have become used to the price, the fact remains it is at a very high level, and for an extended period of time.

Also of significance here is that this range has provided a relative macro stability to price, where it has neither gone parabolic to the upside, or collapsed back in a serious correction. Rather, it has held up where selling pressure has been met by buying pressure. That it failed to launch into a parabolic spike is, from the technical perspective, a positive - showing a more stable and technical advance in price without that threat of the post-parabolic collapse.

Looking at the chart above, as it is, there seems a lot of air below which price is currently hovering. This naturally must make potential buyers a little nervous; that is, unless they had some well-tested model to go on, something which might provide the hedged investor with some confidence if never certainty. And this is where the LGC comes into play.

Price within the Channel of the Logarithmic Growth Curve

The idea of the LGC [logarithmic growth curve] is that like other phenomenon in nature, growth can be experienced logarithmically - explosive exponential growth coming first, to be followed by a diminishing process leading eventually to a relative plateau. In 2018 this idea became a theory, and like any theory it was to be tested, to be confirmed or rejected, by subsequent events. As longer-term followers of mine are no doubt familiar, the theory has held up exceedingly well making it now a much strengthened theory that functions by modeling the future trajectory of price.

Note that the model provides an extrapolated channel within which price is predicted to develop. It does not predict anything about the particular market ‘cycles’ that will occur within that channel. Indeed, one might speculate about the way in which those cycles will develop but that would both be superfluous to the model and with a lessened degree of probability.

To the chart itself. As seen in the chart above, the multi-month range is coming into the buy zone [lower band] of the LGC channel as support. This provides quite a different picture to the initial chart where an elevated price hovers above a void. Also of significance here is that where these current prices are within the mid to lower bands of the LGC channel, these same prices earlier in 2021 were at the top of the channel. In LGC terms, price has consolidated within the channel.

On the basis of the range coming in to meet the LGC buy zone [below chart], and on the basis of the technical line of support [upward diagonal] the range is a risk-managed buy.

But Dave, the investor says - if looking to buy, having not already secured a core position in the LGC buy zone at an earlier date - is that range not awfully wide to buy. It is, and it isn’t, depending on the perspective you take. Zoomed in [below chart], the price differential is large, where bids might start to be put at the bottom of the range, the technical line of support and at the top of the LGC buy zone, all of which are in the same area. The top of the range would then be a covering bid, should price instead break to the upside and beyond those multi-year ATH levels. Where the first chart below gives some kind of range for a relatively shorter-term spike [that the trader is going to be more interested in], the second chart gives the zoomed out longer-term levels that the investor is going to be more interested in. I’ve put this on a 10 year time-line.

Due to the conservative nature of the model, a buy at these elevated levels [while still relatively low in the LGC channel] would translate into something like an 11x return. The chart also shows the expected returns for those that bought the LGC buy zone at earlier times, which are obviously a lot greater. At work here is the law of diminishing returns in a market that is maturing. The reader might be interested in an article [Bitcoin’s Logarithmic Growth Curve – a Rationale for the Pragmatic Investor, Nov 18, 2020] from a few years back with BTC price in the 11k range. What’s of particular significance is that price was then in a similar position, where it was pushing up against all-time-highs after an extended period of correction and recovery:

From the article mentioned:

"As Bitcoin matures in the marketplace, as it becomes increasingly capitalized, as liquidity increases, so too you’d expect to see a decreasing volatility in the macro cycles.  And this is exactly what has been observed in the past.  Extrapolate that trend, and price eventually plateaus, in relative terms, in the not too distant future.  Looking at the LGC [figure 1], this may take a couple of decades. For the investor, this involves the notion of a diminishing ROI [return on investment]. Though the gains may no longer be astronomical, they are still projected to be stratospheric. And what is lost in the ‘wild west’ that was the early days of bitcoin, may be gained by seeing it mature into a more stable store of value.

Once the dual nature of Bitcoin is established, as both a currency and an asset, in much the way that gold is, any investor attracted to gold as part of their portfolio is likewise going to be attracted to Bitcoin… with the added benefit that this nascent currency has yet to be fully capitalized. Securing a position in both gold and Bitcoin offers that diversification which is always a fundamental consideration of any conservative portfolio."

Given the increasingly unstable geo-political situation in the world, BTC also comes into its own as a form of insurance in case of a monetary meltdown. Yes, it would remain volatile, but it would also gain in the aggregate as a safe haven, much the same way as gold is considered. Add to this that BTC is still in the process of capitalization [with gold being capitalized for millennium], and you have a compelling case to put a chunk of your liquid worth into this asset/ currency [or keep it there] in order to preserve purchasing power going forward come what may.

Until next time,

Stay, relatively, safe out there,

Dave the Wave.

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