BTC doesn't experience many periods of compressed volatility. But when it does, the breakout has been a profit-generating opportunity.
Our Bitcoin volatility-squeeze indicator (aka the 'coiled spring') shows when price compresses into an abnormally tight range and stays there for extended periods (at least 10 straight days). It triggers when the price breaks the range.
14 prior signals (yes, unfortunately not the statistically significant 30+). 12 Profitable signals 50-days post and 2 unprofitable signals (2015 and 2016). Oct-2020 was the last time; price was about 11,000, before a bull run which peaked in May-2021 at 64,000.
All 9 Long signals have been profitable, mean return of +89%, largest move +401% (2013), smallest +5% (2016). Last signal, in Oct-2020 a more moderate return +60%. Bitcoin volatility is declining so super-normal returns seen in earlier cycles less likely going forward.
However, the BTC trend model is still on a bearish footing since exit signal on Aug. 24 at 21,274. The trend model blends several momentum metrics and is designed to harvest large sections of high-momentum periods while avoiding the worst of frequent large drawdowns.
At the extreme risk of pre-empting (systematic trading sin) we can see that volatility breakouts typically result in significant moves, which based on history means the trend model MAY trigger soon afterwards.
So we have an upside volatility breakout, but no trend change on our medium term model. Estimation is that a break above 22,000 could trigger a Long signal (we shall see).
Fundamentals for the BTC remain resilient despite bear mkt. Store of value metrics in 94-100th 3YR percentile & value transacted > 60th 3YR percentile. This is the value zone when looking at price vs. fundamentals and typically the right phase of the bear cycle.
However, Macro factors are still driving risk assets, so recent moves in the DXY, US yields and reverse repo balances (hat tip @cryptohayes is interesting but our Liquidity regime system remains Bearish for now.
This post is based on this twitter thread.