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Bitcoin Price Trading Thought Experiment

A little BTC cycle trading thought experiment.



If u think there's going to be another leg down before BTC bottoms, but you are also willing to buy if the current downtrend reverses, isn't buying NOW (somewhere in between) essentially the same thing? If so, why wouldn't you just do that and guarantee you don't miss out?

It's the 22nd of November 2022.

The Strategy (keep it simple):

Let's say that we are currently 100% in cash and wanting to go all-in to BTC when we think this cycle's bottom is in.

Spot only. No leverage.

First, some assumptions for the sake of simplicity and to make the point of the thought experiment clear:

- No crystal ball or substantial industry/regulatory inside information

> We don't know when good news or bad news will hit the wire. Not now, not any time.

- BTC will reach a new all time high within the next 4 years - We are making a bottom call based on price action, *NOT* time, events/catalysts, or anything else. - We are mandated to make a 100% BTC allocation based on our defined price action criteria.

Since we are relying solely on price levels to make our allocation, we essentially only have three options for triggering the allocation:

1. Buy lower 2. Buy higher 3. Buy now

For the sake of this experiment, let's say that our best guess at which price level BTC bottoms at is 10,932.

It doesn't matter why we think that the bottom will be around 11k. Let's just say, based on our top notch technical and fundamental analysis, that is our best guess if we had to make one.

Of course, there is a chance that BTC bottoms before 11k.

Look, this is crypto, we are trying to bet big and win big here, ok? Watching BTC bottom and then moon to new all time highs while we sit sidelined is unacceptable and we would get fired from our hedge fund or something.

So which option is it gonna be?

1. Wait for another massive decline and risk missing out entirely? 2. Wait for a reclaim of the previous high timeframe support (28,862) and go all in, settling for an entry price roughly 2x the current market price?

3. Buy BTC now for 16k (!) and ensure that you participate in the eventual recovery back to new all time highs.

In this scenario, I think Option 3 is optimal from a probalistic EV perspective.

If your bottom bid level is 10,932, which I have seen many people calling for, and your trend reversal confirmation buy trigger level is 31,331 (see chart), then your theoretical probabilistic average allocation price is 21,131.5.

21,131.5 is higher than the current market price. If you agree that Option 3 is the optimal approach, then you would want to buy immediately, given this fact.

Curious what people's take-aways from this are, if any.

Is it just nonsense logic that's not very useful for most crypto investors?

Or rather guarantee you get a better than "average" price.

Timing the bottom is hard, after all.

This post is based on this twitter thread.


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