Can you time the crypto market?

TIming the Market. Source: MarketWatch.

Hello friends –

“You can’t time the markets.”

This adage is what I was told in college finance courses (backed with statistics, I might add).

But is it actually true?

I mean, Dave Ramsey said to never hold debt.

Traditional portfolio balances used to frequently recommend 40-50% in bonds.

But, both recommendations are massively disadvantaged strategies in an economy manipulated by the Federal Reserve (wherein interest rates are pushed to nearly zero & the price of assets skyrocket).

So, is buying & holding a failing strategy in crypto? Should you try to time the markets?

Two thoughts:

  1. I don’t think it’s a good idea to try to time short-term market trends
  2. I do think we can approximate broader market trends

With that said, here are six tips to discerning broad market trends:

#1 – Pay attention to bitcoin & ethereum.

The combined total market cap of BTC & ETH is approx. 60% of all crypto (roughly $1.5 trillion right now). In short, bitcoin & ether are the most mature, liquid, and influential assets within the crypto space. This means that it’s easier to sense broad changes in the market by watching these dominant assets. Furthermore, bitcoin & ether are the least volatile & most widely owned of all cryptoassets — which makes them some of the most commonly posted forms of collateral when people borrow money to invest with leverage.

#2 – Listen to the on-chain profit/loss data.

If we aggregate (eg, sum or average) the current profit/loss status across millions of investors, then it becomes much easier to understand if the market is in a euphoric stage where a correction is likely.

NUPL & MVRV ratios are great for this.

For example, the Net Unrealized Profit/Loss (NUPL) ratio gives you gives us the average profit/loss ratio of every coin if it was sold right now at the current price. Thus, if ETH’s current NUPL ratio is .70, then investors would, on average, realize a 70% profit if they all sold all their coins right now.

Historically, a NUPL ratio of 0.75 or higher is correlated with a very sizable correction within the following days or weeks.

NUPL ratio for ETH over time. The colored line charts the NUPL ratio. Notice the price corrections that frequently follow NUPL turning blue (i.e. over 0.75).
Source: Glassnode.

When you average how in the profit or loss people are across millions of people… yeah, people’s propensity to take profits actually becomes *somewhat* predictable.

Two further notes on this:

  1. Back in May, I successfully used the MVRV & NUPL ratios to note that ETH was hitting a new stage in the bull market where caution was warranted. ETH crashed a few days later.
  2. Glassnode is the best place to find tons of charts/data surrounding on-chain data for BTC, ETH, and other major cryptoassets. You can signup here. Subscriptions are roughly $40 or more per month… so you could also just follow our newsletters, we have a paid subscription.

#3 – Go whale-watching.

Large crypto investors owning lots of bitcoin and ethereum (“whales”) tend to be very sophisticated in their analysis of the crypto markets and thus they are better at timing the markets than most of us (heck, they may even be some of the catalysts for market corrections when they sell large portions of their portfolios).

So what are the whales doing?

Check out Glassnode & some of the resources linked at the bottom to stay updated about what the whales are doing.

Then perhaps consider swimming in their wake.

For what it’s worth, the whales were just starting to sell prior to this correction. Now, it appears seems that many of the whales are currently buying the dip.

#4 – Gradually sell Into strength & gradually buy into weakness.

As a follow-up to the previous point, it just makes sense to start to gradually take money off the table as the market becomes more euphoric. So, this is what the whales do — and it might be a good strategy for you to use as well.

Bitcoin data analyst Will Clemente described this in a recent podcast with notable bitcoin investor Anthony Pompliano: “[The whales] don’t perfectly time the tops or bottoms — they don’t perfectly buy the bottom of the bear market and they don’t perfectly time the top of the bull market. They kind of scale into the bear market & scale out of the bull market.”

#5 – Don’t sell the bottom.

It’s tempted to panic sell when the price of an asset crashes very quickly and your portfolio’s current value is dropping rapidly.

It might make sense to sell at the beginning of a drawdown; if the on-chain data is telling you that this could be a pretty large pullback that will continue into the future. It may also make sense if you don’t think the asset will ever recover because there’s no strong, fundamental value proposition (think Dogecoin or Cardano, but you probably should just avoid these assets from the get-go…).

But, if you are holding strong assets, then don’t dump them when the price is down. This would be like panic-selling all your stock when COVID crashed the stock market last year. No bueno.

Go back to your original investment premises. Why do you own what you own? Are those premises still valid? Did anything really change?

If not, resist the temptation to capitulate (eg, sell everything) and hold (or “hodl”, as people like to say in crypto).

You don’t want to sell all your stocks or crypto here.

#6 – Read our newsletters 🙂

The last thing I want to do is make you think that we know the future.

But, we are following all the advice mentioned in the previous five points — and we will do our best to bring things to your attention when we feel something is noteworthy (like when we wrote at the beginning of October that BTC & ETH looked ready to make crypto fun in Q4).

If you haven’t already, you can subscribe to this newsletter here.

Ultimately, the difference between trying to time short-term market swings vs. broader trends is like the changing of seasons. If you try to predict when & where there will a late frost, you’ll drive yourself insane.

But, if you step back, it’s not terribly hard to see a few flowers blooming and know that spring is coming in the next few weeks.

I hope the tips above help you in discerning the market seasons. I recommending checking out the further resources linked below.

For what it’s worth, right now this appears to be a “buy the dip” market right now (Nov 2021), friends.

Of course, don’t forget that, unless a massive correction is imminent, it often makes more sense just to hold because….well, short-term capital gains taxes are brutal.

Further Resources

  • Bitcoin on-chain data analyst Willy Woo is the #1 best in the business at what he does. Willy Woo is a must-follow on Twitter (@woonomic) & you can also subscribe to his paid newsletter for (very valuable) insights regarding market seasons here. More than 700,00 investors subscribe to his paid newsletter; which means that his analysis of future price could potentially even affect the market. FYI — we pay for his newsletter and it’s really good; we’ll try to pass along important insights as he mentions them.
    • Right now, Willy Woo believes that the current bull market will continue well into 2022. He is also stating that he doesn’t think we will see multi-year bear markets anymore due to the increased adoption levels.
  • Will Clemente is essentially a younger version of Willy Woo. He’s friends with Willy Woo & they frequently communicate with each other. Will is quite active on Twitter (@WClementeIII), writes a Blockware Intelligence newsletter, and also does a bitcoin on-chain data analysis with Pomp that’s published nearly every Saturday via The Pomp Podcast.
  • Anthony Pompliano hosts Will Clemente & other macro analysts frequently in his podcast regarding the state of the market. You can signup for his daily letter to investors here ($50/year), follow his free Pomp Podcast here for some great interviews, and checkout his Twitter here.

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