In this post, we’ll get into the best long-term investing charts for Bitcoin and consequently the rest of the digital asset market. As always, this is just a small sample of what I write about in my book, The Modern Investor. I can’t give away all the secrets! So if you enjoy this content, feel free to check out the book on Amazon. Ok, that’s enough. Let’s dive in.
The Keys to Unlocking Long-Term Success in Digital Assets
What if there was a way to know when digital assets have bottomed in a bear market so that we could allocate capital before the next explosive bull market? Wouldn’t that be nice?
What if there was a set of charts that we could utilize to make us wary that a top could be coming for digital assets so that we could avoid most of the ensuing 80-90% corrections that take place in bear markets? Sign me up.
Or what if there were a series of charts that we could use to confirm whether we’ve crossed from a bull market into a bear market, or from a bear to a bull market in any given cycle?
I’ve sifted through them, plucked the best out of the crowd, added a few of my own proprietary models, and compiled them all for you here. Before we get to them, we need to define an important term that will help us when we look at our long-term charts.
What is a Moving Average?
For our purposes, we’ll be using the simple moving average, a common technical analysis indicator, which takes the average set of prices of an asset over a specified period in the past. Moving averages that are used on longer time frames like daily and weekly charts are important because traders and long-term investors often use them as key support and resistance signals and for determining optimal times to buy and sell.
Given that we’re in the bear market of cycle four at the time of writing this post, let’s start with a chart that help us identify when we’ve likely bottomed in a bear market and when we can flip to being a digital asset bull.
A Bitcoin has Bottomed Chart
This first gem is one of the best long-term charts for Bitcoin. The 50- and 200-week simple moving averages are two very important indicators that have guided sophisticated investors for years in the stock market. Here, we’re using the 200-week simple moving average along with the RSI (relative strength index) and Stochastic RSI. Stochastic RSI is a derivative of RSI and uses an oscillator to measure extreme overbought and oversold zones for an asset.
Three key elements need to align at the same time for this chart to confirm bear market bottoms for Bitcoin. If any of these three do not confirm simultaneously, the data point does not work. The three keys are:
- Bitcoin’s price has to be below the 21 monthly MA.
- The RSI has to touch or be below 45.
- The Stochastic RSI has to be below 20.
Looking at Figure 8-13, notice first how Bitcoin’s price has only been below the 21 monthly MA three times in history—in the last two bear markets and in our most recent bear market. Without using any other indicators or charts besides this one, we could say that it’s a phenomenal time to start buying whenever Bitcoin’s price sits below the 21-monthly MA.
During these rare periods, when the RSI has touched 45 or lower on the monthly chart and the Stochastic RSI has been below 20 at the same time, Bitcoin has registered its bottom in the last two previous bear markets. All three criteria were just met in our most recent market cycle.
Let’s now transition to a chart that will help us determine when we’ve crossed over from a bear market into a new bull market in digital assets. These serve as calming confirmations that the pain is over and allow us to glance back at the bear market and say, “Bye, Felicia.”
A Chart that Signals a Bear Market is Over
For this one, we’re using the same monthly chart with the 21-monthly MA and the Stochastic RSI. Whenever the Stochastic RSI has crossed back above 20 (indicated by the circles on the bottom of the chart), it’s been time for a new bull market.
We can take it a step further and add that another confirmation signal takes place when Bitcoin’s price confirms a monthly candle close above the 21-monthly MA after the Stochastic RSI crosses above 20.
Notice what happened after the last two times Bitcoin’s price confirmed these two signals. Raging bull markets ensued in 2016 to 2018 and in 2019 to 2021. I’ve put two circles with question marks on Figure 8-15 as a rough estimate based on the prior two data points as to when we might enter the next bull market. April of 2023? We shall see.
We’ll stop here for now. In the next post, we’ll be looking at the best ways to identify times when Bitcoin tops in price.
If you enjoyed this post, The Modern Investor, which is now out on Amazon, goes into MUCH more detail on these types of historical charts. This post only scratched the surface of the book’s content.
Thanks for reading! If you enjoyed this, check out the other articles and don’t forget to follow me on Twitter @andrewdfarrar for up-to-date crypto content. In these crazy times, it’s never been a more important time to learn about this new asset class.