A key consideration when investing in crypto

Keep in mind that crypto investors are getting smarter

Author

Justin
June 09, 2024

Hey everyone,

The job of asset markets is to accurately price assets based on their value. When prices deviate from the correct price…investors have an opportunity to profit whether the price is too high or too low.

Historically all crypto assets have had huge price swings away from their fair value which has created big opportunities for investors.

Whats becoming clear in many charts and metrics is that investors are getting better at keeping crypto prices accurate - this lessens the price swings over time. Trust me that there are still wild swings that can produce huge profits in crypto…its just that the price deviations are getting smaller over time.

For anyone using metrics or models to predict tops or bottoms, this is important to keep in mind because the price may fall a little short of what models predict because the price swings are becoming less extreme.

Here are a couple quick examples where we can see this using the Bitcoin Power Law .

As a refresher we can use the price of Bitcoin hitting the red line to indicate that it is “cheap” and the purple line to indicate the price is probably at its peak for the cycle.

  1. In the past the price of Bitcoin used to be very “cheap” (near red line) for really long periods of time. In more recent cycles the price of Bitcoin has been “cheap” for very brief periods of time

  1. In the past the price of Bitcoin would always hit the market cycle peak predicted by this model…but last cycle it fell short

This shows us that investors are becoming more savvy, making their trades slightly ahead of the peak or bottom predicted by the model.

We can see this behavior of investors pricing in tops and bottoms faster and earlier in many other crypto price models as well.

Something important to keep in mind as we get further into this cycle.

Cheers,

Justin

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