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What You May Not Understand In Regard To Price Models

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Written by   108
1 month ago

Everyone Busy Rethinking Their End Game?

A lot has happened in the past few months when it comes to the Crypto markets. Bitcoin went all the way down to $29K and then all the way past the previous all-time high to $69K. Currently, BTC is trading just below the $50K zone and many alts are not doing so well, with some exceptions of course. Many were expecting a yearly close for BTC at around $100K, which at this point, looks unlikely but not impossible. I am sure many are busy reevaluating their strategies as the year draws to a close. I am however not changing anything but rather extending my time horizon. The reason is, there will always be a valid reason to readjust one's portfolio or strategy. Constantly changing a strategy is actually a strategy for failure. 

It is similar to the investor who buys an altcoin that doesn't move after a number of months and so decides to sell it, just prior to the coin having an explosive run. He repeats this behavior and so ultimately misses out on all the significant moves and makes zero gains.

Models Are Not Precise & Will Never Be

I know there is a lot of hate and mocking currently unfolding on Crypto Twitter, which is why I don't really pay much attention to it, or take part. Plan B is now being attacked due to the failure of his floor model. It is important to note that the S2F model is still completely valid and has not been broken. Personally, I do not view models as absolutes. Anyone looking to a model to predict price on the day, or even for the week for that is matter is not being very realistic. Models reveal averages and general price direction. Models deviate from the projected path but over time are seen to have followed it.

Looking at the S2F model above, it is clear to see that on numerous occasions, the price has overshot and underperformed the model but at some point down the line has returned to the mean. If the case being made by many at the moment was accurate, then this model failed a long time ago but we can see that over time that is definitely not the case. I suppose at some point, the model will fail due to the data and fundamentals entered into the formula becoming outdated. I do however believe that Plan B will obviously recalculate and update the model as the market matures.

This is how models work. Readers who have owned or managed a business know that targets are projected due to past performance, sales, and or price increases. I have often experienced how sometimes a strong start to a month can put you above the benchmark and later drop you below the benchmark. In a similar way, the month can kick-off way below the benchmark and later surge to exceed the projection.

The takeaway here is that regardless of what happens on a day-to-day basis, the projected target is usually attained, or at least closes very close to the projection. This is a monthly "model" and day-to-day movements are not precise. Consider then a model that is projecting over multi-year time frames. Do you not consider that perhaps even in monthly terms, the value will underperform and overshoot?

Welcome To Reality

We all want to see great gains and it gets very exciting when you begin to consider that you can actually predict those gains. To a large extent this is true but at the same time models require "grace". Models are not clocks, expected to be right on time. However, they are more like seasons that identify a "period" of certain behavior. If you choose to take a very legalistic view when it comes to price models, you will end up being rather disappointed. Willy Woo is basically confirming what I have just outlined in the following tweet.

This model does a look back on previous times that #bitcoin had similar on-chain demand. We're currently trading at a decent discount. It's a model for investors, not traders who can easily be liquidated well before the model plays out.

This is how markets operate. Another view to take into consideration is that a lot of focus has recently been placed on Plan B's models. His followers on Twitter recently surged past 1.5 million. There are however individuals out there that would love to see these models discredited. That being said, there have been occasions in the past that have been thorns in the sides of these models and yet they have prevailed.

I think that a significantly longer time frame is required before everyone starts screaming, "the model is broken".

Disclaimer

First of all, I am not a financial advisor. All information provided on this website is strictly my own opinion and not financial advice. I do make use of affiliate links. Purchasing or interacting with any third-party company could result in me receiving a commission. In some instances, utilizing an affiliate link can also result in a bonus or discount.

This article was first published on Sapphire Crypto.

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Written by   108
1 month ago
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