In response to a couple of client queries, we’ve slowly built up some indicators for this still very nascent market. This article follows on from a previous piece we did charting the rise of Bitcoin. While that article focused more on putting things into perspective, today’s article looks at some timing/tactical indicators that draw on analytical methods from the more traditional and long-established asset classes.

It’s still somewhat difficult to analyze this asset class properly due to the limitations on data (most asset classes like stocks, bonds, commodities have decades if not centuries of data), but with a bit of creativity and resourcefulness (essential traits for any aspiring analyst) we can have some quantitative/objective signals and indicators to inform the view and characterize the risks/opportunities in the market. 

For clarity, this is not to be interpreted as advice, and indeed there are considerable limitations in the analysis, however it is a first step in developing a set of indicators which may grow in usefulness over time.

The key takeaways on the Bitcoin tactical indicators are:

  • Heavy shorting of bitcoin investment trusts and futures show there is still a significant element of pessimism in the market.
  • Premium vs NAV for bitcoin investment trusts and Google search interest sentiment are moving away from contrarian bearish signals, but are not yet in contrarian bullish territory.
  • Seasonality analysis seems to show a tendency for price to trend down in the first half of the year and pickup around May/June.
  • 1. Bitcoin Investment Trust Shorts: First up is a look at short interest in Bitcoin investment trust as a percentage of shares outstanding. While the data is only up to the end of February, it’s showing still very heavy shorting in this vehicle – which is an indirect way of holding Bitcoins. Typically in the stock market you think of a surge in shorts as a contrarian bullish signal because it both represents potential future buying (to cover shorts) and it represents investor sentiment – which at this point looks to be exhibiting extreme pessimism. However there does appear to be an element of ‘smart money’ behavior in this indicator as previous spikes seemed to line up with short-term market tops.

    Print Friendly, PDF & Email