"Höhle der Löwen abgesetzt": die miese Abzocke für den ...

The Four Horsemen - Signs of Incoming Crashes, and things.

Hey y'all! I'm going to keep this brief, but I was asked by Mr. October to post this, since I briefly described this on a discord we're both in. I do a ton of market analysis, mostly on alternative data, so I don't have cool superpowers potentially, but I do fancy myself a good trendspotter.
I wanted to share what I call my Four Horseman metric in brief, and I will fill it in more later when I get back/free from the clutches of homework.
The Four Horsemen:
  1. Rapid plunge in BTC/USD - This is an interesting metric, and makes sense if you understand that BTC has evolved from a hedge to a speculation play, which is why it arguably moves in lockstep with SPY most days. However, an interesting property I and many others have noticed is BTC seems to be a leading indicator of market movements, and rapid climbs/plunges tend to signal an incoming correction. See the chart on September 2nd, 2020 for an example.
  2. NOPE_MAD >= 3 End of Day: NOPE, or Net Option Pricing Effect, in principle looks at how dominant options flow trading volume is on the market compared to the more conventional shares volume. When the NOPE_MAD (median absolute deviation) compared to the previous 30 days is 3 deviations higher than normal, this means a red day the next day about 88% of the time (backtested to Mar 2019). You can check NOPE_MAD intraday here - https://thenope.info/nope/default/charts/SPY/2020-10-13 (the URL changes per day, so tomorrow will be 2020-10-14)
  3. The VIX rising with SPY - This usually is part of the parabolic phase, and means a metric fuck ton of calls are being written, which is pushing up option prices across the board. Usually VIX is a measure of downies-volatility, so when it and SPY both go up, it's a Very Bad Thing. Also see September 2nd, 2020.
  4. Small Tech/Caps Leading Big Tech/Caps - This is a more interesting metric, and only makes sense when you understand what causes a Minsky Moment style correction (irrational exuberance). In a stable market, big caps tend to act as a source of strength/safe harbor, and when small caps are leading, this tends to signal intense bull mania, which usually precedes a correction.
Honorable Mentions:
  1. Microsoft going up parabolically - Microsoft is our favorite boomer stock for a reason - it is much more stable than AMZN or AAPL, and doesn't like large movements. I noticed anecdotally this year that right before all the big tech corrections (3-5 days out) MSFT goes up exponentially, often more than the rest of the market, because smart money is looking for safe harbor.
I'd be happy to answer any questions later!

Edit: Wanted to add some stuff given the comments below.
  1. I did not write this to predict a crash based on today's behavior, but to generally inform about a metric I use to detect Minsky Moment style crashes. For more info on that - https://en.wikipedia.org/wiki/Minsky_moment
  2. Lots of these indicators are new, and due in large part due to the relative fuckiness of the current market. Bitcoin and SPY did not track until this year, and I only noticed the Microsoft effect I mentioned since about 6/5 onwards. This likely also happens in other boomesafe stocks, but MSFT is by far my largest active trading position, hence why I noticed it.
  3. I will be adding a post soon specifically dedicated to the interpretation of NOPE and NOPE_MAD.
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Three Laws of BTC Bull and Bear Cycle and Its Applications — Freezing Point Forecast — One

Three Laws of BTC Bull and Bear Cycle and Its Applications — Freezing Point Forecast — One
Analyst: Song Shuangjie
Special Adviser: Shen Bo Rin
The fourth price-rising cycle of BTC might commence around May 2019. The mainstream institutions join the game and ETF might be the driving force of the fourth round of price cycle.
BTC has undergone three rounds of price cycles. ‘It is different this time’ has always been a terrible lesson for investors. The tokens, typical represented by BTC, are special in nature to other financial products, which makes it easily get mistaken that BTC will go up straightly and never decline. When the cycle power works, the asset price, which was thought to create a different history, will collapse. There are 3 major rules of the BTC price cycle:
A. BTC price cycle is closely related to its halving cycle. A complete BTC price cycle lasts for about four years. The price-rising section will commence one year ahead of the time before the output is halved. The BTC output was halved for the first time at the end of November 2012, and before that the BTC price touched the bottom in November 2011. The BTC output was halved for the second time in July 2016, as the BTC price touched the bottom in August 2015. As you can see, each time BTC output halving, is the start of a price-rising cycle, and the price speeding up begins with it.
B. BTC price fluctuation range decreases as market value increasing. The BTC’s (in circulation) market value varies with its price fluctuations, which means BTC’s price rising makes its market value increases, and the price fluctuation range decreases. It is similar to the historical process of other asset classes. During the first price cycle, the price of BTC rose by 10636 times which was the biggest gain, and the maximum drawdown was declined by 93.76%. During the second price cycle, the price of BTC rose by 623 times, and declined by 83.93% maximum. During the third price cycle, BTC rose by 98.57 times at most, the maximum declining has not been confirmed yet.
C. The innovation led by BTC is constantly evolving and more and more approved by the mainstream. From BTC to Altcoin, from Altcoin to Crowdsale, there are iconic innovations and applications in every price cycle. In the first cycle, the birth and gradual application of BTC was a landmark event. In the second cycle, with the re-emergence of BTC in 2013, the tide of the Altcoins was rampant, and a large number of Altcoins appeared. In the third cycle, Crowdsale began to be popular around the world, and many websites started to provide Crowdsale's news and discussion forum. Since 2017, Crowdsale has dominated the blockchain investment, far exceeding VCs and corporate investment. With the development of blockchain technology, the evolution of digital certification, the improvement of practitioners' awareness, and the evolution of government regulation, the innovation led by BTC has evolved and is more approved by the mainstream.
The third round of the price cycle might come to an end around May 2019, and followed by the fourth round of price cycle. The maximum rise in the BTC's fourth price-rising cycle will be smaller than last three cycles. BTC's increasing market value demands more capital. Digital token shall embrace supervision to absorb more institutional funds. ETF will be a viable solution. In the future, it will shift from Crowdsale to ETF, and from deregulation to embracing supervision.
Risk Tips: ETFs have put capital amount into this market less than that we expected. Quantum computer technology is advancing by leaps and bounds
1 The First Round of Price Cycle .
2 The Second Round of Price Cycle
3 The Third Round of Price Cycle
4 Three Major Rules of BTC Price Cycle
4.1 BTC price cycle is closely related to its halving cycle
4.2 BTC price cycle is closely related to its halving cycle
4.3 BTC-led innovatioized by the mainstream
5 The new journey of BTC will Start in May 2019
List of Graphs
Graph 1: BTC Price Trend in The First Price Cycle (in USD)
Graph 2: BTC price trend in the second round of price cycle (in USD)
Graph 3: The number of tokens in 2013 has increased significantly Graph 4: BTC price trend in the third round of price cycle (in USD)
Graph 5: VIX index and BTC price are negatively correlated
Graph 6: Crowdsale has dominated blockchain investment since 2017 (millions of US dollars)
Graph 7: A large number of Crypto Funds were established in recent years.
Graph 8: ETH price trend (in USD)
Graph 9: ETH price is positively related to the size of Crowdsale financing
Graph 10: Lightning network capacity continues to grow
Graph 11: The number of lightning network channels continues to grow
Graph 12: The global Crowdsale growth rate slows down in 2018 .
Graph 13: Crowdsale’s fundraising has started to decline since 2018 .
Graph 14: Significant growth in venture capital in the blockchain sector in 2018
Graph 15: BTC block reward trend reduction
Graph 16: BTC price cycle and halving mechanism (in USD)
Graph 17: BTC market value scale trend increase
Graph 18: BTC price fluctuations become smaller
Graph 19: Admission to mainstream institutions has continued since the end of 2018
Graph 20: The third round of the price cycle may be completed around May 2019
Graph 21: The current stage of the price cycle has been probable more than half, and the downside space is limited
History doesn't repeat itself, but it does rhyme. --Mark Twain
‘It is different this time’ has always been a terrible lesson for investors. The tokens, typical represented by BTC, are special in nature to other financial products, which results in producing an idea, in some investors’ mind, that the price of BTC will go up straightly and never decline. When the cycle power works, the asset price, which was thought to create a different history, will collapse. No matter it is the A-share market of 2007 or the one of 2015, or any ‘bubble time’ in human history, the cycle power played its role. As far as BTC is concerned, its price has also experienced three rounds of cycles.
In addition, when the asset price is in a dark period of continuous decline and weak rebound, the power of the cycle also works. As long as it is a valuable asset, its price will eventually bounce back from the bottom. Opportunities have always been there, if you have an asset with high potential in hand. In the dark moments before dawn, the more you are afraid, the more you will be confused. At this time, you have to believe in the value investing. ‘Be fearful when others are greedy and be greedy when others are fearful’, not the other way around. That means, we shall invest reversely, buying undervalued assets gradually in the bottom region of price decline cycle; selling overvalued assets gradually in the top region of price-rising cycle; and following the trend in other time region of the cycle.
1 The First Round of Price Cycle
The first round of BTC price cycle lasted for 610 days, from March 2010 to November 2011, and in this cycle, BTC price rise rate was the highest of BTCs three price cycles.
The price rise stage of the first round of price cycle, from March 2010 to June 2011, lasted for 447 days. The starting price was 0.003 USD/piece, and the highest price was 31.91 USD/piece, the rise rate reached 10,636 times. The price decline section of the first round of price cycle, from June 2011 to November 2011, lasted for 163 days. In this price decline section, the starting price of BTC was $31.91 per piece, and the lowest price was $1.99 per piece. The decline rate was 94%.
On May 22, 2010, the famous BTC Pizza dealt. Laszlo Hanyecz from Jacksonville, FL, bought two pizzas with 10,000 BTCs. Each price ofBTC is less than 0.01US dollars.
In the first round of the price cycle, there is no explicit positive or negative factors causing BTC's price huge fluctuation. Fluctuations are more like in a “natural” situation. Before the first BTC bubble bursted in November 2011, its price was in a trend of increasing. The reason of rise was that the price base of BTC was very low. With the understanding of BTC gradually getting better, the demand increased, and then, the price rose. For example, June 2011, WikiLeaks and some organizations began accepting BTC donations.
2 The Second Round of Price Cycle
The second round of BTC price cycle lasted for 1377 days, from November 2011 to August 2015, and in this cycle, the price of BTC exceeded gold for the first time.
The price rise stage of the second round of price cycle, from November 2011 to November 2013, lasted for 743 days. The starting price was $1.99 USD/piece, and the highest price was 1,242 USD/piece, the rise rate reached 623 times. The price decline section of the second round of price cycle. From November 2013 to August 2015, lasted for 634 days. In this price decline stage, the starting price of BTC was 1,242 USD per piece, and the lowest price was 199.57 USD per piece. The decline rate was 84%.
At the second price cycle, the range of application of BTC has been greatly expanded. In November 2012, WordPress began to accept BTC; and in October 2013, the world's first BTC ATM was deployed in a coffee shop in Vancouver where customers could buy and sell BTC. In November 2013, the University of Nicosia announced accepting BTC for tuition, the university's chief financial officer called it "gold of tomorrow"; In addition to some underground economy and gray economy began to accept BTC, BTC is also getting closer to daily life.
The success of BTC popularized altcoins. The first type of altcoin LTC (Litecoin) was created in October 2011, and it is the time when the BTC price came to the end of price decline. In 2011, Namecoin and SwiftCoin were born successively. In 2012, Bytecoin and Peercoin were issued, however, BTC was still in the stage of rising slowly from the bottom, and the market was not hot. Along with the re-emergence of BTC in 2013, the tide of the altcoins is rampant, and a large number of altcoins are issued. According to CoinMarketCap data, there were 66 kinds of altcoins at the end of 2013, while there were less than 10 at the beginning of the year.
The safe-haven properties of BTC are widely approved. BTC was a choice for people in many countries that are in crises. The residents flocked to BTC, hoping to maintain assets value through BTC. This phenomenon has occurred many times during the European debt crisis. For example, in early 2013, in order to get the bailout, the Cyprus government imposed taxes on deposits and imposed strict capital controls. In order to prevent property from shrinking, the Cypriot people rushed to bank runs and exchanged their currencies for BTC. The price of BTC quickly rose from 30 something to 265 US dollars.

Due to the lack of supervision, BTC is often affected by negative events, which makes the market confidence in the danger of collapsing. In October 2013, the FBI seized approximately 26,000 BTCs from the Silk Road website, causing the BTC price to collapse to 110 US dollars. On December 5, 2013, the People's Bank of China banned the use of BTC by Chinese financial institutions, which made the price of BTC declined. In February 2014, Mt. Gox, the largest BTC exchange at the time, said that 850,000 BTCs of its customers were stolen, worth nearly 500 million US dollars, and BTC prices fell nearly half, from 867 to 439 US dollars.
The emergence of a large number of altcoins caused market bleeding. Since 2014, the number of altcoins has exploded. By August 2015, the number has reached 556, resulting in diversion of funds and market expansion. On May 1, 2013, BTC accounted for 94.29% of the market value of all tokens, and the market value of other tokens except the top 10 tokens was about 1%. By August 25, 2015, the proportion of BTC is about 83%, and the other tokens account for 4%, which is obvious.
No matter how magical token is, it is still a kind of asset. The mean return of value is a basic common sense of investment. The value will pull the price back to it, just like the gravity. The risk increases with the price rises, and the value appears when the price declines. In the rising section of this cycle, the price of BTC rose by 623 times, which is a great rise rate. When the price is too high, and the potential return in the future is insufficient, the attractiveness to new investors will fall, and the old investors will leave and look for more lucrative assets. Once the power of trend investors exhausted, the trend will reverse.
3 The Third Round of Price Cycle
The third round of price cycle of BTC is not over and is currently in the downward phase of the cycle. The price increased from August 2015 and lasted for 845 days till December 2017. The starting price of the price-rising cycle BTC was 199.57 USD/piece, and the highest price was close to 20,000 USD/piece. The rise rate is up to 99 times. Since December 2017, the price started to decline. The price has fallen to the lowest 3,191.30 US dollars up to now, a drop of 84%.
BTC networks expanded rapidly, and BTC has gained increasing recognition among legislators and traditional financial companies. Studies have shown that by November 2013, the commercialization of BTC is no longer driven by the underground economy, but by legitimate businesses. During this price cycle, people from more countries can get in touch with, select, trade and use BTC on a daily basis. In January 2016, Bitcoin computing capacity reached 1 exahash/S for the first time; In March 2016, the Japanese cabinet acknowledged that BTC has a function similar to real money. In 2017, Norway's largest online bank Skandiabanken integrated BTC accounts. In December 2017, Chicago Mercantile Exchange (CME) officially launched BTC futures, which is an important step for BTC to take toward mainstream investment. In October 2018, Fidelity launched its independent subsidiary Fidelity Digital Asset Services to provide digital asset services to institutional customers. In December 2018, the first round of financing was completed by the token exchange Bakkt launched by the Intercontinental Exchange. In February 2019, Nasdaq officially launched - Bitcoin Liquid Index (BLX) and Ethereum Liquid Index (ELX)- two indexes. The pension fund of US invests in the encryption fund, the mainstream organization is accelerating, and the relevant infrastructure is gradually improved.
BTC has become a risky asset. Under the current “three lows” environment - low interest rates, low spreads and low volatility, investors are seeking high returns, which leads to excessive financial risk behaviors and complacency, investors' risk appetite, and high leverage tools and the acceptance of high-risk products has increased, arbitrage transactions have prevailed, liquidity mismatches have been severe, and the overall market is fragile. As the results we can see that, the price of BTC is increasingly correlated with the VIX index (Chicago Options Exchange Volatility Index). A lower VIX index indicates that investors expect less volatility, while a higher VIX indicates higher expected volatility. The lower VIX index indicates that investors are optimistic about S&P 500, while the higher VIX means that investors are uncertain about the market outlook. When market volatility declines, investors buy stocks and other types of risk assets, when the market volatility rises, investors sell risky assets.
Risk assets will be dumped when risk appetite reduces panic market. BTC bid farewell to the nature of safe-haven assets and become a risky asset. Since December 2017, with the decline of the VIX index, the price of BTC rises, and the price of BTC is negatively correlated with the VIX index. At the beginning of 2018, the VIX index skyrocketed and BTC fell rapidly. In October 2018, the global market risk aversion trend increased, the VIX index went up, and the BTC price also fell sharply.

Crowdsale has become the main financing method in the blockchain field. Crowdsale was born in the second round of the price cycle, Mastercoin did the world's first Crowdsale in July 2013. In 2014, Ethereum also raised funds through Crowdsale, when the price of ETH was less than 0.22 USD per piece. After 2016, when it is in the third price cycle, Crowdsale is popular around the world, and many websites began to provide information and discussion communities for Crowdsale. From a global perspective, Crowdsale has dominated the blockchain investment since 2017, far exceeding VCs and corporate investment. In 2017, Crowdsale raised 7.4 billion US dollars, and in the first half of 2018, Crowdsale Raised 12 billion US dollars.
The Crypto Fund emerged. Along with the Crowdsale boom, a large number of Crypto Funds were created. The number of Crypto Funds newly established in 2017 was nearly 200, far exceeding the total amount of the Crypto funds created in previous years, which fully demonstrated that, with the rise in the price of the token, the enthusiasm of funds to blockchain field is high.

The rise of blockchain 2.0, the Crowdsale tide pushed ETH up nearly 10,000 times. In the third round of the BTC (Token) price cycle, the biggest star is not BTC, but ETH. Crowdsale after 2016, issued tokens mainly through Ethereum, which represented the rise of ETH in the blockchain 2.0 era. Crowdsale prosperity boosted the rise of ETH. On January 13, 2018, the price of ETH rose to a peak of 1,432.88 US dollars per piece, which is 6512 times rise rate comparing to its initial price.
The ETH price has a significant positive correlation with the growth rate of Crowdsale financing. The growth rate of Crowdsale financing decreased by 69.23% in 2015, the price of ETH decreased by 66.30% in the same year. In 2016, the growth rate of Crowdsale financing increased by 2737.5%, and ETH increased by 753.74%. In 2017, the growth rate of Crowdsale financing increased by 3,159.91%, and ETH rose by 8809.91%.

Plan for public blockchain performance improvement emerged, and significant progress were made in lightning network. With the popularization of blockchains, the congestion of BTC and other public chains has gradually emerged, and performance has become one of the bottlenecks in the blockchain industry. In 2018, the performance-improvement plan of the public blockchain emerged. Improvements were made to the difference in blockchain logical architecture, including on-chain capacity expansion schemes by improving consensus mechanism and sharing, and off-chain capacity expansion schemes by status channel, sidechain, off-chain computing, and Layer 0 expansion scheme that enhance the scalability of the blockchain by optimizing the underlying data transmission protocol of the blockchain. Since the main net of BTC lightning network goes live, the number and capacity of channels have been increasing. As of March 10, 2019, the capacity has reached 790 BTC, and the number of channels has reached 35,464.

Note: The Unique channel refers to the channel that is directly connected to the node for the first time, and the Duplicate channel refers to the channel between the nodes that have been connected.
The standardization of the token is promoted. On January 22, 2018, South Korea required all BTC dealers to disclose their identity, thereby prohibiting anonymous trading of BTC. During the first quarter of 2018, Facebook, Google and Twitter prohibited the promotion of Crowdsale, while the US Securities and Exchange Commission investigated a large number of Crowdsale projects, and issued bans to some Crowdsale projects. Regardless of the government's attitude towards the token, it is committed to incorporating the token into the regulatory framework for legal compliance.
The Crowdsale bubble bursted and the magical story is no longer magical. According to incomplete statistics, in 2017, 871 Crowdsale were completed in the world. These projects involved directions as distributed analogous Facebook, twitter, amazon, and next-generation public chain (blockchain 3.0), etc. These projects have raised a large amount of funds, but the actual operating is worrying. The promotion of the project dissipated a large amount of funds, but the actual development progress was far less than expected, resulting in the market's expectation failure and the diversion of funds from the mainstream token. Superimposed the impact of more and more negative news, technical adjustment requirements and market sentiment fluctuation. The market enters a negative cycle, as the decline begins.

In 2018, there has been rapid growth in venture capital in the blockchain sector, indicating that venture capital still have good expectations about the application and future prospects of the blockchain. According to Coindesk data, the risk investment in the blockchain sector in 2018 reverse the decline of 2017, year-on-year increase of 257%, and the total amount for the year 2018 reached 3.1 billion US dollars.

BTC peaked first. In terms of time, in the third round of the price cycle, the first to peak is BTC, which reached 19,870.62 USD per piece in December 2017. The peak of ETH happened later than BTC, in January 2018. EOS did not peak until April. The important reason for BTC to peak first is that the amount of funds needed to support the BTC market value scale is the largest. When the market’s ability to carry on is not enough, it is inevitable for the price of BTC to react first.
4 Three Major Rules of BTC Price Cycle
The price cycle of BTC has obvious regularity, and some unchanging factors determine the price fluctuation of BTC.
4.1 BTC price cycle is closely related to its halving cycle
One full BTC price cycle lasts approximately four years. In the first round of price cycles, the measure of time span is not reliable because of the availability of BTC trading prices. The second round of the price cycle lasted for 1,377 days, from November 2011 to August 2015, about four years.
The price-rising cycle of BTC is closely related to its halving period, and the price-rising cycle starts one year before each halving. At the end of November 2012, the first production of BTC was halved, that is, the number of BTC generated by each block was 25, and in November 2011, the price of BTC has bottomed out, and the halving of BTC is one year after the second price-rising cycle. In July 2016, production of BTC was halved the second time, that is, the number of BTC generated by each block was 12.5. In August 2015, BTC had already bottomed out, and BTC's production was reduced again one year after the third price-rising cycle started.

BTC output halving blows the horn of each price-rising cycle, and the price speeding up begin. Although it is not BTC output halving that brings the price-rising cycle, but the halving of BTC output significantly reduced the growth rate of BTC supply, speeding up the rise of BTC price and the price-rising cycle. From November 2011 to November 2012, before the halving of BTC output, BTC increased by 6.74 times in one year. From November 2012 to November 2013, BTC price increased by 99.57 times. In the third price-rising cycle, BTC price rose by a maximum of 2.87 times in about 11 months before the production cut. After halving, BTC price rose by a maximum of 29.73 times in about 11 months.

4.2 BTC price cycle is closely related to its halving cycle
The change in the market value scale of BTC (circulation) is mainly caused by its price fluctuations, and has little to do with the changes in the total amount of BTC output. According to CMC data, by April 28, 2013, the total amount of BTC that had been mined was about 11.18 million pieces, which is more than 53% of the total amount of BTC of 21 million pieces. The halving mechanism of BTC also accelerated the marginal decline of BTC total growth rate. Compared with the amount of BTC already mined, the new supply of BTC is very insignificant. In addition, the volatility of BTC prices far exceeds the volatility of BTC's total output, and the market value of BTC fluctuates with its price.
The market value of BTC has increased in trend. Because of the trend of BTC price-rising, the number of BTC total output has also increased in one direction, and the market value of BTC has increased in the long run. According to CMC data, on April 28, 2013, BTC's market value in circulation was only 1.5 billion US dollars. By the peak of the third price-rising cycle, the market value increased to 326.1 billion US dollars, and the current market value also reached 113.8 billion US dollars, increased by 74.87 times.
The price volatility of BTC is gradually getting smaller. With the increasing of BTC market value in trend, the BTC market is becoming more and more mature, more and more accepted by the public, more and more professional organizations are participating, the compliance operation is becoming mainstream, and the BTC price volatility is decreasing. Similar to the historical process of other asset classes, and the same thing is repeated again and again. In the first price cycle, the price of BTC increased by 10636 times, and the fell by 93.76% maximum. In the second price cycle, the price of BTC increased by 623 times, and fell by 83.93% maximum. In the third price cycle, the maximum increase of BTC price was 98.57 times, and the biggest decline has not been confirmed

4.3 BTC-led innovation continues to evolve and is more and more recognized by the mainstream
From BTC to Altcoin, from Altcoin to Crowdsale, there are iconic innovations and applications in every price cycle. In the first cycle, the birth and gradual application of BTC was a landmark event. In the second cycle, with the re-emergence of BTC in 2013, the tide of the Altcoins was rampant, and a large number of Altcoins appeared. In the third cycle, Crowdsale began to be popular around the world, many websites started to provide Crowdsale's news and discussion forum. Since 2017, Crowdsale has dominated the blockchain investment, far exceeding VCs and corporate investment.
The original intention of Nakamoto to create BTC is to establish a more efficient means of trading that can be electronically transferred in a safe, verifiable and non-tamperable form. During the early days of bitcoin and blockchain development, this drove the development of most applications of BTC and blockchain. However, with the development of blockchain technology, the evolution of digital token, the recognition of practitioners, and the evolution of government regulation, the changes led by BTC continue to evolve and gain more mainstream recognition.
More and more countries recognize that the blockchain reflects its unique value in many fields. The government has gradually incorporated digital token into regulation, and mainstream institutions are increasingly recognizing BTC. In 2017, the Chicago Mercantile Exchange (CME) officially launched BTC futures, as BTC took an important step toward mainstream investment, improving the accessibility of BTC to traditional financial institutions. In March 2017, Cameron's Cliveworth and Taylor W. Crawworth brothers attempted to submit an application to the US Securities and Exchange Commission for BTC ETF (transactional open-ended index fund). Although on September 22, 2018, US Securities and Exchange Commission rejected nine BTC ETF applications, the approval of BTC ETF application is a high probability event in the long run. With the continuous improvement of related infrastructure and the gradual maturity of the market, the pace of institutional entry has shown signs of acceleration. Since the end of 2018, news about the organization of encrypted assets by mainstream institutions has continued.

5 The new journey of BTC will Start in May 2019
The fourth price-rising cycle of BTC will start in May 2019, and mainstream institutions will enter the market, while ETF may become the core trend of the fourth round of BTC price cycle.
From the perspective of supply, the third halving of BTC begins around May 21, 2020. The price-rising cycle of BTC is closely related to its halving period. The price-rising cycle starts about one year before halving. From this perspective, the BTC price-rising cycle may be opened around May 2019.

From the time dimension, the complete BTC price cycle lasts for about four years. The third round of the price cycle, which started in August 2015, will be completed around August 2019, and the fourth round of the price cycle of BTC will begin thereafter. Considering that the data in the second round of the price cycle is more reliable, only the second round of price cycle data is used as the measurement standard, the complete price cycle is 1377 days, about 3 years and 9 months, and the third round price cycle may end around May 2019.
Combined with the previous two BTC price cycles, the downturn phase of the current price cycle has been probably more than half, and further downside space is limited. In the first two rounds of the price cycle, the duration of the downlink phase is less than the duration of the uplink phase. The duration of the third phase of the price cycle has been confirmed (845 days), while the duration of the downturn phase has been more than half of the upstream phase (450 days). From the first two rounds of the price cycle, the rapid decline in prices occurred in the early stage of the downtrend phase. The price fluctuations of BTC in the second half of the downturn phase have been significantly reduced. The BTC price declines reached 61% in the first half and 74% in the second round of the price cycle, and the corresponding maximum declines in BTC were 94% and 84% respectively. In the current round of the price cycle, the biggest drop has reached 84%, so take it from now, even if the price is further down, the downside space is already limited.
Note: The data of the third round of the price cycle and the total duration are up to March 12, 2019.
From the price dimension, the downside space of the current round of BTC prices is limited, and the maximum increase of BTC's fourth price-rising cycle will become smaller. In the first price cycle, the price of BTC increased by 10636 times, and fell by 93.76% maximum. In the second price cycle, the price of BTC increased by 623 times, and fell by 83.93% maximum. In the third price cycle, the maximum increase of BTC price was 98.57 times, and the biggest decline has not been confirmed. On February 6, 2018, BTC fell to a minimum of 3,191.30 US dollars per piece, drop by 84.07%, has reached the low of second round of price cycle, from the perspective of price adjustment, BTC price downside has been more limited. The maximum increase in the fourth price-rising cycle of BTC will be smaller.
From the perspective of risk, after a year of continuous adjustment, BTC prices have fully fallen, risks have been gradually released, and investor’s risk appetite has risen to create favorable conditions for BTC prices to stabilize. Beginning at the end of December 2018, the VIX index has fallen, and now it has reached 15 or below. The investor's risk appetite has gradually picked up, creating favorable conditions for the BTC price to rise stably.
Last but not least, from the perspective of capital, the mainstream institutions accelerated their entry and many positive signals were released. With the continuous improvement of related infrastructure and the gradual maturity of the market, the pace of institutional entry has shown signs of acceleration. Since 2018, on the one hand, the entry of mainstream institutions can bring incremental funds to the entire market, on the other hand, it also contributes to the formal development of the entire industry.
The value of the BTC's market value in circulation continues to increase, and the digital token embraces regulation. It is expected that the ETF will be the core trend in the fourth price cycle. As the value of the BTC and digital token market increases, their use will be more tied-up to legitimate use than illegal activities. According to the US Drug Enforcement Administration (DEA) data, only 10% of the current BTC transactions is related to illegal activities and 90% is used for legal transactions. BTC's increasingly large market value requires more financial support. Digital token will embrace supervision to absorb more funds, and ETF will be a viable solution. In the future, there is going to be an evolution from Crowdsale to ETF, from regulation to embrace supervision.
Although in this report, we try to predict the bottom and time of Token, especially BTC, by using time and space cycle, we would like to tell investors that it is very dangerous to invest basing on a specific dot and time. An investment shall base on the assessment of the value of the token.
Here are our suggestions: 1. Do not try to predict the market. Mistakes are liable to happen when you try to predict market harshly. 2. Feel the cycle. Cycle is always there, because of the constant human nature;3. Be with a good Token, which will bring you more chance to win. 4.Keep valuation in mind. The most important thing in value investing is to keep the valuation in mind. If the price is reasonable, everything is getable. The key is the difference between price and value (Absolute valuation method is not available with Token because of its specialty. However, a relative valuation method can be applied. Please refer to Token Toll’s report series).
For some reasons, some definition in this report are not very defined, such as: Token, Digital Token, Digital Currency, Currency, Crowdsale, etc.
If you have any questions, be free to call us to discuss with us.

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Derivatives will kill us all!

My first RI!
I brought this up here a few weeks ago but I thought it was worth expanding on. Our exhibit of badeconomics:
BIS says there are $1 quadrillion in derivatives right now on earth. The last time there was this much in derivatives was before 2008. The banks made sure they can take your money if they crash in the last budget bill passed by U.S. How much is $1,000,000,000,000.00? If one dollar = one second. one million dollars = 12.5 days one billion dollars = 30 years one trillion dollars = 30,000 years one quadrillion dollars = 30 million years When derivatives collapse, you will finally understand that sea level and earth temperature rises will be the least of your worries, unless a resilient high pressure block parks its ass over the mid-west this summer. Because if it does, world starvation will begin. Don't forget that the U.S. government sold off its grain reserves in the last recession.
Admittedly this comes from /collapse, so I feel almost mean picking on this (the other post I made was criticizing Bloomberg News for misusing the figure we're going to talk about). Also apparently agriculture will collapse in 50 years. But I wanted to talk with you about derivatives, because I worked with them for 6 years and I find them endlessly fascinating.
The Biggest Number You'll Ever Hear
One thing that is true about this (and perhaps the only thing) is that the notional value of the world's derivatives is probably the single largest money value you can meaningfully talk about in finance and economics. The world's total debt, for perspective, is about $200 trillion, or 2.86 times global GDP.
If you google "derivatives quadrillion" you will get a lot of posts from people sharing our friend's view with varying degrees of breathless panic that the sheer size of this number will bring down the global economy. (Saying that it will end civilization, though, is new to me.) This quadrillion figure purports to be the notional value of the world's derivatives, and our friend is kind enough to cite the BIS, the Bank for International Settlements. The BIS is an international financial institution predating the IMF and World Bank sometimes called a "Central Bank's Bank" because it, well, settles international finances. If you've heard of the Basel Agreements (such as Basel III), which are at the core of international financial regulation, the reason they're called "Basel" is because the BIS lives in Basel, Switzerland.
Anyway, one thing the BIS does is count up all those derivatives. You can see the BIS data here. Indeed, you will see an eye-wateringly large number there: $552 trillion notional value for the world's derivatives (again, compare that with $200 trillion in global debt). That is down from $710 trillion in 2013 but a far cry from one quadrillion dollars.
That $552 trillion figure refers to OTC (over the counter) derivatives. There is another variety of derivatives - "listed" or "exchange-traded" derivatives. The BIS calculates an additional $63 trillion open interest in listed derivatives. Open interest is a comparable figure to notional value for listed derivatives.
If you don't know what OTC and listed derivatives are, don't worry, the difference is an important part of our story that we'll get to.
The BIS excludes certain types of popular listed derivatives from this total for some reason, including the kind of derivative that most people have heard of: stock options. The Office of the Comptroller of the Currency (OCC) provides reports on US derivatives exposure: out of $181 trillion in notional value US derivatives, $3.4 trillion are stock and commodity derivatives, so we aren't missing much.
I've Got a Notion Of A Notional
So what is notional value and why is it coming to kill you?
Financial derivatives are about being derived from something. The something is called the underlying of the derivative. Roughly, the value of that underlying is the notional value.
There are many fancy variations of derivatives, but there are three basic kinds: forwards, options, and swaps. The simplest one is a forward contract, which is just an agreement to buy something at a certain price at some point in the future. I'll give the same example I gave a few weeks ago:
Say we have a forward contract for one barrel of oil. This agreement says you will buy a barrel of oil for $30 from me in three months. The notional value of this contract is $30. If oil ends up costing $31 when the contract is due, you are able to pay $30 for something worth $31. The value of the contract then is...not $30 (the notional value), not $31 (the spot price), but...$1.
At the time the contract expires and you have to pay for the oil, this contract is just a coupon for $1 off on a barrel of oil. You're still obligated to pay $30 for the oil, but the derivative itself is only worth that $1 coupon.
If you had wanted just the option (not the obligation) to pay, you could have bought...an option. I won't get into options because this is already really long although options are way more fun.
I Just Wanna Sit Back And Unwind (My Forward Contract)
You might say, "Well, Sporz, fine - the contract itself is worth $1, but I'm still obligated to pay up $30 (notional value) for the oil. So it's still relevant?"
Yeah, and if you actually do hold it to maturity, you have to accept delivery of that barrel of oil and pay. But there is a way to get out of it and just pocket your $1 without actually getting a barrel of oil: Sell the contract. In fact, sell it back to the person who's giving you the oil for that $1 that it's worth (who will just rip it up, what's the point of delivering oil to himself?) Now there's no $30, just that $1 that changed hands - and nothing to do with the notional value!
"Sporz, that's insane!"
It is a little convoluted but it works. It works so well that the vast majority of contracts are unwound this way.
You may be wondering why you would bother doing this if you didn't actually want to buy or sell oil. One answer is that you could be just speculating on the price. The other is if, say, you're an airline that wants oil, or an oil producer selling oil - you get the ability to fix the price ahead of time rather than worrying that, when you need oil the price will be sky high or rock bottom. This reduces your risk substantially. A lot more oil producers would be bankrupt now if it weren't for these handy little hedges. This is why derivatives are so important and valuable and how they can make the world safer.
"But I still need oil!"
Yes, but not oil in Cushing, Oklahoma.
Back To The Future (Contract)
"Why are we in Oklahoma, Sporz?"
So, a forward contract like the one we made is an over-the-counter (OTC) derivative. OTC derivatives are nifty because you and I get together, decide on a custom price, and a custom location for delivery. The problem is that this is expensive (we're hammering out a very custom contract and I am a very expensive banker), you're dependent on me still being in business when the contract is due (I may be very expensive, but I also could be very incompetent), and if you want to get out of it, either I'm feeling nice, or you have to find someone else to take this very special contract and that can be hard. People still do this sometimes (Pemex, the Mexican national oil company, hedges using OTC oil derivatives) but you can see some problems.
Futures contracts are closely related to forward contracts. The difference is that they are listed derivatives - instead of calling me up and hammering out this very custom contract, you go to a big exchange, like the New York Mercantile Exchange (NYMEX) and buy the contract there.
The contract is completely standardized: the oil (West Texas Intermediate) gets delivered on specific dates, and at a specific place (Cushing, Oklahoma).
"But I want oil in Ohio."
The price of oil in Ohio is going to be pretty close to what it is in Oklahoma. (The difference is called basis risk). But close enough. So you close out your NYMEX contract and pocket your $1 and pay about $31 in Ohio for oil. Net, you still managed to pay $30.
The benefit is: Because the contract is standard, many people want to buy and sell them, so you shouldn't have a hard time getting out if you want. Also, you aren't contracted with me specifically. If you want to buy, and I want to sell, the exchange will contract with us both. Your counterparty isn't me, the incompetent banker who might disappear tomorrow, but with the entire pool of buyers and sellers at the exchange.
The other thing is margining and daily settlement. Obviously the exchange doesn't want to pick up the tab for me being a deadbeat if I can't pay in three months for that $31 barrel of oil. So I have to keep some amount of cash in a margin account at the exchange to cover me. Each day, the contract is settled as if I had closed it - if the price went up, I have money taken out of my account. If the price went down, money gets put in from yours. If I don't have enough money in my account, I face a margin call. (Awesome movie by the way, you should see it - ironically there is no margin call in it). If I don't make the margin call and top up the account, my position is closed immediately for being naughty.
"What does this have to do with notional values?"
It doesn't. It has to do with making derivatives safer (almost to the point of paranoia at times). So derivatives won't blow the world economy up like our friend thinks they might.
So, how big is it? Really?
So we've talked about the benefits of derivatives (being able to hedge risk), things that can make derivatives less risky (margining, daily settlement, and central clearing - we'll come back to those). And that notional value is not a good way to measure the size or risk of derivatives. So what is a good measure?
One way to think about it is, if we see that notional value can vastly overstate the size of a derivative (our $30 notional, $1 value forward contract again), we can think about the market value. Our forward contract has a market value of just $1.
It's also worth noting that notional value could (in rare cases) be less than the market value. If oil had risen to $90, the contract would be worth $60 - on a $30 notional. But this is rare and (for reasons I'll get to) statistically impossible for derivatives as a whole.
If we go back to our favorite BIS report you'll see a figure for "Gross Market Value" which is just $15 trillion rather than the $552 trillion for OTC derivatives. That's a huge difference, I don't have to tell you - $15 trillion is a big number but not nearly as mind-boggling as half a quadrillion. This is essentially the difference between the $1 and $30 values for our forward contract.
But it gets better. Let's look at our favorite OCC report, the one that talks about American derivatives.
We start with that $180 trillion notional, and there's a "Gross Positive Fair Value" (this is like "Gross Market Value") of $4 trillion. So, great the US's derivatives are a lot smaller than notional would suggest too.
But let's imagine that you're a bank now and you have lots of deals. Lots of these deals offset each other, though - one derivative I have with you might be worth $1M, the other might be worth -$500,000. If you or I go bust, it isn't $1.5M down the drain - just the difference, $500,000. This difference is net current credit exposure (NCCE).
That NCCE is just $500 billion for the US. So out of that $4 trillion worth of derivatives out there, there's enough offsetting going on that there's only $500 billion on the hook.
NCCE can change dramatically (It went up to $800 billion during the crisis) but it's pivotal to estimating the magnitude of derivatives as a potential economic risk.
You just make me wanna SWAP!
"So, Sporz, I was reading your favorite BIS report and I noticed you haven't talked the biggest part - $434 trillion in interest rate contracts. WHAT ARE YOU HIDING!?"
Calm down! I'm getting there!
The fun thing about derivatives is that they mix and match. You want a forward contract buying Euros intead of oil? You got it. An option on a commodity? Sure. An option on a future on a basket of options on a basket of stocks? Go nuts.
As you may know, interest rates are kind of important in finance. Like the oil price, interest rates move, and like people sometimes want to bet on the oil price or lock in a price that they find preferable to tons of risk, people want to do this with interest rates. A lot.
By any measure, interest rate derivatives are more popular than any other category of derivative. More popular than the rest of them combined, even.
So it's worth talking about them.
The characteristic feature of a swap is paying repeatedly for something. Our forward contract just had us pay once; a swap on oil would have me paying each month for a barrel of oil for say $30. (Like the forward contract, this is rare for crude oil - you'd rather buy a bunch of crude oil futures and pay those each month for that sweet, sweet Oklahoma oil).
A typical interest rate swap will have two sides - one will pay floating, the other will receive fixed. These are called the "legs" of the swap. The floating leg will pay every three months whatever the chosen interest rate is (say, 3 month LIBOR - yes, that LIBOR) The fixed leg will pay a fixed amount over the life of the swap. This is useful because if - say - you're being paid a lot of variable rates and worried they'll crash, you can trade that out for a known fixed rate and then you are safe and happy.
This is very common but swaps (like all derivatives) can get super fancy. Add in a few more legs, a collar, a call, some cross-currency risk, and now we're talkin'.
Interest rate swaps are important not just because of their enormous size, but because they are OTC. Like our original forward contract, these get sketched out between counterparties and are highly customized. In the past, these had some of the problems are forward contract had - you may find it hard to get out of this swap if you want to, and you're dependent on me, your sole counterparty, to pay up and if I don't show up then you are sad, lonely, and out of a lot of money.
Some of those things that make listed derivatives safer have been applied because of The Recent Unfortunateness to OTC swaps. There are now Swap Execution Facilities to, er, facilitate swaps. Specifically, swaps now have to be centrally cleared (kind of like the listed derivatives) which reduces dependency on a single counterparty. There are also margin requirements to make sure that the swap gets paid. This is intended to reduce the systemic danger of swaps blowing up.
So credit. Very risk.
Even if you've never thought much about interest rate swaps, you might have heard of credit default swaps.
These have a fun story. Swaps have been around in bulk since the 70s; options around the same time (thank you Black-Scholes); forwards are ancient. Modern credit default swaps were invented by a lady named Blythe Masters at JPMorgan in 1994 because they were worried that Exxon wouldn't pay a debt to them because of the Exxon Valdez disaster.
Credit default swaps (CDS) are usually described as insurance. They're called "swaps" in the name but they do not taste like swaps. The typical interest rate swap will see both sides make money at various points during the life of the swap (usually) and it will not be very much (remember - you make the difference between two different rates, which is unlikely to be very much). A CDS looks like this in that one side pays for protection ("protection buyer") and the other side sells it. The protection is on some debt some company owes (say, Exxon). As long as Exxon keeps paying its debts, the protection seller just keeps getting paid, and if everything is hunky dory, the protection buyer might never get paid back anything at all.
If things go pear-shaped, though, the protection buyer gets to cackle with glee and sell some worthless bonds for full price to the protection seller. Then the swap ends, and the protection seller is very sad.
One thing that makes this different from insurance is that I can't insure your house (unless I live there. Can I?) And I can't insure it multiple times hoping that it burns down.
"Well that's creepy."
It's not quite as creepy as it sounds, though. For every "I hope his house burns down" there is an equal and opposite "I hope his house stays pristeen and perfect and only lightly singed." This is not academic - there are things like The Curious Case of the CDS and the Spanish Casino in which the company was made to technically default, trigger the CDS, and go on happily. It has been described as "objectively beautiful." It made The Daily Show.
No talk of CDS is complete without AIG, though. You'd think an insurer would have done better than insure the hell out of all the bad debt in the world, but that happened.
I bring this up not to bury CDS but to praise it. Derivatives are tools. They can be used for good and ill. The key is to make them good rather than throw out a potentially valuable tool.
The main challenge with CDS is that (unlike normal swaps) they have the potentially to blow up in a big way. For years you make a few pennies a month selling protection then one day you discover you've been protecting Lehman and then you are sad in a big way.
Since 2008 CDS was changed to be more standardized (helping you get out of one if you're in trouble). They now have to have fixed coupons (and, making them even less like normal swaps, there is an upfront payment to compensate) making them similar to one another. They also have margining and central clearing now. The goal here being entirely "Let's not let these derivative blow the world up, shall we?"
Oh, and Blythe Masters (inventopopularizer of CDS) went on after inventing these things to prank the California energy market and is doing stuff with bitcoin now. Bon voyage.
So long, and thanks for all the derivatives
So this is incredibly long but I've had my thoughts on derivative percolating for a while and I wanted to illuminate some of it. So we covered how notional value vastly overstates the economic relevance of derivatives; we illustrated it with a forward contract; talked about how certain innovations in the listed market make derivatives less fragile; and discussed how those innovations have been applied to certain interest and credit derivatives since The Great Unfortunateness.
I do want an excuse to talk about mortgage backed securities and stuff because those are fun too.
"Wait, you owe me a barrel of oil!"
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