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Tuesday, November 24, 2020

Why Bitcoin should technically hit $28K before November 1?

Although this article isn’t different from a lot of bitcoin price prediction articles out there, this is a different article. The underlying reason for Bitcoin hitting $28,000 by November 1, 2020, is based on historical data and not just an analyst’s prediction.

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Bitcoin’s volatility is a well-known aspect of the asset and the fact that this aspect is high is what’s preventing it from becoming an everyday unit of exchange/account or in simple terms – money. Arguing the soundness of bitcoin is for another day, however, what’s important is this historical data that suggests an average bitcoin return of 196% after a certain condition has been met.

According to Kraken’s August volatility report, there are “suppressed pockets” which represent bitcoin volatility slump between 15% to 30%. As seen below, the pocket extends between the red lines.

Annotation 2020 09 08 183858

Source: Kraken Volatility Report

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To date, bitcoin has only every hit these pockets 12 times, and every time bitcoin slides into these pockets, it reverses to the mean, which happens to be a 315-day moving average. In other words, after sliding into these pockets, volatility has seen an average surge of 140%.

What’s interesting is the price implication of this volatility suppression and eventual expansion. It was observed that the price saw an average surge of 196% over the next 90 days.

On two separate occasions – 2014 and 2018, the returns were -60% and -45%., hence, there is an 83% chance of price surging 196%. Considering the last dip in the pocket was July 24, 2020, and the surge as of writing was only 4.36%, there is a lot of upside for bitcoin.

196% surge from July 24, over the next 90 days should put bitcoin between the $28,000 and $30,000 range and on October 22, 2020. This would mean bitcoin has to surge a 4.2% surge every day to hit the target of ~$30,000.

Is it a realistic target?

Although an uncorrelated asset, Bitcoin is being affected due to what’s happening in the US. BTC is inversely correlated with the Dollar index and in-line with the Dow Jones. As long as this connection/correlation exists, it is potentially bad for bitcoin. Apart from this, bitcoin would have no trouble doing an average daily return of 4.26%.

Although times are bleak in September as the price is now closer to $9,000 than $12,000, it seems to be realistic, especially considering the hype around DeFi.

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