theo on Nostr: Those who’ve been in #Bitcoin long enough understand that we are all part of the ...
Those who’ve been in #Bitcoin long enough understand that we are all part of the greatest accumulation race in human history. At the same time, Bitcoin’s short history has shown that patience is often rewarded and if you simply played the game by always being on zero fiat, you would have ended up leaving a significant sum of sats on the table. This is why as a Bitcoiner with a strong desire to not try and time pico tops or get shaken out at the bottom, holding some fiat and scaling up and down my DCA according to Bitcoin’s relative expensiveness has made the most sense for me.
My preferred measure of Bitcoin’s relative expensiveness is what I refer to as Bitcoin’s Heat Index. It is a measure of Bitcoin’s weekly typical price (avg. of high, low, and closing) relative to its 200-week volume weighted average price (200W VWAP). In this measure, the 200W VWAP can be thought of as the long-term hodler’s average price, or a proxy for a potential price floor. A Heat Index of zero implies that Bitcoin’s weekly typical price has never been lower in its history relative its 200W VWAP, and conversely a heat index of 100 implies that Bitcoin’s typical price has never been higher in its history relative to its 200W VWAP. The simple strategy is for my DCA to scale lower as Heat Index goes up, and scale higher as Heat Index goes down.
Instead of using some sort of log regression, power law, or stock to flow model which I find to be dubious at best in terms of ability to understand near-term expensiveness of current price, this strategy also does not even attempt to project price into the future. It utilizes Bitcoin’s dampening volatility and historical price data to set lower and upper bounds for current price, and then measures what percent of the time the ratio of Price/200W VWAP is higher or lower than the current one, to determine Bitcoin’s relative expensiveness.
My preferred measure of Bitcoin’s relative expensiveness is what I refer to as Bitcoin’s Heat Index. It is a measure of Bitcoin’s weekly typical price (avg. of high, low, and closing) relative to its 200-week volume weighted average price (200W VWAP). In this measure, the 200W VWAP can be thought of as the long-term hodler’s average price, or a proxy for a potential price floor. A Heat Index of zero implies that Bitcoin’s weekly typical price has never been lower in its history relative its 200W VWAP, and conversely a heat index of 100 implies that Bitcoin’s typical price has never been higher in its history relative to its 200W VWAP. The simple strategy is for my DCA to scale lower as Heat Index goes up, and scale higher as Heat Index goes down.
Instead of using some sort of log regression, power law, or stock to flow model which I find to be dubious at best in terms of ability to understand near-term expensiveness of current price, this strategy also does not even attempt to project price into the future. It utilizes Bitcoin’s dampening volatility and historical price data to set lower and upper bounds for current price, and then measures what percent of the time the ratio of Price/200W VWAP is higher or lower than the current one, to determine Bitcoin’s relative expensiveness.