Perspective
Understanding The Wyckoff Method and Absorbing the Wisdom and Vision of Charles Hoskinson
If you’ve been following the digital asset markets over the past few weeks, you’ve likely been trying to figure out what’s going on and where we go from here. How did the upward momentum and corresponding optimism get sucked out of the market so quickly, and why hasn’t the market fully bounced back yet? In my opinion, large institutions (e.g., JPMorgan, Goldman Sachs, and Wells Fargo) have been trying to shake you (small-time retail investors at large) out of your positions. These institutions want to suppress prices for long enough to convince retail investors that the bull run is over. They have been doing this by harnessing an unprecedented amount of FUD to spark and prolong despair and hopelessness in the market, especially amongst newer entrants.
Apparently, what these more powerful players are doing is one of the oldest tricks in the book as far as markets go. Richard D. Wyckoff, an early 20th-century pioneer in the technical approach to studying markets and creator of “The Wyckoff Method”, figured out over 100 years ago that the more powerful players in the game will pull the rug on the market when assets are “overbought” and when market euphoria is at a peak. Below is the most basic model of the “Wyckoff Price Cycle”.
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To take a more nuanced look at the way “The Wyckoff Cycle” works, let’s break down the chart below.
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In my humble opinion, we are currently in Phase D of the cycle. You can see the massive sell off that occurred in Phase A. The “SC” or “selling climax” occurred on Wed., May 19 (EST). We then entered Phase B, in which the price bounced back and forth between about $31k and $40k. We didn’t quite hit the “ST in Phase B” and “Spring” (in Phase C) lows, but we did get close to them. (The good news is that BTC has “tripled bottomed”, each time making a higher low, which is a bullish sign.) I believe we are now in Phase D. We have seen “signs of strength” or “SOS” and we now have the potential “to break out to the upside” (for the price of BTC to move higher). We may be in the consolidation that happens post “SOS” in Phase D.
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Above is a 4-hour chart that shows a consolidation pattern forming. This pattern usually concludes with either a move higher in price action, which would mean that we are currently in a bearish portion of a bull market, or that we are about break lower and technically enter a bear market.
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I am not going offer too much of my own analysis here because 1.) the gentleman in the video below does a much better job than I currently can and 2.) we haven’t hit the two “SOW” or “sign of weakness” points featured in Phase D of the chart above. Instead of hitting lower SOW points, BTC has actually made two higher lows, forming a triple bottom, as I mentioned above. To me, this is a bullish sign (but that might just be the “hopium” speaking).
If you really find this interesting and want to dig deeper, I highly suggest watching the video below, as well. This video comes from Coin Bureau, which I listed in my “Cyptocurrency Starter Kit and Resources” piece as one of the best YouTube channels in the digital asset space. Guy, the host of the channel, always offers sober, well-researched, and insightful takes. I highly recommend watching at least from 17:57 to 22:50. In this section, Guy discusses how Wyckoff Analysis might become irrelevant, given that so many people in the space are now talking about it. If institutions know retail traders coming to understand these Wyckoff Patterns, they could push the price of BTC lower in an even more brutal attempt to shake retail investors out of their positions. These institutions may try to get you to believe that we have entered a bear market, as per Wyckoff Analysis. Yes, I know this all sounds quite complex. It is. My gut tells me the best thing to do is to simply ignore all of the day-to-day ups and downs and to hold what you currently own for now. That’s what I’m doing, anyway.
Lastly, I wanted to bring your attention to the fact that the Stock-to-Flow model is still within one standard deviation of its projection.
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In other words, the bullish macro trend hasn’t broken yet. Part of me believes that institutions will attempt to push it into the realm of that second standard deviation in efforts to convince more retail investors that we’re heading into a bear market, and, in turn, to get more retail investors to cash out, but who knows? I tend to be a bit cynical and a bit of a catastrophist, so please take what I say with a grain of salt. We may actually just move higher from here. If the model proves to be right, then BTC is currently very over sold. If so, this is a good time to be buying. But, as always, please remember that I am not a financial advisor and that this is not financial advice.
Thoughts from the Guru, Charles Hoskinson
I wanted to share the video below, because I found Hoskinson’s words to be comforting, especially in the midst of the market experiencing such turbulence. Some people like to call Charles Hoskinson the “Steve Jobs of Cryptocurrency” (to which he has responded, “I don’t want to be the next Steve Jobs; I want to be the guy that makes Steve Jobs irrelevant”. I highly recommend watching the latter quarter of the video linked to this quote for more context here.) Hoskinson is one of the creators of Ethereum and is the founder and current head of Cardano, whose cryptocurrency, ADA, is currently the fourth largest cryptocurrency by market cap. Hoskinson is not only amazingly intelligent, but he is so incredibly thoughtful and decent. I’ll go into more about what he is creating with Cardano and ADA in a future edition of the newsletter. For now, though, I recommend checking out what he has to say in the video.
Here is a transcribed segment of the video that resonated with me:
“This is it, guys…Who the hell cares about volatility? It goes up. It goes down. But it [the cryptocurrency industry] is here to stay. Crypto’s not going anywhere. These markets aren’t going anywhere. This experiment hasn’t failed. It’s a contagion that has infected the world, and it will ultimately change the DNA of the world as a result, leaving behind something fundamentally different than when we found it. We now live in a place where, instantaneously, value can move anywhere, be stored anywhere, transformed into any other type of value. We’ve discovered the financial stem cell. We learned how to engineer it, and change it, and transform it, replicate it, grow it in a lab and make it useful anywhere, any place, any time. And we’ve discovered that everything is programmable, and everything can be integrated together: the legal arrangements, the identity arrangements, et cetera, et cetera, et cetera. It’s all there. Once mankind knows they have fire, you can’t go back. You can’t change that. You can’t put that genie back in the bottle. Central banks will fade away. It’s just going to happen. Your conventional legacy banks are going to fade away. The payment rails that are so nepotistic and corrupt and slow and inefficient and expensive will fade away. And good riddance. It wasn’t us who charged 15% to some of the poorest people in the world to move their money home to take care of their parents. It was the people who ran the old system. It wasn’t us in this industry who charged 85% interest to lend $100 to a subsistence farmer desperately trying to survive after a drought. It was the legacy financial system. It wasn’t our industry that laundered hundreds of billions of dollars for drug dealers and evaded sanctions and participated in oil for food and all kinds of these horrible programs that ended up enriching and empowering some of the worst human beings the world has ever known. It was the legacy financial system. And never allow them to say that ours is the industry that’s the risk. Ours is the industry that is the antidote to the excesses, corruption, and nepotism that we found. This is an industry of frustration that has now been replaced by an industry of creativity and innovation. We’re going to change the world. It’s just that simple. We didn’t ask permission. We came here and we’re going to get it done together. And there’s simply too many people now - the markets are simply too large - the innovation is simply too vast…It’s gonna happen. It’s no longer a question of “if”; it’s “when” and how will these dinosaurs find a way to survive in this new order? I hear a lot about new world order. Well, guess what? There is one. And it’s us. We’re changing it all. We’re making it a better place. And I love the fact that I get to do it with a smile on my face. And I get to do it by giving everything away. Every time there’s been a major change in human history, it’s been owned by someone, or an empire, or corporations - some big entity. It’s a winner-take-all thing, or a consortium. This is the first time where we are reinventing all the rules, changing everything, and the vanguards of it are open-source, patent-free, and as defined by the people who use them as the people who invent them, and in many case[s], more so by the people who use them than the people who have invented them. That’s truly a special thing, and it’s a unique moment in our history…
So, I figured I’d make a video at this juncture to remind everybody why the hell we [are] here and to say ‘Don’t worry about the small stuff. The waves go up; the waves go down. There’s ebbs and flows.’ Dogs will always bark, and the caravan will always move on. And the direction we’re moving to is a better world.”
I share such a large chunk of text because it’s a necessary part of the picture to understand if you are invested in cryptocurrency. You’ve made an investment in a system that is more democratic and more inclusive than the legacy financial system. In my heart of hearts, I believe cryptocurrency is the future and that you are investing in an egalitarian system, a world in which garbage human beings like Jamie Dimon have less and less control.
I know it can be hard to stomach this volatility. I repeat that you should only invest what you are willing to lose, but I will add a caveat to that statement this time… I do not think you are going to lose your money; in fact, I think that quite the opposite will happen given a long enough time frame. It can just be difficult emotionally to stomach some of these brutal downtrends, and its better for your mental health to have some emotional distance between yourself and the market. So, please, invest accordingly. But also keep in mind that you are investing in what Hoskinson describes as “a genie that cannot be put back in a bottle,” no matter how much big institutions use governments and the media to try to scare you away from investing in said genie.
Best,
Frank
Twitter: @frankcorva
P.S. Mark my words - One day, a broader portion of the human population is going to realize the debt of gratitude it owes both Charles Hoskinson and the woman sitting to his left, Caitlin Long, founder of the first digital asset bank in the U.S., Avanti Bank. Both are pioneers in the truest sense of the word. What Hoskinson is currently doing for Africa and other regions of the developing world and what Long is currently doing for the U.S. is beyond remarkable.
Thanks, Frank. That was a really good piece. Yeah - I think you’re right - I think we all have a chance at something better as you’ve made clear. It’ll just take patience I guess.