Pay attention to the 200-Week Moving Average
The 200-week moving average (WMA) is widely used in the traditional markets, and could be an excellent indicator for long-term bitcoin valuation.
How do you know if you’re buying bitcoin at a good price? The shorter your timeframe, the riskier it is. Predicting the price on a timescale of minutes or hours is much, much harder than months and years. That’s why HODLers have done so well: if you’re prepared to sit out the short-term ups and downs of the market, you benefit from the big picture of exponential growth.
This article is for information only. Bitcoin Bulletin will never give you trading or investment advice.
The 200-week moving average is a very long-term average for bitcoin. 4 years is a lifetime in the crypto world; the 200 WMA takes in data from the whole of that period, back from when bitcoin was in the low triple figures, through the $20k peak and back down to today’s $4k region. But it’s still a useful average. Bitcoin’s price still occasionally touches it – occasionally – and it’s close to it now. It looks like bitcoin has bottomed somewhere close to the 200 WMA for the past two bear markets. Here are a few reasons that now could be a good point to pick up BTC:
- The 200 WMA is responsive enough to show the overall trend, while screening out almost all of the noise.
- 200 weeks is almost exactly the length of the last bitcoin market cycle, from peak-to-peak and roughly from trough-to-trough.
- Bitcoin has not yet ever traded under its 200 WMA for any great length of time. Weekly candles have always closed on or above it.
- However, price has touched or come close to the 200 WMA – including at the end of last year and again at this point in the market cycle, so it is not an unreasonable level to expect to pick up BTC.
- The 200 WMA is frequently used in the traditional markets as a marker of long-term fair value.
- In the very long term, as bitcoin matures as an asset, it might be expected that BTC’s price will fluctuate around the 200 WMA.
It’s worth noting that trader Murad Mahmudov has repeatedly suggested that bitcoin will drop below the 200 WMA in the near term, since each cycle BTC appears to bottom at a longer-term moving average. Still, the 200 WMA is towards the bottom of the forecast range and still a good entry price if Mahmudov’s scenario plays out.
In short, if you’d bought BTC at the 200 WMA, you’d never yet be out of pocket. That will necessarily change in the future – but quite possibly not for some time yet. Securing better prices is in the territory of catching falling knives.
For more detail about the use of this indicator, you can read this article on the 200 WMA.