Boomers as a buy signal ✅
We've found a use for the oldies! 🧓🏼
Welcome 👋🏼
Today, I show you how we can use Boomers as a buy signal. Then, I’ll wrap things up with a look at
how we should be allocated according to the risk-on, risk-off (RORO) tool'; and
what the 29+ on-chain, technical and sentiment indicators I am tracking tell us about the current state of crypto.
A reminder that the price of the paid subscription will increase from $2 to $3 a week for new subscribers only from 1 November.
If you want to lock in the current price then grab yourself a subscription today!
Boomers as a Buy Signal 🧓🏼
Recently, I developed a RORO tool that I’ve often referred to as my guiding star 🌠 or crystal ball 🔮. While a crystal ball might be a stretch, it is actually there to tell me how I should be allocated.
Now, anyone can make a set of traffic lights 🟢🟡🔴 and call it a set of “signals” or their guiding star. What gives us the confidence to use these indicators when they start flashing is back-testing the data and confirming that they are profitable and reliable.
The crypto indicator that I’ve back-tested is the BTC ETF flows.
This refers to the net amount of BTC being bought or sold through ETFs. When it flashes 🟢 it tells us that we have bullish momentum behind us. It tells us boomers (and retirement funds, and folks who CBF or are unable to use cold wallets) are buying.
This is important because ETF providers collectively hold 1M BTC (out of 21M), and their purchases and sales are not known in real time. They are facilitated off-chain for efficiency and privacy, and the final settlement and recording of the transactions happen on-chain up to 24 hours later.
By tracking the momentum or the Moving Average (MA) of the BTC ETF flows, we get insights into what 5% of the supply (and growing) is doing.
But we don’t want to use just any MA. We want to use the MA that provides
✅ an accurate signal based on a medium-term timeframe (months), which the RORO tool is designed for; and
✅ a profitable Return on Investment (ROI) if it was used as a standalone indicator.
With that said, I tested every daily MA from 1 MA to 40 MA to find the one that would give us the best signal.
Assumptions
My assumptions for this study:
➡️ I started with a portfolio size of $10,000; and
➡️ every trade uses the the entire value of the portfolio value, including profits; and
➡️ the data for this study is accurate to 3 October 2024; and
➡️ metrics such as Sharpe ratio, Sortino ratio, profit factor, and risk-adjusted returns are known but not included in this newsletter; and
➡️ the indicator signals SELL when the MA for ETF flows is <$0 and BUY when the MA >$0. Here is an example of the 20-day moving average (20 MA)👇🏼
Results
according to P&L ($), the 5 MA to the 13 MA are actually profitable.
the 5 MA, 6 MA, and 10 MA are the most profitable indicators.
the 5 MA has entered the most trades and has the highest win rate (70%). If you’re familiar with win-rate in trading, you know that 70% is f****** unreal. If we could have a win rate of 70% on a volatile asset like BTC on a D1 chart over the course of a decade, we’d be crypto billionaires with proper risk management.
The 6 MA returned the highest overall P&L at 60% or $6,000, although I consider this return comparable to 5MA ($5,980) and 10 MA ($5,612).
Is it more profitable than a HODL BTC Strategy?
If you had bought and held $10,000 worth of BTC when the ETFs went live on 11 January 2024 and held until 3 October 2024, you would have a return of ~31%, and your portfolio value would be $13,100 - a fantastic return for 10 months!
If you had used a 5, 6, or 10 MA indicator as a buy/sell signal, you would have a return of 56% to 60% and a portfolio value of $15,600 to $16,000.
So, can we use the boomers as a buy/sell signal? Fu***** oath!
Is it profitable? So far, it is about twice as profitable as a HODL BTC strategy (when not accounting for capital gains tax).
Which MA does the RIRO tool use?
The tool currently uses the 10 MA for a few reasons:
➡️ it is more appropriate as a medium-term indicator where the average holding time is ~32 days compared to 17 days for 5 MA.
➡️ it has a comparable P&L ($) to the slightly more profitable MAs (5 MA and 6 MA)
➡️ while it has a lower win rate compared to 5 MA, it still captured the major uptrend and was, in fact, more profitable in that trade than both 5 MA and 6 MA.
Here is what the 10 MA looks like in action.
The 10 MA took 5 trades, captured the major uptrend for trade 1 and had minimal downside for a ranging market (trade 2 to trade 5). It also captures the potential next leg up in BTC.
Reminder: paid subscribers are notified every time the RORO tool (and the indicators within) change status.
Now that we’ve confirmed that boomers are still useful to us (kidding! 🧓🏼🤣), let’s see how we should be allocated according to the RORO tool 👇🏼
⚠️ DISCLAIMER ⚠️
The content provided by PROJECT 10X PTY LTD (Filip Brnadic) is for educational purposes only and is not financial or investment advice. PROJECT 10X PTY LTD is not a licensed financial adviser under Australian law.
Investing involves risk, including the potential loss of all funds. Seek independent advice before making any financial decisions.