• Luke Levine

Bitcoin: Can Snails Predict Future Prices?

It's been a rough summer for bitcoin. Feels like it went away on vacation after a great start to the year. In the likely event that you haven't been following it too closely, this is a chart of what's been happening...

It hit a high above 13,000 in June, a low below 9,500 in July and has bounced in a range everywhere in between. In might not look it, but that's a pretty severe range of over 30%. In the stock markets it would make headline news around the world, for crypto however it's the norm.

What's this got to do with snails you are likely thinking? This post is all about the Golden Ratio, a "technical indicator" with the potential to predict or at least explain market prices. It's based (indirectly) on snails and explains this summer's bitcoin price range almost perfectly.

What is the Golden Ratio? 0.618 to be exact.

Leonardo Pisano, aka Fibonacci, is famous for a number sequence based on the growth patterns of nature. It's pretty simple, you start with a 1 and add each number to the previous to produce the next.

1, 1, 2, 3, 5, 8, 13, 21, 34, 55.....

The ratio of one number to the next approaches 0.618 as the sequence continues (e.g. 34 divided by 55 from the above = 0.618). Pretty simple. That's the Golden Ratio.

The golden ratio occurs frequently in nature. Snail shells have naturally occurring dimensions that follows this pattern. Many other things do too, such as flowers and hurricanes...

What's this got to do with Bitcoin?

Below is a larger chart of bitcoin from the end of the 2017 until today.

It's had a much rougher ride than this summer, peaking at 20,000 in 2017 before the ensuing bear market saw it finally bottom out around 3000 in December of last year - that's an 85% decline!

The lines in the chart work as follows. 100% is set at the previous peak and 0% at the previous cycle low. The colored sections then split the chart to show 61.8% of that range (the golden ratio) and its inverse, 38.2% (i.e. 1 - the golden ratio). The reason we might do this is to check out what the current price level looks like in relation to the previous price range, i.e. how much of that huge down swing has it clawed back.

Hopefully I haven't lost you yet.

This is where it gets interesting. Looking at this summer, you can see that the high in June (red arrow) coincided almost exactly with the 'golden ratio', i.e. a 61.8% move back to the 2017 highs. Whilst the summer low (green arrow) coincides almost exactly with the inverse .

There has been a brief spike out of the range in either direction but the snails (via the golden ratio) pretty much nailed this summer's price range.

How can this be? Here's how...

The factor that makes the golden ratio good for market predictions is that it “looks right”. Buildings throughout history, including the pyramids of Egypt, have used the ratio, whether purposefully or not, because it’s pleasing to the eye. Leonardo Da Vinci used it in his paintings, Michael Angelo used it in his sculptures and in the modern day, Apple has used it in design work. 

If asked to divide a straight line non-symmetrically, people will tend towards dividing it by the ratios.... it just looks right.

I didn't cherry pick the bitcoin chart, it's a common phenomenon across many charts of assets that trade in public markets. They meet "resistance" and "support" at these 61.8% and 38.2% levels.

Why? With so many people looking at the same charts and trying to decide levels to buy or sell, if on aggregate the crowd choose levels that “look right”, in the same way they would split the line above, this would naturally lead us to back the golden ratio. 

There's more to snails than meets the eye.


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