THE HUMBLE LIBERTARIAN

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Thursday, May 10, 2018

Does Low Transaction Volume Portend A Bear Market for Bitcoin?


With daily Bitcoin transaction volume at a two year low, Charles Morris, chief investment officer of Newscape Capital Group in London, told Fortune, “We just may be entering a bear market.”

But lower transaction volume doesn’t indicate a bear market.

If anything it means Bitcoin investors are bullish.

Trading Volume Has Increased Markedly Before Every Dow Jones Bear Market Since the mid-1970s


An increase in trading volume doesn’t mean a bear market is definitely ahead, but there hasn't been one on the Dow in nearly half a century without a preceding increase in transaction volume.

In 2011, Mark Hulbert, a columnist at MarketWatch, looked at the numbers for the ten bear markets the Dow Jones Industrial Average has gone through since the mid-1970s, and found that trading volume reliably picks up as bear markets begin.

"To find out if it has any historical support, I analyzed stock-exchange volume at the beginning of all bear markets since the early 1970s. I relied on the precise definition of a bear market that is employed by Ned Davis Research, the quantitative research firm, according to which there have been 10 bear markets since the mid 1970s.

For each of these bear markets, I calculated a ratio of two numbers: The first is average daily NYSE trading volume over the first month of that bear market, and the second is the average over the month prior to the bear market’s beginning (that is, in the last month of the preceding bull market).

Across all 10 past bear markets, this ratio’s average was precisely 2.0-to-1. That means that trading volume is twice as high in the first month of a bear market than in the last month of a bull market.

Furthermore, no bear market since 1970 has deviated very much from this overall average. The minimum level for this ratio was 1.80-to-1, for example."


At least that Fortune article also mentioned:



"Not everyone agrees that lower volumes signal trouble for Bitcoin. It may be a healthy return to normality and signs that the market is maturing."



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