Have you ever wondered what a mathematical formula that represents an entire crypto market would look like? And what if you could find it and use it as a recipe for a long-term trading success? How would this true beauty of mathematics help you find advantage on the crypto market?
News recently caught up with crypto analyst and YouTube influencer Benjamin Cowen. Cowen develops his own mathematical tools, consequently and systematically sticks to the data, and provides a long-term market perspective. Let’s see what his trading edge in the market is!
Cryptography and bitcoin since 2011
News (BIC): Hi Ben! Great to have you here on News. Please, tell us about your educational background.
Benjamin Cowen (BC): I received a BS in Mathematics with a Physics Minor, followed by an MS and PhD in nuclear engineering. My dissertation was on molecular dynamics simulations and in situ transmission electron microscopy of radiation damage in ceramics. During graduate school, I became proficient in Python, C++, and MATLAB, to name a few.
BIC: Why and when did you choose to join the crypto market? Have you ever tried the traditional stock market?
BC: While pursuing my BS in mathematics, I took a class on cryptography in 2011. It was then I learned about bitcoin (BTC), and it piqued my interest. I did not immediately invest back then, as I was more focused on graduating. I quit my full time job as a scientist in computational materials science in January 2021.
The idea behind the IntotheCryptoverse project
BIC: What is IntotheCryptoverse? When and why did you start it?
BC: The general idea is to combine my interest with physics and the universe in general with my interest in crypto. Sometimes I do videos on equities and I say: “Thanks for jumping back into the equityverse.” The general idea is that financial markets provide a multiverse of investments, and each asset class has its own distinct characteristics.
BIC: You do quite often use mathematical or physical metaphors. Do you find any inspiration in science like physics, cosmology, or quantum mechanics (e.g. the multiverse theory)?
BC: Yes, I have found inspiration in that. I try to make things like crypto somewhat relatable to stem majors. A recent example was a video on bitcoin where I titled it the “Angle of Attack.” I interned at NASA Johnson Space Center as an undergraduate, so most aerospace engineers will be familiar with that concept. By making titles like this, I’m hoping to capture the attention of people who may otherwise write bitcoin off.
BIC: Your YouTube channel has already got more than 100,000 subscribers now. That’s impressive! Why are you so active on your YouTube channel releasing one to two videos each day? What are your goals here?
BC: I want people to understand that there is a way to navigate these markets that does not involve betting the family farm at the worst possible time. I have seen a lot of people lose money in crypto over the years, because they jump into the market at local peaks, get discouraged, and leave. Then they repeat the same mistakes the next time bitcoin makes headlines.
I want people to recognize that chasing pumps comes with a lot of risk. However, by entering the market when it is quiet, not only do you stand to make more, but you can also stomach dips in the price much easier, as it should hopefully still be well below your cost-basis.
Lengthening cycles and diminishing returns
BIC: Why do you choose a long-term perspective? There is almost no short-term price analyses on your channel. What is the reason for this? Do you day trade or swing trade from time to time?
BC: I look at macro-level swing trades in the span of months, generally speaking. One we covered extensively was the momentum shift of ether (ETH) against BTC starting in January 2020.
Like clockwork, this is the sixth year in a row it has happened. Short-term price movements are more of a random walk anyways, akin to geometric Brownian motion, and not something that we can reasonably and consistently predict.
BIC: We are familiar with your lengthening cycles and diminishing returns theory. Recently, you had an interesting discussion about the stock-to-flow model and the four-year cycle theory. Could you describe in a few words why one should follow your approach?
BC: I just like sticking to the underlying data, for better or worse. I understand the perspective that each model provides, and I think each is useful. At the end of the day, no single model will tell the whole picture. As many STEM majors would say, “all models are wrong, but some are useful.” At least, by sticking to the data, we can establish some precedent to better interpret current price movements.
For instance, so far diminishing returns cannot be disputed as measured from market cycle bottom or from the halving. I understand that cycle 4 is currently ahead of cycle 3, but it was also ahead of cycle 2, once upon a time, but was not ultimately able to keep up.
In order for us not to experience diminishing returns and lengthening cycles, we need to have around a $300,000 BTC by December 2021. The data suggests that this is too lofty of a goal, though I certainly will not complain if it happens.
Additionally, since this market cycle is characterized by institutional interest, we should not assume that all institutions will rush into bitcoin over the next 11 months, followed by no more institutional interest in 2022, which is when many people think bitcoin will be in a bear market.
Recent price movements are likely not just institutional money, but also retail investing because they want to get in before institutional money drives the price much higher.
I agree the price will likely trend higher this market cycle, but it also takes a long time for institutions to go from wanting to buy bitcoin to actually buying it.
While there are many household institutional names now circulating around, this is still a tiny fraction of the overall institutional money that could theoretically enter the space. This market cycle will likely be a bumpy one as we have already experienced, as retail reacts to continued interest by institutions.
The beauty of mathematics
BIC: Logarithmic regression bands and trend lines, risk metrics, and so on. Could you tell us why you use these mathematical tools most frequently?
BC: Logarithmic regression is useful for characterizing price movements where the more rapid price appreciation happens earlier on, while it settles down over time. The logarithmic regression fits are clear evidence of diminishing returns.
If we did not have diminishing returns as measured from each cycle, then why are we still at <$50,000 BTC, which is only 16x from market cycle bottom or so? By this time, in cycle 2, BTC had already gone up 100x!
BIC: What is this “beauty of mathematics” as you usually call it?
BC: The idea is that there are macro-level trend lines hidden with the logarithmic regression fair value fit (red line below). A lot of trend lines are ultimately useless as ”the trend is your friend until the end.”
But I think that a single mathematical equation to describe the entire cryptocurrency asset class is somewhat poetic. And the fact that it tends to form this macro-level trendline that governs cycle peaks is pretty neat.
BIC: What are your favorite cryptocurrencies that you usually analyze on your channel? Why them?
BC: My top five are BTC, ETH, LINK, ADA, and DOT. Obviously, BTC is the index of the market.
ETH has the most utility and is my altcoin index. If altcoins I hold cannot outperform ETH at any point, then what is the point in holding them? I don’t want to pay for more units of risk with a lower expected return!
LINK is one of a few coins above its prior all-time high (ATH) from 2018. And it is approximately 10x above it! LINK is integrating itself throughout the cryptoverse by solving the oracle problem.
It is also a fairly obvious flip between LINK and BTC several times during the market cycle. The pattern just keeps repeating itself, and I want to take advantage of that. Here is the LINK/BTC valuation with my LINK/BTC risk metric (colored below).
ADA is a hedge against ETH, but it has a mountain to climb in terms of attracting developers. Also the ADA/ETH valuation tends to peak around the same location.
DOT has a role to play in this market cycle, launched around the same time that ETH did in its respective market cycle, and has no emotional barriers to break through (prior ATHs from prior cycles). I usually like to have at least one new coin that I think has potential and just let it ride.
When I first started talking about ADA, LINK, and DOT, they were far from the top coins. Now they move in and out of the top five — not including stablecoins — though this is subject to change on any given day.
Staying reasonable in a running market
BIC: How do you manage to maintain calm and reasonable in this wild, emotional market of crypto?
BC: Anytime in the past where I let emotions govern my trades, I lost money. When I started following the math, things became much easier.
BIC: Any final thoughts on the current pace of the crypto market? Why do you think it accelerated so much?
BC: I think we could also look at the 2019 peak and say it was accelerated back then as well, but ultimately it was not sustained. I think there are several factors:
- DXY (the US Dollar Currency Index) is down about 13%, this year. DXY also dropped 15% in 2017, and we know that was a great year for bitcoin.
- The money supply, M2, has increased substantially. The current money supply was not supposed to be this high (based on a dubious extrapolation of the M2 trend) until 2024, but here we are.
- Institutional money is coming in and people do not want to get left behind.
BIC: Thank you for the conversation, Ben! It was a pleasure.
BC: Thanks. Best regards to News readers!
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