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Crypto markets are nonlinear systems and TA is astrology for grown adults.
“Why do investors insist on the existence of cycles in gold and silver prices? Because periodicity is the most complicated orderly behavior they can imagine. When they see a complicated pattern of prices, they look for some periodicity wrapped in a little random noise” (James Gleick in Chaos, 1987).
Markets are nonlinear because small news (e.g., a Musk tweet) create large swings, when large news (e.g., a regulatory approval) may cause small swings. Nonlinear systems are not only sensitive to small influences (the butterfly effect), they can also be resilient to large influences (the raging bull effect).
They’re also nonlinear because shallow market depth, liquidity fragmentation, and feedback loops cause nonlinear amplification, as is the case when shorts get liquidated in cascades.
Crypto markets are also aperiodic, even after accounting for BTC’s four-year halving cycles. Their volatility is also highly autocorrelated. Any chart repetition is coincidental and transient at best.
There’s even evidence for strange attractors and fractal geometry in price trajectories.
That’s not to say that crypto markets are random — they are deterministic yet largely unpredictable, as all chaotic systems are.
Bullish on fundamentals, unfazed by transient noise 4 replies
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