This week, I’m unveiling something massive. For a long time, the biggest flaw in my Bitcoin strategy was the trade-off between speed and accuracy. The Gaussian Volatility Trend Signal (GVTS) was fast, but it suffered from whipsaw. The Vol-Adjusted Trend Signal (VATS) was accurate, but slow.
I spent the last week combining them into a single engine: The Eighth Rule.
This new system combines the GVTS & VATS and uses dynamic position sizing to solve the chop. It tells us exactly when to go small (25%) and when to go all-in (100%). It’s arrived just in time, because while the macro regime is still risk-on “Goldilocks,” Bitcoin price action is hanging by a thread.
Let’s dive in.
Executive Summary & Important Highlights
Macro Regime: We remain firmly in a Goldilocks / Risk-On regime. GDP came in hot at 4.4% while inflation (Truflation) nosedived to 1.21%. Growth up, inflation down.
The “Eighth Rule” Update: I’ve combined GVTS and VATS into a single indicator. It outperforms both original strategies with a lower max drawdown (~25% vs 31%).
Bitcoin Positioning: We are currently 100% Long, but the trade is fragile. Under the new system rules, we would only be 25% long here, significantly reducing risk.
Gold Outperformance: My 15% Gold allocation is crushing Bitcoin and Stocks. The trend is undeniable.
Black Swan Signal: Sminston With shared a historic “Black Swan” signal for the BTC/Gold ratio, suggesting a massive decoupling is imminent.
The Signal: Goldilocks & The “Perfect” Regime
The Macro Regime Engine is painting a clear picture: Risk On.
Despite the holiday delay in data updates, the underlying engine is firing on all cylinders. The most critical data point this week was Final GDP coming in at 4.4% (beating expectations), paired with Truflation dropping to 1.21%.
This is the textbook definition of a Goldilocks environment:
Economy: Growing (GDP up)
Inflation: Falling
Fed: On hold (Jan cut odds are basically zero, but the pressure is off).
The Stress Dashboard confirms this. The Move Index dropped, the VIX spiked but retreated to ~15.7, and the Dollar is rolling over. There is no systemic panic in the data right now.
Bitcoin Trend: Hanging by a Thread (But The Fix Is In)
Let’s talk about the “Eighth Rule.”
The problem with the old GVTS was chop. It would get us in early (100% long), but a small 1% move against us could stop us out. The new system fixes this by using Dynamic Position Sizing:
GVTS Goes Long: We enter a 25% position. If it’s a fake-out, our loss is minimal.
VATS Confirms: We size up to 100%. This captures the meat of the trend while protecting capital.
Current Status: We are currently Long Bitcoin, but it’s precarious. If we were trading the new system today from scratch, we would only be 25% deployed.
Note for Substack Members: You have direct access to this indicator now. It is non-repainting and fires on bar close.
The Data: Black Swans & The Gold Standard
While Bitcoin chops, Gold is ripping. My 15% allocation to Gold has outperformed everything else in the portfolio. I don’t know what geopolitical event is being priced in, but the trend is the truth.
The “Black Swan” Signal Sminston With dropped a chart overlaying a power law quantile regression on the BTC/Gold ratio. The result? A “Black Swan” signal of rarity (0.0000001%).
This implies one of three things:
Gold needs to crash.
Bitcoin needs to rip to catch up (to ~$150k+ levels).
The model is broken.
Given the small sample size of Bitcoin’s history vs. Gold’s 100+ years, I take “models” with a grain of salt. But the divergence is undeniable.
Fair Value Gap Julius’s liquidity model puts Bitcoin’s “Fair Value” at ~$155k. The gap between price and liquidity is massive. History says this gap closes.
Final Thoughts
I hate fractals. They are astrology for traders. But the data: liquidity, macro regime, and on-chain metrics.. all point to the same conclusion: The environment is bullish.
The only thing bearish is the price action itself.
That is why I built the Eighth Rule. To remove the emotion. To stop guessing if the fractal is real. The system will get us in at 25% on the first sign of life, and it will get us all-in when the trend is undeniable.
Until then, we follow the rules.
Access my free indicator here: Dual Signal Trend Sentinel & consider subscribing for access to The 8th Rule.
For this weeks full video breakdown:
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— Durden out.
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