Top Models for identifying Bitcoin’s Tops/Bottoms

Since its inception in 2010, the cryptocurrency market is characterized by high volatility, four parabolic markets, and an explosive rise of market caps. Bitcoin's market capitalization now exceeds 1 trillion USD, and the total crypto market capitalization 2 trillion USD.

Bitcoin Price Predictive Models

The price of Bitcoin is characterized by high volatility and a great cyclicality. A full Bitcoin market cycle lasts 4 years and consists of three phases that are distinguished by each Bitcoin Halving:

• After the Bitcoin Halving, the market moves aggressively up for 1 calendar year,
• After the completion of Phase-a, the market corrects hard for 1 calendar year
• After the bottom is in, the market consolidates for 2 calendar years, until the next Bitcoin Halving

The following predictive models for the price of Bitcoin are based on fundamental, technical analysis, and on-chain analysis.

 

(1) The 'Bitcoin Stock-to-Flow' Model

■ Category: Fundamental Analysis

■ Interpretation: Identifies the ‘fair’ price of Bitcoin, for each market cycle

The 'Stock to Flow' (S2F) is a popular model based on the premise that a reduced supply of an asset leads to a long-term increase of its price. Currently, the S2F model forecasts a $100,000 Bitcoin, until the next Bitcoin halving.

Chart: Bitcoin S2F Model

 

(2) The 'Bitcoin Rainbow' Chart

■ Category: Technical Analysis (Log Chart)

■ Interpretation: Identifies Market Tops/Bottoms

The Rainbow Chart is a logarithmic chart that aims to spot Market Tops/Bottoms. It is pointed out that the peak of 2017 was formed at a lower level than the previous peak of 2013. It remains to be seen whether the peak of the current uptrend will be formed at a lower level than the peak of 2017. Note that the increasing involvement of institutional investors pushes Bitcoin price volatility lower.

Chart: Bitcoin Rainbow Chart

□ Bitcoin Rainbow Chart:

Link:  https://www.blockchaincenter.net/bitcoin-rainbow-chart/

□ Another logarithm chart for Bitcoin:

Link:  https://www.lookintobitcoin.com/charts/bitcoin-logarithmic-growth-curve/

 

(3) The 'Puell Multiple' Model

■ Category: Fundamental Analysis (on-chain)

■ Interpretation: Identifies Market Tops/Bottoms, the lower the better

The model examines the supply side of the Bitcoin economy and includes the key role of Bitcoin miners. It is pointed out that Bitcoin miners are rewarded with 'new' Bitcoins in order to contribute to the security of the network.

The model explores market cycles from the perspective of Bitcoin mining revenue. Bitcoin miners are required to sell to cover the fixed costs of mining equipment. The model divides the daily issue value of the new Bitcoins by the moving average issuance of the last 365 days.

Chart: The Puell Multiple on Bitcoin

□ Watch it live here:

Link:  https://decentrader.com/charts/the-puell-multiple/

 

(4) The 'Mayer Multiple' Model

■ Category: Technical Analysis

■ Interpretation: Identifies Market Tops/Bottoms, the lower the better

Mayer Multiple is a simple model for identifying overbought/oversold Bitcoin markets. Mayer Multiple calculates the distance between the current Bitcoin price and the 200-day moving average. The higher the Mayer Multiple the more expensive is Bitcoin. Looking back, the model is useful in locating the peaks and bottoms of each cycle. If we look at previous market peaks, we will find the Mayer Multiple at prices above 3.5, or even 6.5. Of course, this does not mean that history will repeat itself, be careful.

Chart: The Mayer Multiple on Bitcoin

□ Watch it live here:

Link:  https://mayermultiple.info/

 

(5) Revealing the Action of Large Investors

■ Category: Fundamental Analysis (on-chain)

■ Interpretation: Large investors enjoy better information and usually move before the market

In contrast to the traditional economy, the cryptocurrency market relies on real transaction transparency. Everyone can see exactly what others are doing, and especially as concerns the big wallets (crypto whales). These are some useful tools to get an idea of what the big players are doing:

1- Bitcoin Rich List

Spotting changes in large Bitcoin wallets, on a daily basis.

Link:  https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html

2- Bitcoin WallStreet Treasuries

A list of Wall Street companies investing in Bitcoin. Today, Wall Street investments in Bitcoin amount to 86.5 billion US dollars (acquisition cost of 62 billion dollars).

Link:  https://bitcointreasuries.org/

3- Bitcoin available in Exchanges

The less Bitcoin is held by exchanges the better. When Bitcoin rises sharply in Exchanges it is a sign that the big players are getting ready to sell.

Link:  https://cryptotips.eu/en/blog/overview-total-amount-of-bitcoin-on-exchanges/

 

 

(6) Other Interesting Prediction Models and Additional Data

Here are some more models (on-chain analysis) worth mentioning:

Name: Bitcoin Reserve Risk

Usage: The smaller the better

It measures the confidence of long-term bitcoin owners in relation to its price.

Link:  https://www.lookintobitcoin.com/charts/reserve-risk/

Name: Unrealized Profit / Loss

Usage: The smaller the better

The index measures profits that have been made but have not yet been realized. The higher the unrealized profits, the more likely the market is to be overbought.

Link:  https://www.lookintobitcoin.com/charts/relative-unrealized-profit--loss/

Name: RHODL Ratio

Usage: The smaller the better

The index has accurately identified previous Bitcoin macrocycle tops.

Link:  https://www.lookintobitcoin.com/charts/rhodl-ratio/

Name: MRMV Ratio

Usage: The smaller the better

The MRMV index uses blockchain analysis to identify periods where Bitcoin is overvalued or oversold, relative to its ‘fair' value.

Link:  http://charts.woobull.com/bitcoin-mvrv-ratio/

There is also the MRMV Z-score

Link:  https://www.lookintobitcoin.com/charts/mvrv-zscore/

Name: Funding Rates

Usage: The smaller the better

Measures the cost of maintaining a long/short position. When the Funding Rates of the long positions become very expensive, the market is considered overbought it will likely correct.

Link:  https://defirate.com/funding/

Name: Fear & Greed Index

Usage: The smaller the better

It measures the greed and fear of retail investors, on a scale (0-100). Over 90 indicates an overbought market and below 20 an oversold market. Basically, you need to be contrarian to the Fear & Greed Index.

Link:  https://alternative.me/crypto/fear-and-greed-index/

 

 

The 4-year cycle of Bitcoin –Explaining Crypto Markets Cyclicality

The cryptocurrency market is one of the most cyclical markets in the world. The cyclicality of the market is mainly due to the following reasons:

(1) The Bitcoin Halving which occurs every 4 years, and reduces Bitcoin inflation by half. Traditionally, every Bitcoin Halving marks the beginning of a new bull market for the crypto industry.

(2) Each bull market creates an explosive rise of crypto market values, and that leads to a necessary correction. The duration of the declining market is traditionally one calendar year. It is followed by about two years of price accumulation, and then, by the next bull market.

(3) Impressive technological advances happen every day in the crypto industry. These advances intensify the uptrend, but on the other hand, tend to lead to over-optimistic forecasts for the future of the crypto market, and therefore to the creation of unreasonable valuations.

(4) There are unprecedented bubbles observed in each bull market. Today, for example, the Doge coin’s value has surpassed the astronomical figure of 50 billion USD.

Most likely, Doge will lose more than 95% in the next bear market. Unless, of course, the Doge becomes the official currency of Mars. Thus, implying the involvement of SpaceX billionaire president Elon Mask in the unprecedented and meaningless rise of the Doge currency.

 

□  Predicting the Market Tops/Bottoms of Bitcoin (BTC)

George Protonotarios, Economic Analyst

ExpertSignal.com (c) 19th April 2021

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