Hello everybody, there is this technique that you can only use in the crypto world you can't use it for stocks. It can give you an advantage as a trader or investor. It is called on-chain analysis and if you ask me it is a game changer. Today I am going to share with you some of my favorite and metrics that can potentially predict market top.
MVRV Z-Score
MVRV Z-Score identifies periods where Bitcoin is extremely over or undervalued relative to its "fair value" where blue line is Bitcoin market cap, orange line is Realised Value and red line is Z-score. What is great is we can see how accurate it is. When the z-score is in the red zone we should consider selling, when it is in the green zone we should consider buying. It has been able to pick the market high of each cycle to within two weeks as we can see. Also when the market value (blue line) is significantly above realized value (orange line) that can mean that price is overheated and similarly when the market value is significantly below the realized value that can mean that we are at the market bottom.
Bitcoin Logarithmic Growth Curves
The first thing to understand is what the logarithmic growth curve is. The logarithmic growth curve proposes that the rate of return diminishes in an asset class over time. It means that the gains in an asset class are really high at the very beginning of the curve or at the very beginning of the lifespan of an asset and the returns diminish over time and that is why you see the curve be very steep near the start and then it kind of balances out and takes a leaner trajectory moving forward. The movement or the price action of bitcoin since the beginning of its lifespan appears to indicate or appears to fit the logarithmic growth curve so it is a useful thing to look at in terms of determining the potential of bitcoin in the future. If we look a little bit deeper into the curve we can see that it is made up of loads of bands but to keep it simple we are going to look at the three key ones: Lower band which is at the bottom, middle band which is in the middle and the one at the top which is the upper band. Typically speaking the lower band generally indicates the lowest price that the asset class is going to be able to go to and the band at the top generally indicates the highest price. We can see that one work amazing when it comes to finding market tops and bottoms.
Relative Unrealized Profit/Loss
This is very interesting metric because basically, it shows what percent of bitcoins are in profit since the last rate. When essentially 75% of all bitcoins are in profit it tends to indicate the market top (red area on the chart). From the chart, we can identify that this red area is very effective in detecting peaks in crypto market. This metric is also very good at understanding where we are in the market cycle. Different percentages of Bitcoin Relative Unrealized Profit/Loss classify what stage of the market we are in. For example, if we are in the "capitulation" zone, we should consider buying.
Hope you found today’s article helpful. If you want to learn more about trading follow me at @fizzonmyjayyce. Have a nice day :)
