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Masterclass #4: Onchain Originals Price Models

One of the most natural applications of onchain data is to seek valuation models, which help us identify, and take advantage of market inflection points, and extremes in investor sentiment.

Onchain analysis is a relatively young discipline, and the early golden years of innovation kicked off in late 2018 when Coin Metrics released the Realised Cap. For several months after, there was a mad rush by analysts posting research papers and exploring new ways to slice, dice and interpret the incredible world contained within Bitcoin’s database.

It is very natural for analysts and investors to seek price models as a first port of call, as these tools are easily understood by the widest cross section of people. Price is a central point of focus for any asset, and this makes it an attractive avenue for traders and investors alike.

In today’s session, we will explore some of the key onchain pricing models which have been developed over the years, which I affectionately refer to as the Onchain Originals. They broadly fall into three categories:

  • Floor Models which are intersected during the later stages of bear markets.

  • Mean Reversion Models, which price tends to oscillate around over time.

  • Euphoria models which indicate prices are becoming attractive enough for HODLers to start taking profits.

The goal of this exploration is to establish WHY I pay attention to these models specifically, and the market dynamics they are describing. It is important to remember that these price models reflect approximate zones where a specific investor behaviour is likely to occur, or shift gears.

In reality, it is these change sin investor behaviour which establish tops and bottoms, not the strict intersection between spot price and a model.

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