Spotting Cycle Extremes
There are many ways we can identify overheated, or oversold Bitcoin markets, but every tool comes with a bag of nuance and jargon. Today I introduce a new tool to simplify our analysis of extremes.
G’day Folks,
There are countless metrics and tools out there for valuing Bitcoin, and each one has a bag of nuances and jargon attached to it.
The chart below is an oldie, but a goodie, which I developed many years ago as a simplified way to identify macro peaks and troughs for Bitcoin.
Under the hood, it looks at four components of the Bitcoin market, and flags when several of them are signalling overheated, or oversold conditions:
Unrealised Profit & Loss via MVRV: looking for points of maximum investor incentive to panic sell at a loss, or cash out in profit.
Realised Profit & Loss via SOPR: Tops and bottoms are only put in when people actually sell, and SOPR helps us spot points of capitulation, and heavy profit taking.
Miners get greedy via Puell Multiple: As the primary producer of Bitcoin, the higher price goes, the more USD sell-side miners can and do exert. They also tend to capitulate near bear market bottoms when they HODL too long.
HODLers entering or exiting the market via Reserve Risk: Every macro peak and trough is characterised by HODLers either cashing out, or stepping in.
As great as this tool is, after many years of service, I believe it is time we revisit and refresh this tool to account for a more holistic and professional view of the Bitcoin market.
Personally, I have learned a tonne since I first built this thing, and you will notice I don’t account for futures markets, or cohorts like Short-Term holders in the original design.
In today’s post, I am going to introduce an updated v2 edition of this chart, and give you a look at the models and statistics applied under the hood.
📈 Reminder: you can find the charts from our articles on the Checkonchain Charting Website, and a guide in our Charts Tutorial Video.
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