Markets are lodged with emotional and rational (very few) investors and traders. While the existence of one phase in the market may lead to the bias that things will stay the same for longer periods, this is not the usual case.
The presence of tops and bottoms and the phases in between are all part of an efficient market cycle. While a rational investor is un-phased about these market cycles, he is still not always protected from such unsystematic risks.
Therefore, an investor needs extra support from technology and smart software to make a sound decision, so here’s a list of 5 metrics to look out for while assessing market tops and bottoms.
As poised by certain online publications, mayer multiple metrics can be used to identify market bubbles and bottoms. This multiple became fairly popular in 2019.
The Mayer Multiple is a multiple of the current Bitcoin price over the 200-day moving average.
Generally, the market conditions are called bullish when the prices are above the long-term moving average.
As opposed to that, the market conditions are said to be bearish when prices trail below a long-term moving average.
Although, the specifications with the prices are not that vanilla with their relative position to long-term moving averages.
If prices, for example, are significantly higher than a long-term MA, it’s a sign of market overvaluation. The reverse is the instance where prices fall largely below the moving average.
The quality of Mayer multiple is logically infused logic to the above MA scenarios.
Therefore, while observing a reading for the mayer multiple, any above ‘1’ would signify market prices above a long-term MA and under ‘1’ below it.
Moreover, one interesting thing about the case is when the reading reaches 2.4 on the mayer multiple, it is classified as the beginning of a speculative bubble case in the crypto markets.
While for the bottoms, it is said that the multiple has a strict factor value of 0.237, which tells the bear market value in 2011. While the other bear markets have witnessed 0.4 and 0.5, this bear market bottom should also be benchmarked similarly.
Hash Ribbon Inversions
This metric tracks the peaks and troughs in the mining activity of Bitcoin to produce conclusive information about market boom and bust cycles.
Mining hash rates are consolidated into moving averages of 30 days and 60 days. During the expansion or bullish transformation phase, the 30-day MA ribbon tends to rise faster than the 60-day ribbon.
This can be explained by the reason for more investment in mining hardware by miners.
For the uninitiated, the machines that mine bitcoin are called mining rigs. Just like the concept of Non-performing assets in accounting, where an asset fails to give any returns, there are situations wherein rigs become non-profitable.
Non-profitable rigs are generally close by miners, causing mining activity to diminish, and hence this is displayed by Hash Ribbon Inversions, where 30-day MA falls faster than 60-day MA.
Things are always easy to understand when they are judged according to their fair value. This indicator possesses the same quality as crypto coins.
Using the MVRV score, you can calculate the “overvaluation” or “undervaluation” of a market by understanding the pricing position of the price relative to the fair value.
This metric is formed from two other metrics — Realized Cap and Market Cap.
The market capitalization (market cap) of an asset represents the total network value of that asset, as defined by the combined value of all the units of that asset in existence.
Realized capitalization (realized cap) is a variation of market capitalization that is based on the price when a coin was last moved between two addresses, as opposed to its current value.
When market value is significantly higher than realized value, it has historically indicated a market top, while the opposite has indicated market bottoms.
As experts say, market price and volumes play a huge role in identifying market bottoms and tops.
Generally, a pair of relative strengths, convergence, and divergence observations are used simultaneously to conclude. But most of them are based on market volumes in some ways.
During downtrends, the ratio of seller volume to buyer volume tends to overshadow the former creating a divergence against the price. This is the phase where prices keep falling.
When the market nears the bottoming-out phase, the volume of buyers gradually picks up against the sellers, signifying a potential price reversal.
Net Unrealized Profit and Loss (NUPL)
Simple metrics like profit and loss answer the question: How much would investors stand to make or lose if all Bitcoins were sold today?
Using some latent calculations, this metric – NUPL, calculates the difference between unrealized profits and unrealized losses to determine whether the network is in a state of profit or loss.
A value above 0 would indicate that the network is in a state of net profit; otherwise, net loss. Generally, the further the NUPL is from 0, the more it tends to be near market tops and bottoms.
Disclaimer: The information provided in independent research represents the author’s view and does not constitute investment, trading, or financial advice. VOC doesn’t recommend buying, selling, trading, holding or investing in any cryptocurrencies