One way to understand onchain market movements is to have a subtle understanding of market tops and bottoms and the required indicators that show the required action.
Bitcoin has been a very volatile asset since the year of its inception. This comes with its cyclical nature of boom and bust cycles. Therefore over the past couple of years, many analysts have developed and tested a multitude of onchain indicators that tell the market’s top and bottoms.
The core of such various indicators is being branched out through various complexities, from simple moving averages to momentum oscillators and on-chain signals.
Bitcoin Investor Tool
First is the investor tool that helps define cyclical tops and bottom for long periods. This tool uses two simple moving averages to calculate the over and undervaluation of markets. One is a two-year MA, and the other is the 5x multiple of a two-year MA.
When prices are trading below the (green) line, it usually has a history of the generation of outsized returns and marks bear cycle lows.
Conversely, a price above 2-year MA has signaled bull cycle tops, where investors generally de-risk.
Bitcoin Top Cap Model
Another on the list is the Bitcoin Top Cap model. It is a work of famous analyst Willy Woo and is used to identify market cycle tops. This one is calculated by multiplying the Average cap by a factor of 35. In contrast, the average cap is a cumulative sum of daily market cap values and dividing by the age of the market days.
Also, another top cap model considering a 15x multiplier is present to induce sensitivity and to gauge the effect of diminishing returns.
In other words, it is the average price of Bitcoin throughout its history.
The Onchain Pi-Cycle Top Model
The Pi Cycle Top, created by Philip Swift, works by contrasting the momentum of two moving averages. It is an estimation of conclusion between 111 SMA and 2*350 day SMA. When 350/111 = 3.153, it gives an approximation of the pi number.
When the 111 SMA crosses above the 2*350 SMA, the market gets overheated. On the contrary, it is cooling off from an overheated market.
The Onchain Mayer Multiple
Next up is Mayer Multiple is an oscillator. It is a calculation between the price and the 200-day moving average. The 200-day MA is a recognized indicator for establishing macro bull or bear bias. The Mayer Multiple is a deviation from this long-term average price as a tool to gauge overbought and oversold conditions.
When values are below 0.8 Mayer Multiple, it is a measurement that prices are trading 20% discount to the 200-day moving average.
While values above 2.4 Mayer Multiple reflect that prices have been running 240% of the 200-day moving average. This has happened for only 10% of Bitcoin’s trading history.