The Mayer Multiple suggests that Bitcoin is a bargain--if you are an investor or a cycle trader (also with a 6-month + time horizon).
Some background.
Trace Mayer developed one of the simplest metrics for assessing whether Bitcoin (or other large caps) is a bargain. It is restricted to large cap analysis since the signal is used for a dip buying strategy ... and many small caps simply won't bounce back off their lows.
To explain, we'll build it from scratch. First up, add a 200-day simple moving average onto Bitcoin's price. Below our timeframe is from about November of 2022 (roughly the start of the last crypto winter) to the present.
You'll notice that, for the most part, buying below that SMA 200 is a terrible idea. But during a bull market, as witnessed in 2023, it actually indicates a buying opportunity.
Is there a way to sort out when a price drop below the SMA 200 is actually a buy signal?
That's what the Mayer Multiple is supposed to do--provided that you have a long-term investment horizon (12 months+). It's an investor's signal not a trader's signal.
To turn the SMA 200 into a buy signal we need to make it a ratio:
- Bitcoin's current price / SMA 200 = Mayer Multiple (MM)
In the chart below, I've added the MM as the blue line and put it on its own axis.
Since the MM is standardized, we can see when it indicates a buying opportunity.
The first circle on the left indicates the lowest point the MM reached during the last crypto winter. Notably, FTX did blow up after that, so there was another leg down to the market, but a Dollar Cost Averaging (DCA) strategy, beginning as soon as the MM dropped below 0.5 would have given excellent returns.
The second circle shows the lowest point the MM reached during a bull market--just after unexpected bond yield hikes in August of 2023.
Notice that to make sense of this signal we've added a supposition: that the macroeconomy is strong enough to carry BTC price action higher, unlike the 2022 period. That means that while the MM is a technical signal, what sorts between situations #1 and #2 is a fundamental macro-analysis.
The present downturn has also been sparked by bond problems (this time the Japanese carry trade), and the MM is lower now than it was during the dip at #2. That's your buy signal--if you are willing to DCA for a couple of weeks.
My sense as a trader suggests that we are not totally done with the Japanese carry trade and we could still see some price dips into the low $50,000 range, but if you are an investor or a cycle trader, looking to hold through the rest of the cycle (into 2025), then this might be a point of entry for you.
Good Luck!
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