There are thousands of altcoins, but Bitcoin, of course, is still the most fundamental determinant of the crypto market's trajectory. The price peaks and troughs of the great king, Bitcoin, are the most fundamental indicator of where the crypto market will head. So, is there a way to predict them? Frankly, I'm learning more and more as I research, and I've come across three very interesting indicators. These three indicators are perfect for identifying Bitcoin's long-term peaks and bottoms. I'm not just talking about short-term daily peaks and bottoms. I'm talking about the sharp, long-term reversals that mark the completion of Bitcoin cycles, when a peak is reached and a long-term bear market begins, or, conversely, when a bear market ends and a climb back to the top begins.
Our first indicator has a somewhat confusing name: the MVRV Z Score. This is a very useful indicator for determining whether Bitcoin is overpriced or at a bottom. It's calculated as follows: Market capitalization minus realized value divided by the standard deviation of market capitalization. I know it sounds a bit confusing, but let's break it down simply: Market capitalization: How many Bitcoins are in the market? What is the price of each? Bitcoin Market Cap. For example, the current Bitcoin Market Cap is $2,162,419,661. Of course, it's already changed as I write.
What is the actual value? What was the last price at which the transactions were made? So, when we look at the Bitcoins on the blockchain, what was their last exchange price? The formula aggregates these and converts them into an average, saying, "If people encounter a Bitcoin price significantly higher than their last traded price, they'll be more inclined to sell. Conversely, if it's significantly below the last average price, they'll switch back to buying Bitcoin. Therefore, if this Z score is very high, we're at the top, very close to the top. Many people have made significant profits. A sell-off is likely to follow. Conversely, if the Z score is very negative, we're at the bottom. Many people are at a loss or are holding Bitcoin below their purchase price. Therefore, they may be eager to buy Bitcoin again."
This indicator has worked well in the past. It accurately captured the peaks of 2013, 2017, and 2021. It also accurately predicted the lows of 2015, 2018, and 2022. Of course, it might not be the exact day. There may be deviations of a few days, but it predicted it quite accurately. So, where can you find this indicator? You can go to Bitcoinmagazinepro.com. I only see this score there. You can find it yourself." You can easily access it. What's here? Bitcoin's total market capitalization is the average cost calculated based on recent transactions on the blockchain. The difference between these two is that when the Z Score reaches 0 MVRV, we're in a net buy zone, while when the Z Score reaches 7-9 MVRV, we're in a sell zone. So, what should we do in the intermediate zone? If it's somewhere in the middle, I don't think there's any harm in using the dollar cost average. As we approach the peak, we need to be a little more cautious and never fall into the madness of selling at the peak or buying at the bottom. If you see it approaching the Z Score of 7-9 MVRV, reduce your positions. If you see it approaching the Z Score of 0 MVRV, increase your positions. It's that simple. The inventors of this indicator are David Puell and Murad Mahmudov. They were Glassnode employees. They discovered this indicator.
Now, let's move on to the second indicator. The operation of our second indicator is much simpler. Here, we use a 111-day moving average. We compare two times the 350-day moving average, and when their lines cross each other, we see that we've reached the peak on the chart. The alarm usually sounds 1-3 days before the peak. It's an extremely powerful indicator. Why is it so successful? Because it compares investors' long-term positions to their positions over the last 111 days. If the 111-day average is moving upwards very rapidly, it's a sign of FOMO. In other words, it signals a point where everyone is panicking and encouraging you to sell. The alarm was triggered just a few days before the bull peaks of 2013, 2017, and 2020. You can also access the Pi Cycle indicator on Bitcoin Magazine Pro. The inventor of the P Cycle indicator is Philip Swift.
Our third indicator is called the Puell Multiple. The Puell Multiple looks at miners' behavior. If Bitcoin miners are very profitable, they tend to sell more. If Bitcoin miners aren't very profitable, they tend to hold on to their Bitcoin holdings. This is the basic idea. It's calculated by dividing daily miner revenue in US dollars by the 365-day average revenue. If their recent revenue is significantly higher than their 365-day average revenue, it means they've made excessive profits from their Bitcoin holdings. Therefore, they tend to sell more. Why does it work? Because when miners are very profitable, they tend to sell and take profits. They see that the price of Bitcoin is falling below their mining costs. In this case, they intend to hold, saying, "We'll wait and sell later." This indicator, of course, only looks at the supply side and expresses the miners' opinions. You can also visit Bitcoin Magazine Pro for the Puell Multiple. When the Puell Multiple enters the 5-10 value zone, danger begins. In other words, after entering this zone, it can stay there for a while. There's no guarantee that Bitcoin's price will drop immediately. But as you can see, the downward trend increases every time it enters this zone. I think this is the weakest of the three indicators. So, depending on the miner's current situation, its behavior may vary slightly, but it's still an indicator worth considering.
The information, comments and recommendations contained herein are not within the scope of investment consultancy. Investment consultancy services are provided within the framework of the investment consultancy agreement to be signed between brokerage firms, portfolio management companies, banks that do not accept deposits and customers. The comments in this article are only my personal comments and these comments may not be appropriate for your financial situation and risk return. For this reason, investments should not be made based on the information and comments in my articles.
