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Analyzing 6 On-Chain Metrics to Assess BTC Price Trends

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In addition to assessing the project's value, in the current euphoric market environment, what can we use to determine the top/bottom of BTC's price?

Source: Biteye

For crypto investors, there are two eternal pursuits: 1) Selling at the top; 2) Buying at the bottom. In addition to assessing the project's value, in the current market environment of high emotions, what can we use to determine BTC's top/bottom?

In this issue, Biteye brings you an explanation of six extremely informative 【practical on-chain BTC indicators】, which you can refer to in order to judge BTC's trend~

1. The first indicator to introduce is: MVRV: Market Value to Realized Value Ratio

MVRV is the ratio calculated by BTC's total market value divided by BTC's last active price, representing the profitability of BTC holders.

When MVRV exceeds 3.5, it usually indicates the market has reached the top; because when MVRV is too high, it means that holders have made significant profits, and they tend to sell at this point;

2. When MVRV is below 1, it usually indicates the market has reached the bottom

Most investors are in a loss state, the willingness to hold is greater than the willingness to sell, meaning there are fewer sellers in the market, thus increasing the probability of a price rise. Currently, this indicator is at 1.658, not within the long-term bottom and top range.

3. The second one to introduce is the Bitcoin Ahr999 Index

This index is used to guide when BTC has reached the bottom and when it is suitable for dollar-cost averaging, essentially a timing indicator.

Ahr999 = (Bitcoin Price / 200-Day DCA Cost) * (Bitcoin Price / Index Growth Value)

This index implies the return on Bitcoin DCA and the deviation between Bitcoin's price and expected value, so the lower it is, the more undervalued the BTC price is.

4. Specific Usage:

1) When AHR999 <0.45, the indicator will suggest buying at this point;

2) When AHR999 is between 0.45 and 1.2, the indicator will suggest dollar-cost averaging at this point;

3) When AHR999 is greater than 1.2, this indicator does not provide trading recommendations;

The current value of this indicator is 0.66, indicating a recommended dollar-cost averaging range.

5. The third indicator to be introduced is Bitcoin Dominance

Bitcoin Dominance refers to the percentage of Bitcoin's market capitalization in the entire cryptocurrency market.

The price performance characteristic of BTC Dominance is that in the early stages of a bull market, it is the first to undergo price discovery, leading to a higher dominance. However, in the later stages of the bull market, funds flow into Ethereum and altcoins, leading to a lower market share.

6. Looking at the historical performance of BTC Dominance, during the 2018 mini-bull market, it rose from 50.7% to 60.5%. In the 2022 bull market peak, it reached 69%, during which BTC was in a strong uptrend.

When the dominance decreases, it is mainly driven by the rise of altcoins, while Bitcoin may trade sideways or slowly rise. The previous bear market bottomed at a dominance of 38%, which can serve as a reference for future bottoms.

The current BTC Dominance is steadily rising, at 53.04%.

7. The fourth indicator to introduce is SOPR: Spent Output Profit Ratio

Calculation method = Price sold / Price paid, i.e., the selling price of the asset on the day / the buying price of the asset. This indicator is also used to reflect the overall market's profit and loss and market sentiment.

When the SOPR value continues to rise and is greater than 1, it means the market is in a continued uptrend; when the SOPR value continues to fall and is less than 1, it means the market is in a continued downtrend;

8. As shown in the chart below, when the SORP value plunges significantly, it means that people in the market are selling at a loss. The more sellers there are, the implication is that the market is closer to the bottom. Therefore, when the SOPR experiences a significant drop, it means that a large number of sellers have already sold, indicating a higher likelihood of reaching a bottom at this point.

The current trend of this indicator shows a continuous upward trend, with a value of 1.016, indicating a situation where buying is more prevalent.

9. The fifth indicator to introduce is the Bitcoin Rainbow Chart Index (The Rainbow Chart)

The Rainbow Chart has nine color bands, with the key colors red and blue representing the Bubble and BTC Mega Dump phases, indicating the market top and bottom.

From the chart, we can see that in the past four instances, the tops have all landed on the chart's sell bands, and the bottoms have also landed on the buy bands.

10. When in a market sentiment frenzy or extreme pessimism, using the Rainbow Chart to see which phase the market is currently in is a good reference point. From the current Rainbow Chart status, the market is now in the 'Accumulation' phase.

11. The last indicator to introduce is the Pi Cycle Indicator

This indicator identifies the BTC price tops using the 111SMA and 350SMA, and the market bottoms using the 471SMA and 150SMA. As shown below, the overlap points reflect market highs, and the indicator is used to look for these overlap points to watch for top risk. From the indicator's display, we are not currently at the top.