Original Article Title: "On-chain Data Detailed Analysis: Perhaps You Need to Be Ready to Exit at the Top at Any Time"

Original Article Author: Mr. Berg, On-chain Data Analyst

TLDR

- This article will explain, from an on-chain data perspective, the basis for individually determining the approach to the top.

- Historically, major cycle tops have had "2 distinct distribution phases," and this is currently the second time.

- Explain the principle of market top formation: Distribution of low-cost chips completed

- Expect the top to occur in Q1

- From a trader's perspective, explain how to observe and dynamically adjust the trading model

1. Underlying Principles of the $BTC Market Top Formation

During each bear market phase, a large number of participants will silently accumulate chips, commonly known as "chip absorption," as market sentiment reaches an extreme nadir, trading activity slows, and prices even fall below the long-term holders' average cost, signaling the bottom. Related reading resource: "On-chain Data Academy (Part 6): A Brand New, Ark-Participated BTC Magic Pricing Methodology (I)"

As the bull market starts, prices surge, and these accumulated chips from the bear market period begin to be continuously distributed. When the distribution ends, the remaining chips in the market are all held by "relatively high-priced buyers." Since the cost price of these buyers is relatively high, if subsequent prices do not continue to rise, or even if they merely maintain a wide fluctuation, it will intensify their holding pressure. This, in turn, increases the possibility of selling, compared to low-cost chips, and ultimately, once some high-priced buyer chips start panic selling, leading to a price drop, it will further trigger other high-cost chips to sell, creating a chain reaction, signaling the end of the bull market.

Additional Note: This phenomenon is more pronounced in the $BTC market because, in the stock market, most companies have fundamentals to support them, with stock prices based on the discount rate converting the company's future cash flow into present value.

2. Major Cycle Tops Always Accompanied by 2 Distribution Phases

After understanding the principle of market tops, readers can then refer to the following chart:

This is a top signal model designed by me based on on-chain data, which is also included in the weekly Top Signal Report. As shown, before the peak of each historical cycle, there will be 2 signals.

Simply relying on the argument "because it has always been this way" is not sufficient.

Logically, the fundamental reason for the occurrence of 2 distributions is:

· The first distribution represents the beginning of a price surge, with low-cost chips starting to be sold off

· After the first distribution ends, the price begins to pull back, attracting a large number of bottom-fishing buyers

· Market sentiment continues to drive to extreme highs, with a large number of buyers entering, taking over the remaining low-cost chip distribution

Due to the large volume of low-cost chips, it is usually not completed after the first distribution, so it is necessary to go through the massive buying brought in by the bull market sentiment to carry out the second distribution.

3. What Happened in This Bull Market Cycle?

You can take another look at the top signal model chart above, and you will find that there has not actually been a top signal in this cycle.

However, when I was designing the model and studying market dynamics, I did notice some "clues." I have marked the area where I found the clues with semi-transparent red on the right side of the chart. Next, I will explain to readers what warning signs I saw:

1. Realized Profit

The above chart shows Realized Profit, and I have marked the "clue area" in a semi-transparent red color just like in the first chart.

It can be seen that in March and April 2024, when the price surged to over 70k, a massive profit-taking has already occurred (first distribution). And at the end of last year, when the price broke through the $100,000 mark, the Realized Profit once again showed a massive volume (second distribution). Therefore, from the perspective of Realized Profit, there have actually been 2 distributions already.

Related reading: "On-Chain Data School (Part III): Have the Whales Who Absorbed Liquidity at the Bottom Taken Profits?"

2. AVIV Heatmap

The AVIV Heatmap is also included in the weekly report, with the main purpose of observing whether the market is currently in an "overheated" stage. The AVIV value can be temporarily understood as a more precise MVRV. A detailed explanation of the principle will be provided in a separate article in the future.

As shown in the chart, I have also marked the "Clue Zone," which is around March and April this year. It can be seen that at that time, there was a period of "overheating" on the AVIV Heatmap, which was later resolved after about half a year of sideways movement to alleviate the overheated state. Then, when the price broke the $100,000 mark, the AVIV once again indicated overheating.

Therefore, from the AVIV's perspective, it still indicates that we are currently in the "second distribution" phase.

3. Cointime Price Deviation Top Model

I previously wrote an article on 12/27 last year, explaining how I use Cointime Price to design a top sieve model:

The current state of the model is as shown in the chart. It can be seen that every historical cyclical top in the past corresponds to 2 clear peaks (2 distributions), which corroborates the concept explained in the second paragraph of this article.

In this current cycle, the first clear peak (Clue Zone) has already occurred, and we are currently at the second peak (with signs of a downturn).

4. Why Does the Top Signal Model in Figure 1 Not Have a Signal Jump?

Through this article, I would like to explain this issue to the readers. Because the top signal model contains many parameters that I subjectively set. Personally, when studying and designing, I deliberately loosened the trigger conditions for the signal, but it still did not generate a signal during the distribution in March and April last year.

However, this is not a big deal because as a trader, when analyzing the market, it is not possible to rely solely on a single model or signal. Especially for models that contain subjective parameters, I only use them as a reference. In practical judgment, I still analyze various indicators and data comprehensively.

One last thing: "This bull market is a great opportunity to test various top signals in the market, as most top signals are merely looking in the wrong place, with a very high failure rate."

5. Conclusion

This article is a bit long, so I ask for your understanding. Thank you very much for patiently reading this far. I hope this article has been helpful to you.

In addition to the content mentioned in this article, a previously written article about the RUP top signal is also a very representative sign:

"On-chain Data School (Part Ten): Market Barometer RUPL (II) - The Strongest Top Signal & Detailed Analysis of Historical Cycle Tops"

Furthermore, after the subsequent price drop, based on the content I wrote about the RUP top signal, I urgently added another article about the "Right-side Top Escape Strategy": Link to Article

If you agree with my point of view, then perhaps at this moment, you should be prepared to escape the top at any time...

Original Article Link

Welcome to join the official BlockBeats community:

Telegram Subscription Group: https://t.me/theblockbeats

Telegram Discussion Group: https://t.me/BlockBeats_App

Official Twitter Account: https://twitter.com/BlockBeatsAsia