I recently cooked up a model, called Top & Bottom Formula, using the Puell Multiple, MVRV Ratio, & aSOPR.
For those new to on-chain metrics here's a quick explanation of the Puell Multiple, MVRV Ratio, & aSOPR straight from glassnodes glossary!
Puell Multiple: The Puell Multiple is a ratio of daily coin issuance (in USD) and the 365 moving average of daily coin issuance providing an oscillator derived from miner profitability and income stress. (source)
MVRV Ratio: capitalization to its realized capitalization.By comparing these two metrics, MVRV can be used to get a sense of when price is above or below "fair value", thereby helping to spot market tops and bottoms. (source)
MVRV Ratio: capitalization to its realized capitalization.
By comparing these two metrics, MVRV can be used to get a sense of when price is above or below "fair value", thereby helping to spot market tops and bottoms. (source)
aSOPR: The SOPR (Spent Output Profit Ratio) indicator provides insight into macro market sentiment, profitability and losses taken over a particular time-frame. It reflects the degree of realised profit for all coins moved on-chain. The adjusted SOPR has a similar construction and interpretation to the standard SOPR metric, however excludes all transaction volume for coins with a lifespan younger than 1hr. (source)
Taking these three metrics, I created a formula to help me know when local tops and bottoms are in. I then created two versions, one smoothened out with a 30 MA and the second one with a 90 MM.
The two versions of T&BF allows you to visualize tops and bottoms by looking for when these two lines cross.
Light blue crossing dark blue = bearishDark blue crossing light blue = bullish
It's always good to add extra confirmation to your analysis. To explain why I believe so, here’s an analogy.
Imagine you're in a new city and looking for the local Chick-fil-A to buy their heavenly chicken sandwich. But, unfortunately, you have no GPS, no cell phone, and all you can do is the good old-fashioned way of asking someone for directions.
If you ask 1 random person on the street for directions, the person's chance of being right or wrong is 50%.
If you ask 2 random people for directions, and they both tell you to go left, the chances of the Chick-fil-A being on the left increases versus just asking 1 person.
If you ask 6 random people, 5 say go left, and 1 say go right, which direction are you going? More than likely left, why? Because the majority said so.
It's the same thing with analysis, and the more metrics confirm your bias, the better.
Take the T&BF & add the Puell Multiple separately, and it showed you when the best time was to start Dollar Cost Averaging (DCA).
A Puell Mutual below 1 is an excellent time to start DCA, and the ultimate bullish confirmation is when the dark blue cross the light blue.
With a local bottom confirmed, I’m pretty confident that Bitcoin will break past all-time highs. I know some analysts say this is a bull trap, but the on-chain data seems to disagree. Not only do we have this analysis to justify our bullish case, but last week, I shared how the Hash Ribbon had printed a buy signal and what that means for the bullish case of Bitcoin. You can check that out here
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