A powerful new on-chain analysis tool has been released called the Bitcoin Cycle Extremes Indicator. Designed to help you find extremes in the Bitcoin market.It attempts to answer the ultimate question of when the crypto market will peak or bottom.
Of course, there are many great tools and indicators that can be viewed individually or in combination. They provide guidance in independently looking for confluences when judging extreme market conditions. However, there is a way to automate this confluence of multiple metrics and combine them into one common metric. We aim to more accurately identify potential peaks and lows given the many components and factors of the Bitcoin market.
Cycle Extremes, a new tool from Glassnode, accurately creates metrics that combine several fundamental metrics into one synergistic whole, rather than relying on a single on-chain dataset. We aim at. Therefore, if the extreme situation signal appears in this combined metric, its strength will be much greater than that of the individual components.
A basic version of the Cycle Extremes indicator was recently published by the Glassnode lead analyst. @_Checkmate_ on his Twitter feed. On that occasion, he said, “The confluence is a friend.”
Besides the basic version there is also a second version with an oscillator. This is explained below.
Cycle Extreme: 4 Indicators in 1
On-chain analytics is an attempt to quantify Bitcoin investor behavior. This can be done in terms of various criteria, categories and metrics such as on-chain activity, profit and loss, or coin holding period.
Glassnode’s Cycle Extremes indicator takes into account the four most popular indicators that have historically shown high accuracy in determining BTC cycle peaks or lows. Specifically, we measure +/- 1 standard deviation from the extreme value of the following oscillators:
- MVRV ratio (green) – shows the unrealized gain/loss of the overall market
- aSOPR (yellow) – Measures extreme levels of realized gains/losses
- Puell Multiple (blue) – Shows the relative earnings and profitability of BTC miners
- Reserve Risk (Red) – Indicates how HODLing the coin is
Bitcoin peak and low signals
Each of the above metrics returns a binary value of 1 or -1 when extremely high or low. The Cycle Extremes indicator, on the other hand, aggregates these values for all four metrics. This indicator identifies peaks or troughs in the Bitcoin market when at least 3 out of 4 components converge.
In such a situation, Cycle Extremes will generate a blue signal in a very chilled market at the end of a bearish trend. In contrast, a yellow signal in a highly overheated market usually appears at the end of a bullish trend.
The chart shows an extreme state of the ongoing bear market from mid-June to end-December 2022 has emerged. The Bitcoin market rally and his rally to his $25,000 peak since the beginning of 2023 have eliminated the extreme downward blue signal deviation.
It is worth mentioning that the ongoing drop below $20,000 has not generated another signal for the indicator.
Is the worst bear market over?
However, the most important question remains. What are the chances of a bearish signal still returning in the current cycle? The chart above shows that a historical bear market has not been followed by a blue signal for such a long period (about 6 months). I understand.
On the other hand, at the previous macro troughs, the blue signal from the extreme cycle was less diffuse and speckled. Only the 2014-2015 troughs are somewhat similar to the structure of the current cycle troughs. However, the current dispersion of the signal is still at a record high.
Regardless of Bitcoin’s future fate, it is worthwhile to watch this new development in on-chain analytics from time to time.The growing complexity of the cryptocurrency sector requires a global perspective and analytical innovation. At the same time, don’t give in to the illusion of a single magic indicator that can never go wrong.
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