A powerful new chain analysis tool called Bitcoin The Cycle Extremes indicator has been released. It is designed to help you find extreme conditions in the Bitcoin market. It tries to answer the last question of when the crypto market is at its highest or lowest.
Of course, there are many great tools and indicators that can be viewed individually or in combination. They provide guidance in seeking confluence on your own to determine extreme market conditions. However, there is a way to automate this confluence of more indicators and put them into a common metric. Taking into account the many components and factors of the Bitcoin market, the goal is to identify potential highs and lows more accurately.
Cycle Extremes, a new tool from Glassnode, aims to create just such an indicator that is not based on a single on-chain dataset, but instead combines several fundamental metrics into a synergistic whole. Therefore, if an extreme conditions signal were to appear in this combined metric, its strength would be much greater than that of the separate components.
Lead analyst at Glassnode recently introduced a basic version of the Cycle Extremes indicator. @_checkmatey_ on his Twitter account. On that occasion, she stated that "the confluence is your friend."
In addition to the basic version, there is also a second version with oscillators, which we will present below.
Cycle Extremes: 4 indicators in 1
On-chain analysis is an attempt to quantify the behavior of Bitcoin investors. 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 metrics that have historically shown high accuracy in determining the peaks or troughs of BTC cycles. Specifically, it measures +/- 1 standard deviation from the extremes of the following oscillators:
- MVRV ratio (green): indicates the unrealized profit/loss for the entire market
- aSOPR (yellow) โ measures extreme levels of realized profit/loss
- Puell Multiple (blue) โ Indicates the relative income and profitability of BTC miners
- Reserve risk (red): shows the degree of HODLing of coins
Signals of peaks and lows of Bitcoin
Each of the above metrics returns a binary value of 1 or -1 if it reaches an extreme maximum or minimum. Meanwhile, the Cycle Extremes indicator aggregates these values โโfor all four metrics. The indicator identifies a peak or bottom of the Bitcoin market if a confluence of at least 3 of its 4 components appears.
In such a situation, Cycle Extremes generates a blue signal for an extremely cool market at the end of a downtrend. Conversely, a yellow signal for an extremely overheated market usually appears at the end of an uptrend.
The chart shows that the extremes of the ongoing bear market appeared between mid-June and the end of December 2022. With the rally in the Bitcoin market and the rise to the peak of $25,000 since the beginning of 2023, the blue signs of extreme decline deviation have disappeared.
It is worth mentioning that the ongoing drop below $20,000 has not generated another signal on the indicator.
Is the worst of the bear market over?
However, the bigger question remains: what is the probability that bearish signals can still come back in the current cycle? In the chart above, we can see that no historical bear market has been followed by blue signals for such a long period of time, around 6 months.
On the other hand, in previous macro funds, the blue signals from Extreme Cycles were not as fuzzy and patchy. Only the 2014-2015 funds look somewhat like the fund structure of the current cycle. However, the current dispersion of the signals is still at a record level.
Regardless of the future fate of Bitcoin, this new development of on-chain analysis is worth watching from time to time. The growing complexity of the cryptocurrency sector requires a global vision and analytical innovation. At the same time, one must not succumb to the illusion of a single magical indicator that is never wrong.
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Disclaimer
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