A powerful new chain analysis tool called the Bitcoin Cycle Extremes indicator has been released. It is designed to help you find extreme conditions in the Bitcoin market. It tries to answer the ultimate question of when the cryptocurrency market is at the top and when at the bottom.
Of course, there are many great tools and indicators that can be considered individually or in combination. They give tips on how to independently look for confluence in determining extreme market conditions. However, there is a way to automate this confluence of more indicators and put them in one common metric. Taking into account many elements and factors of the Bitcoin market is intended to more accurately identify potential highs and lows.
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 combines several basic metrics into one synergistic whole. Thus, if an extreme condition signal were to appear on this combined metric, its strength would be much greater than that of the separate components.
The basic version of the Cycle Extremes indicator was recently presented by Glassnode’s lead analyst @_Chessmate_ on his Twitter. On this occasion, he stated that “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 gauges in 1
On-chain analysis 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 includes four of the most popular indicators that have historically shown high accuracy in determining BTC cycle highs or lows. Specifically, it measures +/- 1 standard deviation from the extremes of the following oscillators:
- MVRV indicator (green) – indicates unrealized profit/loss for the entire market
- aSOPR (yellow) – measures extreme levels of realized gains/losses
- Puell Multiple (blue) – indicates the relative income and profitability of BTC miners
- Reserve Risk (red) – shows the degree of HODLing of coins
Bitcoin highs and lows signals
Each of the above metrics returns a binary value of 1 or -1 if it reaches an extreme high or low. Meanwhile, the Cycle Extremes indicator aggregates these values for all four indicators. The indicator identifies the top or bottom of the Bitcoin market if at least 3 of its 4 components confluent.
In such a situation, Cycle Extremes generates a blue signal for an extremely chilled market at the end of a downtrend. On the other hand, a yellow signal for an extremely overheated market usually occurs at the end of an uptrend.
The chart shows that the extremes of the ongoing bear market occurred between mid-June and the end of December 2022. With the Bitcoin market rebounding and rising to a peak of $25,000 from early 2023, the blue signals of extreme decline disappeared.
It is worth mentioning that the ongoing drop below $20,000 did not generate another signal on the indicator.
Is the worst of the bear market over?
However, the most important question remains: what are the chances that downside signals could still return 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 lows, blue signals from Extreme Cycles were not as scattered and uneven. Only the bottoms from 2014-2015 resemble the current structure of the bottom of the cycle. However, the current spread of signals is still at record highs.
Regardless of Bitcoin’s future fortunes, it’s worth watching this new on-chain analytics development from time to time. The growing complexity of the cryptocurrency sector requires a global view and analytical innovation. At the same time, one should not succumb to the illusion of one magical indicator that is never wrong.
For the latest Bitcoin (BTC) analysis by BeInCrypto, click here.
BeInCrypto strives to provide accurate and up-to-date information, but is not responsible for missing facts or inaccurate information. You comply with and understand that you should use this information at your own risk. Cryptocurrencies are very volatile financial assets, so research them and make your own financial decisions.