TL;DR We’re in a bull market but we won’t be forever. If you consider selling all or some of your stash, you want to be tuned into top signals and act on them. I’ll discuss different types of top signals: technical indicators on the charts, on-chain behavior, valuation, and finally, sentiment.
If you were present during the previous bear market or even the recent pump in March, you might have felt that buzz, that almost drunken feeling of: wow, this is too good to be true. Well, it IS indeed too good to be true. The price doesn’t go up forever. Sharp price rises WILL correct sooner or later. Let’s dive into some top signals.
First Top Signal: Time
The crypto markets in the past 12 years or so have run according to a four-year cycle. Some argue it’s driven by four-yearly Bitcoin halving, others argue it’s global liquidity ebb and flow – or a coincidental combination of these two factors. Without overthinking it too much, you might just assume the four-year cycle is still in play. This would mean considering taking profit around the projected top around the fall of 2025. Read more: How Far are We in this Bull Market?
On-Chain Indicators: Holder Behavior
For the next category of top signals, let’s look at the holder base. In each bull market, old holders sell their coins to new entrants. This has to be the case, because the amount of BTC mined isn’t big enough to supply new entrants. The ebbs and flows of these holders tell us something about where we are in the bull market. Let’s look at HODL waves and Hodl growth rate.
HODL Waves
The red waves spiking in the HODL waves are like fomo visualized (hat tip for this term to Lookintobitcoin). The warmer colors are the ‘lower age’ coins, and if they spike it implies that long-term holders are fast selling to rookies. This happens when the price of Bitcoin is moving up very fast, nearing market tops.
After all, the long-term holders are considered the smart money. What does it tell you when they are selling?
Currently (April 2024) we see that the red bands are moving up, which suggests a market top is rather close.
To be sure, as with all indicators, HODL waves are best used in conjunction with other indicators and analyses.
Hodl Growth Rate
In this metric, coins by hodlers are defined as held at least two years in a row. If this number doesn’t grow anymore and starts descending, tops when Bitcoin’s diamond hands start selling into profit. That process has already begun. Cycle tops typically occur when HGR hasn’t made a new high in 6-9 months. We are 4 months in now… again signaling that a bull market top might be closer than let’s say a full year.
Network Activity Versus Price
This is perhaps the most important fundamental indicator, as it looks at how the valuation of BTC is versus the network activity. Models such as Metcalfe’s law posit a fair value of a (social) network as the square of the number of users. If the price front runs network activity too much.
Dynamic Range NVT
NVT is often called “Bitcoin’s PE Ratio”, it is the ratio of on-chain transactions to market cap. The use of dynamic range bands here helps to identify regions of under- and over-valuation (green/red). The good news: this metric is now in the value zone. How can that be, while the price has pumped so much? It’s because the network…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
