How to Use the Onchain Edge Index to Reduce Emotions and Maximize BTC Returns

Hey there! Today, I'm breaking down how the Onchain Edge Index works and how you can use it to make smarter Bitcoin investment decisions.

The Onchain Edge Index: What It Measures

The Onchain Edge Index combines three powerful on-chain metrics into one actionable number:

MVRV, NUPL, and Puell Multiple work together to measure market risk from different angles - comparing current price to cost basis, calculating total market profit/loss position, and tracking miner revenue patterns. Each offers a unique perspective on market cycles, but together they create a comprehensive risk assessment tool.

How to Use the Index: The DCA Factor

The index runs from 0-100 and comes with clear guidance on what actions to take:

• 0-20: Max buying opportunity (DCA Factor +1.5 to +2.0)

• 20-30: Moderate buy signal (DCA Factor +0.5)

• 30-60: Hold position (DCA Factor 0)

• 60-80: Begin taking profits (DCA Factor -0.5 to -1.5)

• >80: Consider significant profit-taking (DCA Factor -2.0)

The DCA Factor tells you exactly how to adjust your regular Bitcoin purchases. For example, with a normal weekly buy of $100:

• If the index is at 15 (DCA Factor +2.0), you'd invest $300 that week ($100 + $200)

• If the index is at 25 (DCA Factor +0.5), you'd invest $150 that week ($100 + $50)

• If the index is at 75 (DCA Factor -1.5), you'd sell $150 worth that week

Looking at the current dashboard reading of 35.93, we're in the "Medium Risk" neutral zone with a DCA Factor of 0. This suggests holding your current positions without adding or reducing.

Check the historical performance chart - the blue triangles mark previous buy signals that generated significant returns. The last batch of signals in September 2022 preceded a massive bull run.

Why It Works

This system isn't about predicting exact prices - it's about measuring actual market risk based on how Bitcoin is being used and valued.

The historical performance speaks for itself - every time the index has dropped below 20, buying has been profitable within a 6-12 month timeframe. Similarly, readings above 80 have consistently preceded major corrections.

Remember, use this as a guide for your overall strategy, not for day trading. It's designed to keep you on the right side of major market cycles.

Using the Index with Altcoins

While the Onchain Edge Index is primarily designed for Bitcoin, you can use it as a general market guide for altcoins - but with caution.

Altcoins typically follow Bitcoin's broader cycle, but with higher volatility and often delayed reactions. When the index shows extreme readings (below 20 or above 80), altcoins usually experience even more dramatic moves in the same direction.

However, each altcoin has its own unique cycle and tokenomics, so the index works best as a general risk measure rather than precise timing for specific alt projects. Use it to gauge overall market risk, but always consider the individual fundamentals of any altcoin investment.