Welcome, this is onchain edge 👋

This guide will be the first in a series on teaching you how to navigate the crypto market and use on-chain analysis to predict market tops and bottoms.

It’s relatively easy if you stay up-to-date with what is happening (follow me on Twitter), are patient, and can control your emotions during the dreadful bear market periods and the euphoric hype cycles.

With that said, let’s get started.

Top 4 On-chain Indicators to Predict Market Tops and Bottoms

Bitcoin and crypto are highly volatile. Thus, new investors in the space find it difficult to navigate the volatility and often fall into the emotional trap of buying the tops and selling the bottoms.

Like all markets, the crypto markets move in cycles. First, you have long bear markets where no one is interested in buying Bitcoin, ETH, or other cryptocurrencies; then you have the bull run where everyone is fomoing into the market with the hope of becoming wealthy.

If you want to be successful in crypto, you need to know how to navigate the crypto markets and understand the phase we are in.

This post will introduce some of the best on-chain tools that allow you to see if BTC is at an all-time high or low without focusing too much on the price.

Many of these tools allowed me to sell most of my crypto holdings close to the top in December 2021. ​

Puell Multiple

The puell multiple is one of the easiest ways to determine if it’s an excellent time to buy or sell Bitcoin. You can find a free puell multiple Bitcoin chart on checkonchain.

How does it work?

Well, the puell multiple is calculated by taking the ratio of daily BTC issuance in USD​ divided by the 365-day moving average of daily coin issuance in BTC.

It measures how often miners complete a block and how active they are.

If the crypto market is very profitable, miners have a greater incentive to sell their mined coins quickly. (taking profit).

Low minter profitability is present if the hash power is much lower than the yearly average. This can create income stress, and some miners may need to start reducing their hash power by switching off their mining rigs.

This will increase the remaining miners’ hash share. The remaining miners can then reduce their selling pressure.

• High puell multiple values = high mining profitability → More pressure to take profits.

• Low puell multiple values = low mining profitability → Low selling pressure.

How do you use it to time the market?

Pull up the Bitcoin Puell Multiple chart on your browser and familiarize yourself with it. You need to focus on the blue graph at the bottom of the chart.

You can figure out where in the cycle we are based on the red, orange, white, light green, and green levels.

• Red (Puell Multiple > 5) = You should be selling 75%+ of your BTC portfolio. Furthermore, you need to set sell orders for your altcoins as they often pump after BTC pumps.

• Orange (Puell Multiple > 2.5) = You should sell up to 25%+ of your BTC/alts on upward moves. This will give you a lot of capital to buy back during capitulation events.

• White (Puell Multiple 0.6 - 2.5) = Ideally, no trade zone. You chill here. If you want to benefit from volatility, you can trade with less than 5% of your portfolio.

• Light green (Puell Multiple > 0.4 - 0.6) = You can dollar cost average (DCA) in a bit, but it’s better to save your capital for when the Puell Multiple goes below 0.4

• Green (Puell Multiple < 0.4) = Buy as much as you can afford to lose. Capitulation events are incredibly profitable buys at these levels as you have better odds.

Source: checkonchain

Theoretically, you only need the puell multiple and two to three bull runs to become incredibly wealthy. That is, as long as you buy in the green area and sell a large portion of your portfolio during the euphoric stage in the red levels.

The Investor Tool

One of the most straightforward tools to find market tops and bottoms is the Investor Tool by Philip Swift.

It’s one of the best tools for long-term investors as it will indicate when the price is likely to be reaching a peak or bottom, by relying on two simple moving averages (MA).

The 2-year MA and a 5x multiple of the 2-year MA

How to use it?

BTC price < 2-year MA → When the price is trading below the 2-year MA it has usually been profitable to DCA into BTC and other blue-chip cryptocurrencies.

BTC price > 2-year MAx5 → When the price is trading above the 2-year covering average x5 it has often been a historical signal that the market has reached the top of the cycle. When this happens you should be aggressively DCA out of your positions and shifting your portfolio to be more off-risk.

Caveat: You should check other tools apart from the “Bitcoin investor tool” as it is possible that the BTC price doesn’t reach the 2-year MAx5 during a rally as was the case in 2021.

Source: Investor Tool

Share this post with a friend so he stops asking “Is it a good time to buy?” after crypto has gone up 10x.

Pi Cycle Top

The “Pi Cycle Top” is also an indicator bult by Philip Swift, and it works by comparing two moving averages of Bitcoin’s price.

The first is the 111 Simple Moving Average (SMA) and the second is made up of the 2 x 350 SMA.

Fun fact: These were created to mimic a number that represents pi, which is 3.154*350 = 1111

When the 111 SMA (orange) crosses the 2 x 350 SMA (green), that’s an indication of an overheated market. A signal for you to get out during following rallys.

The most accurate indicator of an upcoming trend in the market is when the 111 SMA falls beneath the 2 x 350 SMA.

The longer it goes without inverting, the more certain we can be that a trend reversal is near.

Caveat: The Pi Cycle Top Indicator is a lagging indicator. It’s useful to know when the party is over and the bear market is starting. Ideally, you shouldn’t have any funds in the market when the bearish cross happens.

Source: Pi Cycle Top Indicator

The next tool is probably one of my favourites.

Mayer Multiple

A popular investing strategy is called the “Mayer Multiple”. It’s a calculation of the distance between a 200-day moving average and and the current price.

The 200-day MA is recognised as a good indicator to gauge whether the market is trending bullish or bearish. This means that when the Mayer Multiple is high, either on an upswing or downswing, it can signal strong overbought or oversold conditions.

You can check the colored levels in the chart below or on checkonchain (Mayer Multiple). On the right hand side you can see a description of the levels i.e [color] Strong BUY (10%, 0.6)

Even though there is no guarantee that buying Bitcoin at those levels will be profitable, historically it has been the case. The 10% value indicates the number of days Bitcoin has traded at that level. 0.6 is the Mayer Multiple Value.

• Mayer Multiple < 0.8 (green) → All values below 0.8 are good buying levels. Below 0.6 is a fantastic and unique buying opportunity which only happened a handful of times in the past.

• Mayer Multiple > 2.4 (red) → All values above 2.4 are great selling opportunities. When the Mayer Multiple goes above 3.4 you shouldn’t be thinking twice about selling then.

​Source: checkonchain (Mayer Multiple)

Closing Words + Staying up-to-date

These are some of the most important indicators I have personally used in order to find a lot better entries into the market.

There are a lot more. I’ll cover a lot more extremely simple to use tools/indicators to help you navigate the markets.

You only need patience and emotional resilience for these long-term indicators to flash buy during the bear market.

Then when they do, you need to have the guts to pull the trigger.

That’s all folks!

Follow me (onchain_edge on twitter as I’ll post alerts when specific on-chain indicators are at extreme levels.

Also subscribe to the onchain edge for more posts like this.

Cheers,

onchain edge

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