8 BITCOIN TOP SIGNALS
Nik Joosery's guide to BTC tops
Introduction
Bitcoin’s cyclical nature and volatile price action have created immense opportunities for traders and investors, but they’ve also led to steep drawdowns for those unable to exit during market peaks. While predicting tops with precision is challenging, there are several metrics that consistently signal when the market is becoming overheated. By analyzing these signals together, traders can gain a clearer perspective on when the risk of a downturn is high.
In this article, we explore eight critical metrics that provide valuable insights into Bitcoin tops. These signals, derived from on-chain data, market behavior, and historical trends, have proven their reliability in previous bull market peaks. Let’s dive into each signal and what it tells us.
1. MVRV Z-Score
The MVRV Z-Score compares Bitcoin’s market value (market capitalization) to its realized value (aggregate cost basis). Historically, values above 7 (indicated by the red zone) have aligned with market tops.
What it shows: Elevated MVRV Z-Score readings indicate that Bitcoin is significantly overvalued relative to its cost basis. Peaks in 2011, 2013, 2017, and 2021 all coincided with high Z-Score values. When Bitcoin approaches this red zone, caution is warranted.
2. MVRV Pricing Bands
MVRV Pricing Bands are derived from the realized price multiplied by specific factors (e.g., 0.8x, 1.0x, 2.4x). These bands act as dynamic support and resistance levels based on market behavior.
What it shows: During market tops, Bitcoin’s price often approaches or exceeds the upper MVRV pricing bands. These levels provide clear visual markers for identifying overheated conditions.
3. Long-Term Holder (LTH) Relative Unrealized Profit
The LTH Relative Unrealized Profit metric tracks the profit held by long-term Bitcoin holders. When this profit reaches extreme levels (e.g., above 0.9), it often signals a market peak.
What it shows: High levels of unrealized profit indicate that long-term holders are sitting on substantial gains, increasing the likelihood of profit-taking. Historically, these levels have coincided with major market tops.
4. Yearly Realized Profit/Loss (Relative)
This metric compares yearly realized profits to losses, offering insight into whether the market is dominated by profit-taking or capitulation.
What it shows: At market tops, the ratio of realized profits relative to losses reaches extreme highs. These spikes suggest widespread profit-taking behavior, which can precede a reversal in trend.
5. Market Cap to Thermocap Ratio
The Market Cap to Thermocap Ratio evaluates Bitcoin’s market capitalization relative to miner revenue (Thermocap). Values in the red zone historically align with market tops.
What it shows: This metric reflects periods when Bitcoin’s price has significantly outpaced miner revenue, a common feature of speculative bubbles. Peaks in 2013, 2017, and 2021 align with elevated Thermocap ratios.
6. Block Subsidy Model
The Block Subsidy Model provides a framework for Bitcoin’s valuation based on the aggregate security spend (Thermocap) and multiples thereof.
What it shows: Bitcoin’s price tends to oscillate within these valuation bands. At market tops, the price frequently touches or exceeds the highest subsidy bands, signaling overvaluation.
7. True Market Deviation (AVIV Ratio)
The AVIV Ratio measures deviations from Bitcoin’s realized price based on circulating supply. Peaks in this ratio have historically marked precise market tops.
What it shows: When the AVIV Ratio exceeds three standard deviations, it reflects extreme overvaluation relative to historical norms. These moments coincide with speculative excess in the market.
8. Value Days Destroyed (VDD) Multiple
The VDD Multiple tracks the economic activity of Bitcoin holders, focusing on coins spent in relation to their age and value. High VDD readings suggest significant on-chain activity.
What it shows: Spikes in the VDD Multiple indicate that long-term holders are moving or selling their Bitcoin, often aligning with market tops. These moments highlight a shift from accumulation to distribution.
Conclusion
No single metric can predict Bitcoin’s tops with absolute certainty, but a combination of these signals paints a compelling picture of when the market is overheated. By monitoring the MVRV Z-Score, pricing bands, and other on-chain indicators, traders and investors can make more informed decisions during Bitcoin’s volatile cycles.
As the crypto market matures, understanding these metrics will become even more critical. By staying vigilant and combining data-driven insights with disciplined risk management, you can navigate the highs and lows of Bitcoin’s journey with confidence.