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Understanding Bitcoin and market cycle indicators
Bitcoin Fundamentals
What is Bitcoin?
Bitcoin is a decentralized digital currency that operates on a peer-to-peer network without the need for intermediaries like banks or governments. Created in 2009 by an anonymous developer known as Satoshi Nakamoto, it introduced blockchain technology to enable trustless, transparent transactions.
With a fixed supply of 21 million coins and a predictable issuance schedule (halving every ~4 years), Bitcoin is designed to be scarce and resistant to inflation. This scarcity, combined with increasing adoption, drives its long-term value proposition as a store of value.
Why Do Market Cycles Exist?
Bitcoin's market cycles are fundamentally driven by the global liquidity cycle and broader business cycle. When central banks expand money supply (M2) and lower interest rates, excess liquidity flows into risk assets including Bitcoin. Conversely, when liquidity contracts during tightening cycles, risk assets suffer.
The ~4-year halving schedule often coincides with these liquidity cycles, amplifying the effect. Bull markets typically begin when the ISM PMI is recovering from contraction (sub-50) and central banks are easing. Tops form when liquidity is abundant, the economy is overheating, and central banks begin tightening. Understanding this macro backdrop - not just the halving - is key to timing Bitcoin cycles.
Understanding the Indicators
This dashboard uses multiple indicator types to provide a comprehensive view of market conditions. Each type measures different aspects of the market.
Technical Indicators
Models Bitcoin's long-term price trajectory using a mathematical power function of time (Price = a x days^b). Defines three key levels: Support (42% of fair value) represents historical bottoms, Fair Value shows expected price based on network maturity, and Resistance (360% of fair value) marks cycle tops. Price below support = strong buy, above resistance = strong sell.
Uses the 111-day moving average and 350-day MA x 2 to identify cycle tops. When the faster 111-day MA crosses above the slower 350-day MA x 2, it has historically signaled the exact top within days. This indicator has called every major Bitcoin top (2013, 2017, 2021) with remarkable precision. No signal = continue holding.
Uses the 730-day (2-year) moving average to define value zones. Price below the 2-year MA indicates deep value and accumulation opportunity. Price above 2-year MA x 5 indicates overheated conditions and distribution territory. The 0-100% position shows where current price sits within this range.
On-Chain Metrics
MVRV Z-Score compares Market Cap to Realized Cap (cost basis of all coins). Z-Score below 0 means the market is trading below aggregate cost basis - historically the best buying opportunities. Z-Score above 7 indicates extreme overvaluation and has marked every major top. Range of 0-3 is considered fair value.
Sentiment Indicators
Aggregates volatility, momentum, social media, and surveys into a 0-100 score. Used as a contrarian indicator: Extreme Fear (0-25) historically marks bottoms and buying opportunities. Extreme Greed (75-100) marks tops and signals caution. As Warren Buffett said: 'Be fearful when others are greedy, and greedy when others are fearful.'
Macro Indicators
The ISM Manufacturing PMI measures economic expansion (>50) vs contraction (<50). For Bitcoin, it works as a contrarian timing tool: accumulate during contraction when prices are suppressed and Fed easing is likely. Distribute during strong expansion (>60) when prices are elevated and Fed tightening looms. Peak PMI often precedes peak Bitcoin.
Combining Multiple Indicators
No single indicator is perfect. The most reliable signals come from confluence - when multiple independent indicators point in the same direction. This reduces false positives and increases confidence in your analysis.
When combining indicators, look for agreement across different types (technical, on-chain, sentiment, macro). Strong signals occur when 3 or more indicators align.
Strong Buy Signal Example
- Price below Power Law support (technical)
- MVRV Z-Score below 0 (on-chain)
- Fear & Greed showing Extreme Fear (sentiment)
- ISM PMI below 50 - contraction (macro)
Strong Sell Signal Example
- Price near Power Law resistance (technical)
- MVRV Z-Score above 7 (on-chain)
- Fear & Greed showing Extreme Greed (sentiment)
- Pi Cycle Top indicator triggered (technical)
Historical Case Studies
Looking at past cycles helps understand how these indicators performed during significant market events.
2013 Bull Market Top
November 2013Pi Cycle crossed in late November, MVRV Z-Score exceeded 8, price surged from $100 to $1,100 in weeks. Extreme parabolic move with price far above Power Law resistance.
The first major cycle demonstrated the pattern. Parabolic moves end abruptly. Pi Cycle signaled the top, followed by an 85% crash over the next year.
2017 Bull Market Top
December 2017Pi Cycle crossed, MVRV Z-Score hit 9+, Fear & Greed at Extreme Greed (95), price far above Power Law fair value.
Multiple indicators aligned at the top. Those who heeded the signals avoided the 84% drawdown that followed.
2020 COVID Bottom
March 2020MVRV Z-Score dropped to 0.1, Fear & Greed hit Extreme Fear (8), price touched Power Law support, ISM PMI crashed below 42.
Maximum fear created a generational buying opportunity. All indicators flashed green simultaneously.
2021 Double Top
November 2021Pi Cycle crossed in April, MVRV Z-Score hit 7, Fear & Greed oscillated between greed zones. November top showed similar readings.
The Pi Cycle warned of the April correction. Those who recognized the pattern had two chances to take profits.
Note: These indicators are for educational purposes only and should not be considered financial advice. Always do your own research.