Bitcoin Investment

Bitcoin Off-Chain Metrics To Improve Your Trading

Emilio Janus | Jun 25, 2019 | 16:00

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They say it’s not what you know but who you know. Of course, when trading Bitcoin, what you know is kinda important too.

Following on from our rundown of on-chain metrics, here are a bunch of useful off-chain indicators that no trader should be without. And possibly a few more on-chain metrics too.

Again, these are compiled from a guide by crypto-analyst, Adam Taché.

Mayer Multiple

The ‘Mayer Multiple’ is one of the most popular metrics and derives from the current price divided by the 200-day moving average (200-MA). The average value is 1.39, and historically, when it becomes equal to or greater than 2.4 it will retrace to under 1.5.

Spent Output Profit Ratio

The ‘Spent Output Profit Ratio’ (SOPR) tracks profits or losses made on a spent output and can be used as a marker for local tops and bottoms.

Put simply, SOPR is the selling price divided by the price paid and oscillates around a value of one. In a bear market, values above 1 are rejected, as holders desperately try to sell for a profit, causing the supply to ramp up and a price drop. Conversely, in a bull market, values below 1 are rejected, because people are reluctant to sell at a loss, constricting supply.

Market Value Derived Metrics

‘MVRV Ratio’ is a measure of Market Cap/Value divided by Realised Cap/Value. Historically, an MVRV of less than 1 indicates capitulation, and a value of greater than 3.7 signals an over-valuation.

‘MVRV z-score’ is the number of Standard Deviations between the Market Value and Realised Value. Or how strongly detached from Realised Value the Market Value is. It is calculated by subtracting the RV from the MV and dividing by the Standard Deviation and tends to go parabolic just before a prolonged downturn.

‘MVDV Ratio’ is the Market Value divided by the Delta Cap/Value. Bearish divergences between MVDV and price at local tops have indicated global tops, and value of below one has signaled global bottoms.

HODL Waves

A ‘HODL Wave’ occurs due to new investors buying into Bitcoin during a rally, then holding through the downturn into the next market cycle. They measure the age distribution of Bitcoin’s UTXO set and can be used to detect HODLer accumulation and capitulation. Though not particularly useful for predicting future moves, they do make for a nice colorful chart.

Dormancy Derived Metrics

There are a number of market-health indicators based on dormancy.

The ‘Average Dormancy’ is defined as the ratio between CoinDays Destroyed (CDD) and Volume (per day). While measuring the time UTXOs remain dormant, it signals accumulation and distribution and tracks spending behavior.

‘Supply-Adjusted Dormancy’ is Average Dormancy divided by Supply, accounting for a larger potential CDD, the longer that Bitcoin exists.

‘DUA Ratio’ brings UTXO age into the equation using HODL Waves, whilst ‘Dormancy Flow’ compares price to spending behavior on an annualized basis. Dormancy Flow is the Market Cap divided by the 365-day MA of Dormancy multiplied by Price.

Median Spent Output Lifespan

‘Median Spent Output Lifespan’ (MSOL) measures the median lifespan in days for each spent output. It can signal long-term holders decreasing positions and be used to determine the supply of circulating coins recently for sale.

Network Momentum

‘Network Momentum’ is a measure of daily transaction value in BTC, thus eliminating noise from price. It has been used as a leading indicator for market price and cycle.

Puell Multiple

Finally, the ‘Puell Multiple’ is the ratio of the Daily Coin Issuance (in USD) divided by the 365-day Moving Average of this value. However, after next year’s halving, fees will make up a greater proportion of the miner’s reward. At this point, it may be better to use Mining Revenue (in USD), rather than Coin Issuance.

The Puell Multiple provides a health-indicator for network security and can gauge the market from a mining profitability/compulsory sellers perspective.

Of course, no list of Bitcoin metrics can ever be complete, as analysts devise new indicators all the time. But including some (or all) of these into research prior to trading could improve results dramatically.

Think you are ready to beat the Bitcoin market with these tools? Let us know your thoughts in the comments below. 

Images courtesy of Shutterstock, Unchained Capital