If you invest in stocks, you are probably very familiar with the price analysis metrics (P/E ratio, simple moving average, insider buying) that tell us when to buy into a market or when to exit it. For cryptocurrencies, specifically Bitcoin, which is what moves the market, we also have hundreds of onchain metrics to choose from, some of which can give us a real advantage in the market. There are three that we believe are especially useful for your cryptocurrency training. So today we are going to show you how they work and what advantages each of them offers us.
Metric #1: Market Value to Realized Value (MVRV)⚖️
What is MVRV?
El MVRV It is the first metric that we are going to teach you for your training in cryptocurrencies. It is calculated by dividing Bitcoin's total market capitalization (total supply x market price) by its realized capitalization (the price at which the coins were last traded on-chain). Market capitalization represents the current market value of Bitcoin, and realized capitalization represents an estimate of the aggregate “stored value” of Bitcoin. When it shows us positive values it generally means that investors are sitting on unrealized profits, while negative values mean that they are sitting on unrealized losses.
Why is MVRV useful?路♂️
The MVRV has historically been one of the most reliable indicators for detecting highs and lows. Extreme deviations between the price of Bitcoin and its stored value indicate periods in which investors have large profits or unrealized losses, which intensifies the probability that they will close their positions. Historically, anything greater than 3 typically occurs before a market top, while anything close to 1 typically precedes market lows. It is important to keep in mind that the MVRV seems to work best when it reaches extreme values, although careful evaluation of short-term changes can also provide us with interesting information. To be able to view this metric onchain, you can use the page Lookintobitcoin, where you will find graphics that will support your training in cryptocurrencies
Bitcoin's MVRV ratio seems to be recovering recently. Source: Lookintobitcoin
Metric #2: HODL Waves
What are HODL waves?
The second metric that we bring you to improve your training in cryptocurrencies are the HODL waves. With this metric you will be able to see the percentage of the cryptocurrency supply in circulation that has not moved during a certain period of time. In other words, it highlights the proportion of coins of a certain “age group”. That is, the time between the moment it is stored in a wallet and the moment it is spent classified into specific colors. The cooler colored bands represent the oldest coins, while the warmer colored bands represent the youngest. The thickness of the bands also shows us an interesting fact. The thicker the band, the greater the proportion of coins of that specific age.
Why are HODL waves useful?路♂️
HODL waves are a good metric to visualize whether we are seeing a higher proportion of older or younger coins in the market, as well as whether long-term investors are selling their coins to short-term investors. In other words, HODL waves are useful for assessing the dynamics between long-term HODLers and short-term speculators. If newer coins are accumulating (warmer bars getting thicker) at the same time as the proportion of older coins is decreasing, we could consider this a bearish signal, indicating that HODLers are taking long profits. term and passing their positions to short-term speculators. That is why it is key to analyze the behavior of a specific age group compared to others. It not only gives us a good indication of what type of investor is calling the shots, but also which groups are accumulating or selling.
HODL waves suggest healthy market dynamics. Source: Glassnode
Looking at the changes in the bars, we can see that while the proportion of long-term coins (darker bars) is quite stable, the proportion of short-term coins (warmer bars) is falling. This suggests little interest among speculators in entering the market at these levels. A further drop in the short-term coin ratio could be positive for the markets as it could indicate that speculators are accumulating coins or that HODLers are gaining market share. Don't lose sight of the dynamics between short and medium-term investment in the coming weeks. It could be key to assessing the strength or weakness of the market.
Metric #3: HODLers' Position Changes
How are HODLers' position changes calculated?
The third and final metric that we bring you to improve your training in cryptocurrencies is the position changes of HODLers. This metric represents the last 30-day change in cryptocurrency ages. Positive values indicate that coins are aging faster than they are being spent, which tells us that investors are accumulating rather than selling. Negative values, therefore, tell us that HODLers are spending the coins they have accumulated.
Why are HODLers' position changes useful?
These position changes show us when investors, especially long-term HODLers, are distributing and when they are accumulating. This gives us a good indication of the buying or selling behavior of the Insider. HODLers are supposed to be “smart money”, meaning they reduce their positions when they believe market dynamics are turning bearish. On the other hand, they tend to buy or hold their cryptocurrencies when their outlook is more positive. Following their actions can provide us with useful clues about what professionals are really thinking (and not necessarily saying publicly) about the market outlook.
HODLers have been distributing these last few months. Source: Glassnode
Of course, HODLers don't always get it right. The clear example is the net spending behavior of Bitcoin HODLers in January 2019, when they began selling in response to the drop in price, only to see that price drop later reverse.
How can we use these onchain metrics to improve your cryptocurrency education?
These three onchain metrics signal a mixed but improving outlook for cryptocurrency prices. The MVRV indicator shows us that the distribution period is ending, while the HODL waves and the position changes of HODLers suggest that long-term bitcoin investors remain confident and continue to accumulate coins. That could mean we're nearing the bottom.
Now, it is important to keep in mind that we have only covered three of the hundreds of onchain metrics that exist, so we should not overinterpret the information we can see. And we must keep in mind that these onchain metrics are a starting point and not an end point, and that we must try to continue developing the theoretical and practical knowledge of their operation. Still, understanding them in more detail and following them closely can give us a significant advantage over investors who don't.