This episode’s guest: Murphy, on-chain data researcher, Twitter: @Murphychen888
*All texts are for sharing only and do not constitute any investment advice.
TL;DR
About Trader Murphy
The core of trading is "people". A person's experience, background, personality, and financial attributes determine the development of his or her trading strategy.
What is Murphy's trading strategy?
1) Fund size and allocation ratio: Own funds, 90% allocated to mainstream currencies (BTC, ETH, BNB), 10% allocated to altcoins
2) Expected return: 200%-300%
3) Withstand retracement:
For mainstream currencies (BTC, ETH, BNB), only look at the cycle, do not set a stop loss, and a 20%-30% pullback is normal
For altcoins, stop loss if it falls below 20%
4) Transaction logic:
Large cycle timing, that is, in a large cycle, buy at the relatively bottom price range and sell at the relatively high price range, do not do band, contract and high-frequency trading
Through on-chain data analysis, that is, various data indicators draw conclusions with high certainty to guide transactions
Why did Murphy develop such a trading strategy?
1) Trading experience: Murphy did not have a stable trading strategy in the last cycle. He began to sell his chips gradually when the market rose to 63,000 for the first time. Later, when the price broke through the new high to 69,000, he was very regretful and felt anxious because of various FOMO emotions in the market. So in 2022, he decided to find a trading strategy within his own cognition, which can be effectively executed, replicated, and closed-loop, so as to avoid being disturbed by emotions.
2) Professional background: Before entering the cryptocurrency industry, Murphy worked in marketing for many years in the traditional financial industry. He needed to use data to track and adjust various marketing campaigns. This experience allowed Murphy to accumulate sensitivity to data, so when he was looking for a "evidence-based" basis for his trading strategy, he naturally chose data as the basis.
3) Personality: Murphy is very cautious and pursues high certainty. At the same time, he hopes that his trading strategy can be effectively executed, replicated, and closed-loop. Therefore, he chose "big cycle timing" and "using data analysis to guide trading."
4) Fund attributes: The attributes of funds determine the funding cycle, and the funding cycle determines the investment method. Murphy's funds are self-owned funds, without leverage, and come from the profits of the previous cycle, so the cost is relatively low.
Who is Murphy's trading strategy suitable for?
Meet two characteristics:
1) Stable type, pursuing high certainty and holding assets for a relatively long period of time
2) Trend traders, most of their positions are in mainstream currencies
Murphy's Trading Story
Knowledge verified by practice is true knowledge. Reviewing and looking back on specific transactions can help you understand and learn the application of trading strategies more intuitively.
In this cycle, what indicators/data does Murphy use to determine the timing of bottom fishing?
There are five main data points:
1）CVDD, Cumulative Value-Days Destroyed, CVDD (USD) = ∑(CDD × price) / (days × 6,000,000)
When BTC is transferred from one investor to another, the transaction not only has a dollar value, but also destroys the time value associated with the time the original investor held the token. The CVDD index is a value calculated by a mathematical model, the numerator of which is the coin-day destruction index, or CDD. For example, if you hold two BTC for three days and move them after three days, the value of your coin-day destruction will be reset to zero. The biggest feature of the CVDD index is that it never retreats, that is, the CVDD value of each day will be higher than yesterday's. Since the price of BTC has never effectively fallen below the CVDD value in history, the bottom price of the market can be effectively evaluated through CVDD.
In October 2022, the price of $BTC was around $19,000, and the CVDD was roughly $14,800. Murphy estimated that if he bought the bottom at this time, the cost of buying BTC would be around $20,000. At the same time, he conservatively expected the top price of the bull market to be $50,000, and the increase was within expectations, so he decided to buy the bottom.
2）RP(Realized Price) 和BP(Balance Price)
RP does not include exchanges, and is the average cost of everyone changing hands on the chain; BP is the BTC cost minus the time value of funds (the income from using funds for other purposes such as deposits, etc.), reflecting the fair price of the market. In a bear market, when the price of BTC falls below RP and consolidates in the middle channel between BP and RP, it is a very good buying node.
3）PSIP（Person Supply in Profit）
The essence of PSIP is the proportion of BTC profitable chips among the circulating chips. When it is less than 50%, it means that more than half of the people are losing money, and in most cases it is the extreme bottom of the bear market.
4) NUPL and MVPV of LTH (Long Time Holder)
NUPL uses different colors to indicate the loss/profit level on the Bitcoin chain. When it turns red, it means that long-term holders have surrendered (i.e., sold their chips at a loss). This is the market low and can be bought.
MVRV considers the ratio of BTC's circulating market value to its realized market value. The realized market value is calculated by adding up the prices of all the BTC that moved last time. The difference between the circulating market value and the realized market value is the unrealized market value. The larger the ratio between the two, the larger the market bubble, and the more likely it is to cause profit-taking. The smaller the ratio, the more undervalued it is. The commonly used reference number now is that if MVRV is greater than 3, sell, and if it is less than 1, buy. At the same time, in the callback under the bull market's upward trend, look at the MVRV of short-term holders, and in the bear market to find the bottom, look at the MVRV of long-term holders. The logic here is that the price of BTC in a bull market is determined by short-term holders, and in a bear market it is determined by long-term holders.
5) From the perspective of miners, taking two data as an example
Mining cost: The mining cost of miners can be calculated through different models. The closer the market price is to the cost, the lower the price has reached and the better to buy. For the specific calculation method, please refer to Murphy’s previous tweet:
https://x.com/Murphychen888/status/1787506088373612741
https://x.com/Murphychen888/status/1750542582390935983
Mining Pulse Index: The deviation between the average block time interval and the target for 14 days (14 days is because 14 days is a difficulty adjustment period). If the deviation is positive, it means that some miners have shut down, and this is also a good time to buy.
Murphy also sorted out and explained these indicators. You can refer to: https://x.com/Murphychen888/status/1814284223597187467
How did Murphy achieve these numbers?
Three steps:
The first step is to find a teacher. Learn from the content shared by the on-chain data analysts in the market, sort out the logic, and then experiment and measure according to their algorithms. If you find any problems, adjust the parameters yourself.
The second step is to accumulate and classify your own indicator library. In Excel, record and track indicators by name, source, algorithm, function, classification (emotional, trend, top judgment, bottom judgment, etc.), and continuously optimize and iterate. Then you can use different indicators according to different scenarios.
The third step is backtesting. Through backtesting, continuous corrections can be made to improve the effectiveness of the indicators.
Murphy has a classic summary: macroeconomics dominates expectations, expectations change emotions, emotions affect the supply and demand relationship, and supply and demand ultimately determine the price of BTC. Through the observation and analysis of on-chain data, we can find the factors and logic behind the data that will affect the supply and demand relationship, so as to judge the trend that may be formed next, or the possible transition of this cycle. Combined with other methods, such as technical analysis of K-line, etc., we can draw a more certain conclusion to guide trading decisions. However, it should be noted that no matter how perfect the indicator is, it cannot tell the exact buying point, and can only give a signal prompt in a certain price range. When the signal appears, we should decisively and resolutely implement the pre-made strategy based on our own risk tolerance and good position management.
In this round of bull market, how will Murphy judge when the market will peak?
1) Logically speaking:
In the entire BTC cycle, the supply side is the long-term holder LTH, and the demand side is the short-term holder STH. From the bear market to the bull market, it is a process in which long-term holders continuously distribute their chips to short-term holders. After that, from the top of the bull market to the bear market, the short-term holders continuously cut their losses and return their chips. When there is no profit exit or profit exit of LTH in this cycle, it can be considered that this cycle has not yet ended. Conversely, when long LTH has started to sell, or has almost sold out, it is time to "escape the top".
At the turn of each bull-bear cycle, short-term holders will have two large-scale takeovers. The first one often occurs before the halving. There are three main reasons: first, the expectation of halving; second, the emotions accumulated in the long-term bear market need to be released urgently; third, as the market recovers, some medium- and long-term chips will distribute them to STH.
The first takeover of this cycle occurred when BTC exceeded 70,000. The main reason for the different timing from the previous two cycles is that the passage of ETFs changed the rhythm of the entire cycle. However, from the data level, the number of chips taken over in the first round was not large, so there will be a larger-scale takeover next time. The takeover also occurred when long-term holders distributed chips. These two time points are the relative top range of the bull market cycle. However, this top range may be a double top or a triple top, but the price does not necessarily mean that the later top will be higher than the previous one.
2) In terms of indicators, there are two main ones that can be used as reference:
MVRV
When MVRV is greater than 3, you can set a trading strategy and start selling. You can sell with the inverted smile curve as the MVRV value gradually increases from 3 and then falls back to 3.
URPD
URPD is data that reflects the chip structure on the chain. It can tell us how many chips have changed hands in a certain price range. The more chips accumulate, the stronger the consensus will be. This price range will form a consensus range, and then produce resistance and stickiness effects. Resistance means that when breaking through from below, selling will not easily allow the price to break through this range, and stickiness means that when breaking down from above, even if the price falls below the range in a short period of time, without forming a large amount of price consensus and turnover, the price will quickly rise back. However, URPD alone cannot be used to determine the top. When multiple other data show a peak signal, URPD can be used to verify the validity of the data.
For a detailed explanation of the URPD data, see this tweet from Murphy: https://x.com/Murphychen888/status/1753331946439217362
Therefore, the conclusion is: judging the top is more complicated than judging the bottom, and it requires a comprehensive analysis of multiple data (rather than a single indicator). However, from the perspective of the "three-in-one" indicator, this relative top range will roughly occur in March to April 2025, but this is not supported by objective logic, and it is necessary to take a step-by-step approach in combination with macro data. Referring to the previous three cycles, a phenomenon will appear in the peak area, that is, MVRV is higher than 3.
When will Murphy's indicator become invalid? What is the Stop Doing List you set yourself?
First of all, it is not an "accurate" indicator and cannot determine the long and short positions, or the specific prices of rises and falls in a very short period of time.
Secondly, it cannot be used to analyze altcoins. Because the characteristic of BTC is the UTXO structure, UTXO has a timestamp function, which can record the time point when the unspent transaction output is generated, and the USD value of BTC corresponding to this time point. Many indicators can be changed through these two data, and for altcoins without UTXO structure, many on-chain data cannot be counted.
There are 5 points in the Stop Doing List:
1) Stop relying on luck. You can envy others for getting rich, but don’t try others’ tracks with the luck mentality of “if he can do it, so can I”.
2) Stop being emotional. There are many opinions and noises in the cryptocurrency world. You should think calmly, face the data and the logic behind the data objectively, and avoid being disturbed by the noise.
3) Stop frequent trading, because it is beyond your circle of competence.
4) Stop relying on a single source of information. Do not use a single indicator as the conclusion of the entire logic.
5) Stop making decisions without doing research. Other people's opinions can only be used as a reference, and decisions should always be based on your own research.
Murphy的【Must Read】
The growth of excellent traders is inseparable from continuous external input, learning from other excellent people, and reading content that is meaningful to learn from. We can also continue to accumulate and grow through other people's [Must Read] lists.
Murphy likes bloggers who have originality and can produce continuous output.
Chinese:
@Phyrex_Ni, Ni Da, interprets the impact of macro data and events on the cycle
@Trader_S18, macro + K-line analysis market
@qinbafrank, macroeconomic observation, research on global capital mobility
foreign:
On-chain data researcher @CryptoCon_ @_Checkmatey_ @therationalroot @TechDev_52
No one can predict the market 100%, but through the accumulation and correction of indicators, you can increase your chances of winning. This is also true for trading. I hope we can all find ways to get closer to certainty. See you next time.
Conversation Record
FC
Let's get started. Actually, the best time to invite you is when the market is falling a lot, but we talked about it last week, and you thought that the market had almost reached a bottom last week. How about you introduce yourself briefly?
Murphy
My major in college was advertising. By chance, after graduating from college, I worked for a short period of time and then switched to the traditional financial industry. In 2005, a few of us started a business together to build a traditional financial service company. I was mainly responsible for marketing. So my major and work experience made me sensitive to data, because I had to deal with some marketing data, user portraits or user needs in my previous work. It was also a coincidence that I entered the cryptocurrency circle in 2017, because the domestic financial environment was very bad at that time. After the three consecutive declines in the stock market in 2015, we were actually looking for some new directions. I should be considered an old leek in the cryptocurrency circle. Except for the first round of cycles, I was a novice at that time and had not experienced it. I have experienced the ups and downs of the three subsequent cycles, and I have experienced all the bitterness and tears in them.
When I started to study on-chain data in 2022, I found that I was very experienced or sensitive to this data. The original intention was because I was also a retail investor, and I hoped to help myself find a set of investment methodologies that can be effectively executed, replicated, and form a closed loop. Including my tweets, I didn’t expect that so many friends would follow me at the beginning. My original intention was to use Twitter as a growth diary for myself, recording every bit of a cycle or every experience of my own research. When the next cycle comes, I will look back at the research and experience at that time. I think it must be very wonderful, but it is not the case now, because many friends have followed me, and I have to be responsible not only for myself, but also for the friends who read my tweets. This is a very simple background introduction of me.
FC
You have a marketing background. Actually, we are quite similar. I used to be in charge of marketing and sales. I met BMAN because before he came to the cryptocurrency circle, he had a public account called Professor Li, which mainly talked about marketing. I always joked with him that I was his outstanding student at that time. I also went to his office. At that time, no one had heard of the cryptocurrency circle. Later, I went to 36KR. So I want to know that you said that marketing is related to data. So what part of marketing do you do? Is it more about the middle office?
Murphy
Yes. Because marketing is for sales and customer service, so at that time, things like SEO search engine optimization and the purchase of some advertising space were basically handled by our department. I would go to the backend every day to check, for example, the conversion rate of click-through ads, the cost of conversion, including the channels (paths) for these user conversions, which web page TA will go through to which web page, and then form a conversion. Finally, users come to our client customer service for consultation. When they consult, they will ask some questions, what are their doubts and concerns, what are their needs, and these data actually need to be analyzed every day. In fact, in the end, we still have to calculate how much advertising fees I should invest, how much manpower I should invest, and to what extent my bidding ranking or my optimization ranking can bring what kind of actual user conversion to the company, a specific input-output ratio, in fact, all work is related to data.
On the other hand, marketing also involves the issue of publicity. How do you communicate with an advertising company or a design company to promote your brand, or to introduce the quality of the services your company provides, etc.? These things are actually what we do when we connect with the suppliers. You must convey these key points, or let the suppliers understand you, your industry, and the characteristics behind your company. So everything I’m doing now, including what I’m doing on Twitter, is quite similar to my previous job. At least the experience and abilities accumulated in my previous job can be put to use.
FC
I see. This is quite interesting. I like to talk about the background first, because many of your decisions today are still closely related to your past accumulation. I just mentioned effective execution, closed loop, and replicability. I understand that these three should be the basic principles of your entire trading strategy. How did you come up with these three? Why these three?
Murphy
First of all, effective execution is very important. Because I have found that many trading systems vary from person to person. Some people may be very suitable for such a trading system, but when it comes to me, I feel that I cannot execute it because I may be disturbed by some emotions or data sources. In short, I cannot execute it.
If it is replicable, it means that if I tell my colleagues in my company or a friend of mine, he can continue my entire trading ideas or some investment methodologies and benefit from them. He can copy my entire trading model to himself and form a closed loop. In fact, it is very simple, because all our theories must explain the cause and effect relationship. You can't say that you think it should be like this, so it is like this. So I think these are the three most important points in my entire investment method.
FC
I see. You just said that some strategies in effective execution are not suitable for you. You must have tried them before, such as contracts or something. On the other hand, what kind of personality do you think you have? What kind of trading strategy are you pursuing that suits you?
Murphy
In fact, I think my personality is more cautious and introverted. Just like I said when I retweeted your tweet last time, I am not a person who likes to show up in public. In fact, every day in my private message background, there are often some project parties or friends inviting me to participate in some spaces. In fact, I always refuse in a tactful way. So for myself, for my entire transaction, I think I am not good at and not suitable for this kind of high-frequency trading, or this kind of contract, long-short game trading. I prefer to use time to exchange space, or use a data that I am more certain of to come to a conclusion and buy. In layman's terms, after I buy it, even if it falls, or my expectations are not like this, for example, it falls by 20% or 30%, I can still sleep at night, and go out with friends in the morning, without having to stare at the market every day. I prefer this way of trading, which I think I can effectively execute. There are several data or indicators that I think are worthy of reference. When such a signal appears, or an intervention point appears, I will buy part of the position. I usually manage the position and allocate the cycle of my funds in an environment that I am relatively comfortable with. I think this is effective execution.
FC
Let's talk about trading strategies. For example, how much capital can you afford for your current trading strategy? What is your current expected return? What is the life cycle of your capital? What is the maximum drawdown you can accept? For example, if the stock price drops by 20%, what will you do? Will you increase or reduce your position?
Murphy
First of all, I want to say that for each of us, your capital cost or source of capital is different, or your own investment demands are also different. For me personally, because I made a certain profit from the last round of investment, some friends who know me know that we also did mining in the last round, so the cost of obtaining BTC chips is relatively cheap, about a few thousand dollars. After escaping the top in the last round, I actually took out some of my funds. Because there was an incident at that time, Binance was rumored to close the OTC channel, and it might have to connect to a third-party channel in the future. I thought that if Binance was closed in the future, I felt that it would be more troublesome to withdraw funds, so I took out some of them. The funds I have now are actually very low-cost, or zero-cost, for me, (because) full profit. To put it in the most extreme way, even if all these funds are zero, it will not affect my life. But when we chat with some friends privately, or when they send me private messages in the background, I understand that some of them may have funds collected from their lives, or even some borrowed funds, or these funds may not be of much use to them now, but they will use them to get married or buy a house in a few days or a period of time, and the nature of the funds is different. The different attributes of your funds determine your different investment methods, your expected returns, and your funding cycles. So I am just speaking from my own personal perspective. I feel very comfortable with my funds (situation), plus position management and a cyclical trading strategy, but if it is other friends, you have to combine your own situation, your own risk tolerance and your own funding costs to develop a method that makes you feel comfortable.
The expected rate of return is actually okay for me. When I built a position in this bear market, I set a target of 300% for myself, which is between 200% and 300%. In fact, it has now far exceeded 200%, and it should have reached 300. So I think in the next cycle, for me, even if this bull market is not as high as we expected, we may expect 150,000, 120,000 or 100,000. Assuming it is not that high, I am actually very satisfied with 80,000 to 90,000, which has reached my expected rate of return. Other friends must see what the specific cost of entry is.
As for the acceptable risk, those who have been reading my tweets should know that I never talk about altcoins, or almost never talk about altcoins. It doesn’t mean that I don’t buy altcoins, but my main positions are all in mainstream coins, BTC, ETH and BNB. For BTC and ETH, I only look at the cycle without setting a stop loss. In the bull market cycle, in my opinion, a 20%-30% pullback is very normal, just like the pullback in the past two days, which should not have reached 30%, (only) more than 20%. In the previous cycle, I remember that there were 6 or 8 times when the pullback exceeded 30%, so if you set the stop loss position very small, you will keep stopping the loss. After the stop loss is completed, in my own experience, once you sell it, you basically won’t buy it again, because you won’t be able to buy it. For example, after you sold at 65,000, you would not buy when it drops to 63,000. You would think whether it will drop to 60,000, and then buy. When it drops to 60,000, you will find that many people will predict that it will drop to more than 30,000 or 40,000 in this cycle. Why don’t I buy it when it drops to 40,000 or 50,000? In my experience, once you sell your chips easily under such uncertainty, it will be difficult for you to get on the train again. As for altcoins, I buy relatively few. Generally, I may use 10% of my total position to buy some altcoins, but my level of buying altcoins is very poor. Sometimes after making money, because sometimes I only buy a little money, it doesn’t matter if I lose money, so I feel that it seems that making one or two times the money is not enough to meet my expectations, and then it is a roller coaster. I usually set a stop loss of 20% for altcoins. If it falls below 20%, I will close my position first and see what happens later, regardless of whether there will be another bull market or a possibility of a rebound. But I probably won’t buy it again. I accept this 20% loss because it is a problem of my own cognition, and I have to pay for my cognition.
Regarding the capital cycle, because my funds are all my own funds, there is no borrowing or leverage, so I always buy part of the funds at a relative bottom (not the absolute bottom) of a bear market cycle. I usually buy 30% first, and then look for opportunities to buy slowly. I will gradually sell it when I think that the bull market cycle is almost over based on the entire chain data, including all aspects of the macro level, or it is a relatively high top range. This is probably the situation.
FC
I understand. So you shouldn’t do band trading.
Murphy
Yes, if I don’t do the band, I won’t be able to do the band well.
FC
We started talking about this two months ago. I think from the data, we couldn’t see the top at 78,000 the first time, but you should be able to see the top at the second stage. In fact, I also belong to buy and hold. I feel that I can’t sleep after selling. I don’t know when I should buy it again, so I don’t really want to earn that profit.
We usually talk about four parts. We just talked about the background and the entire trading growth experience. We may elaborate on the investment strategy and finally talk about personal growth. So there is one last question about the trading growth experience. You said that you are doing marketing and may deal with data more. How did you change from marketing to data analysis? Because there are many schools of thought that you can do, you can play with K-line, or you can look at altcoins, because there are many tools that can look at data, why do you choose on-chain data for macro analysis? What is this process like?
Murphy
It's like this. Actually, there were two peaks in the last cycle. The first round reached 63,000, and the second round reached 69,000. In fact, I couldn't help it after the first round reached 63,000. I thought that if I didn't sell at this position, the later ones would probably be about the same. So when the price started to fall from 63,000 to 52,000, I started selling, and I sold it when it reached 48,000. This was the first time. After it rose to 69,000, I began to regret it and wondered why I sold it at 48,000 and didn’t buy it back when it fell to 40,000. When it rose to 69,000 in those days, many people felt that the most profound point of view in my mind was that the main force had finally allowed BTC to reach a new high after such a long period of washing. The last time it was at 63,000, how could it have peaked at 69,000 this time? This round of cycle must exceed 100,000. I remember there were a lot of such views, so I was very anxious at the time, wondering why I was so stupid, why I sold it at an average cost of more than 50,000, why didn’t I buy it back at more than 40,000.
I analyzed it myself later. In fact, this was just a mentality of hearsay and following the crowd. It was not the most correct way to invest. I think I need to find a trading strategy that is within my own cognition and has a basis. When doing any operation, whether buying or selling, there must be a basis. This basis may be what you think or think is right. Maybe this thing may be right or wrong. It doesn’t matter. You can review it later, summarize it, and improve it. In short, you have to find a basis. Only with a basis can you effectively execute it. This is what I think. So later I also felt that I should try my best to avoid emotional interference, or the interference of noise in the market. Of course, emotional fluctuations are human nature, and the seven emotions and six desires are not something that mortals can restrain. But can we quantify emotions with data? By observing the changes in data, we can really do it. When others are greedy, I am afraid, and when others are afraid, I am greedy.
In fact, the data I see every day is far more than what I share. I can't put all these indicators on Twitter. I can't write them one by one, but I will put the most important ones or the ones I think are the most critical, such as sentiment indicators, and tell you why this indicator is a quantitative data of sentiment, what is its principle, and how we use these indicators to judge the market sentiment. When this sentiment is very close, it has been the case in history and it is still the case now, when it is very close to the market's emotional freezing point, or when it is a limit value, we often cannot let the market's sentiment influence our emotions, we have to do the opposite, against human nature.
In fact, there are many times when some friends feel that the analysis of on-chain data is a matter of carving a boat to find a sword. What is the essence of carving a boat to find a sword? This is how I understand it. The essence of carving a boat to find a sword is to ignore changes. You cannot realize the changes in the environment and conditions. You stick to the rules to look at some data and only pay attention to formal marks and signals. A certain year in history is equivalent to the present, and this time it also has such a mark, so it is possible that (the same situation will happen) next. This is carving a boat to find a sword, ignoring the logic behind the data and its actual situation.
Let me give you an example. When I tweeted two days ago, including when we communicated the other day, I said that there is a three-line-in-one indicator. I have always felt that this indicator is a very standard metaphysical indicator, or a kind of data that is carved on a boat. Because it does not consider the external environment of each cycle, what specific changes have taken place, for example, there is an ETF passed in this round, the macro conditions of the previous round may be different from the current macro conditions, maybe now the macro is tightening, and that round may be macro loose, but the last round also passed a BTC futures ETF, that is, it does not care about environmental changes, just the MVRV data after each round of halving, it is very simple to overlap it together to see if it is a trend of resonance at the same frequency. But let's say the other way around, the three-line-in-one is a data that is carved on a boat, but the composition of the three-line-in-one is 3 MVRV data or 4 MVRV data. The MVRV data is not a data that is carved on a boat, it has objective logic, for example, it considers the ratio of BTC's circulating market value to the realized market value. Everyone knows the circulating market value, I don't need to explain it any more, what is the realized market value? When BTC moved last time, the price it generated, plus the price of all the BTC that moved last time, is the realized market value. What does this ratio mean? The current liquid market value is calculated based on 60,000, but if I have a BTC, the last time it moved was 50,000, in fact, its realized market value is 50,000, and the person who took over took it from 50,000, his cost was 50,000, and now it is 60,000, so the gap is 10,000, and this 10,000 is an unrealized market value. So when the MVRV value, the larger the ratio, the larger its bubble is, and the easier it is to cause profit selling. So many professional institutions will say that if MVRV reaches 3, you can throw it away, and when it is lower than 1, you can sell your kidney. Why? Because the smaller the ratio, it means that it is seriously undervalued and has great investment value. What is the logic of being lower than 1? Lower than 1 is the average cost of BTC obtained by everyone, and its unrealized profit is a loss, so it will be lower than 1. When most people are losing money, do you think (buying) can be done?I think it can be done.
After you understand this principle, on this basis, we can add some algorithm variables, evolve it into various different usage methods, and change it flexibly. This is not a one-size-fits-all approach. Our data is actually diverse, including macro data, K-line data, and on-chain data. The key is to see how you use it, how to interpret it, and whether you combine it with each other on the basis of understanding the principle. Some time ago, I saw many people on Twitter who were opposed to the logic of using macro data to guide BTC prices. They felt that it was impossible to follow the macro, and it was unnecessary and a waste of time to study the macro. But I think this is still a question of combination. How to combine? Even if you have a very good theoretical foundation in K-line, or have practical experience, if you combine macro data, it will be very helpful for your trading, because only by combining multiple factors can you draw an objectively high-certainty conclusion. So I summarized my own experience in a sentence in my tweet before. I think this is the current relationship. Macro data dominates expectations, expectations change emotions, and emotions will affect the supply and demand relationship. Supply and demand ultimately determine the price of our BTC. So whether we use macro information or K-line technical theory, we often analyze expectations. Through the observation of some data on the chain, we actually observe the changes in the supply and demand of chips, which are finally reflected in the price. In fact, it is a matter of probability. No one can predict the market 100%, because you can't travel from the future. It can only be said that under a certain objective environment or objective conditions, the probability of my conclusion is greater than the probability of no such situation. So I usually observe and analyze the on-chain data, mainly trying to find the factors and logic behind the data that can reflect the supply and demand relationship, so as to judge the trend that we may form next, or the conversion of this cycle that may occur. The last point to mention is that all the things mentioned above are only for Bitcoin and will not involve any copycats.
FC
Understand. Can you describe how you use the on-chain data now through your own story, such as how you bought the bottom at that time and what indicators you used?
Murphy
My real experience is like this. Because I started to study on-chain data in 2022, it happened that BTC dropped from 69,000 to 50,000, stopped for a while, and then dropped to 40,000. In fact, I started to study on-chain data at that time. At that time, I judged the bottom like this: At that time, there was not as much research as it is now, and the research was so in-depth. Many indicators used were very simple. This is why I wrote some tweets some time ago, and the title was [Simple indicators have magical uses]. Friends who have read my Twitter should know that sometimes you don’t actually need to care about how complicated the algorithm of this indicator is, or how dazzling its logic sounds. In my actual experience, there are many indicators that you can find for free that are very useful and very useful. You just need to combine them, and don’t use this single indicator.
For example, when I was bottom-fishing last time, the first indicator I looked at was called CVDD. It is an algorithm for the consumption index, and the numerator is a data of coin-day destruction. For example, if you hold two BTC for three days, you move them after three days. Once you move, the value of your coin-day destruction will be reset to zero. How to reset it to zero? You hold two BTC for three days, 2×3 is 6, and this 6 will be reset to zero. Its denominator is this multiplied by the price of BTC, and the numerator is the number of days you multiply by, multiplied by a calibration value. This calibration value is 6 million. In fact, I don’t know why it is 6 million, but it is just that 6 million is used for calibration, and the price trend of CVDD will form a very interesting trend, and it will never retreat. For example, the price of CVDD today must be higher than the price of CVDD yesterday, and tomorrow must be higher than today. What are the benefits of this? For the decline of the entire market price, that is, to build the bottom of the market in a bear market, it is a gradually rising lower limit that is very useful. So when I looked at CVDD, BTC should be at 19,000, and CVDD was more than 14,000, so many friends said that this round should reach 12,000 or 8,000. If you have experienced the previous round, you should know that what I said was true. I used CVDD to calculate the profit and loss of data at that time, because in the entire history of BTC, it makes sense to use a calibration value of 6 million. Once the calibration value of 6 million is used, the data will find that every deepest drop in history will not fall below CVDD, and CVDD has always been upward, it does not retrace. So when I saw that day that CVDD was 14,000, for example, if I thought that this data was a reference, no matter how much BTC fell in this round of bear market, it would not fall to 14,000. Suppose it is 19,000 now, the difference between 19,000 and 14,000 is 5,000 US dollars, but from the depth of 19,000 at that time, I think that in the next bull market of BTC, although it may not exceed the high point of 69,000 in the previous round, it should not be a big problem to reach 40,000 or 50,000. Assuming that my average cost is 19,000, about 20,000, I have doubled it to 40,000. This profit and loss ratio is acceptable to me, so at this time I think I can buy it.
But whether to buy or not, I have to look at other aspects, such as the data of RP and BP. RP is the realized price, and BP is the balance price. I often mention RP in my tweets. We can simply think of it as the average cost of everyone's turnover on the chain. This does not include the turnover of exchanges, that is, the turnover on the chain. Balance Price is a cost that removes the time value. For example, if you buy BTC, you use 100,000 yuan to buy BTC. Is there a cost for this 100,000 yuan? There is definitely a cost, because you still have interest if you put 100,000 yuan in the bank. If you take out a loan of 100,000 yuan, your loan also has a cost. So every sum of money has a time cost. Balance price actually removes this time cost, which is a market fair price. In a bear market, when the price of BTC falls below RP and consolidates in the channel between BP and RP, I think this is a very good buying node. This time will be very long. You don't need to make this decision in one or two days. He may give you several months.
Another indicator is PSIP (Person Supply in Profit). I often say it on Twitter. The essence of this indicator is the proportion of profitable BTC chips in the circulating chips. If the proportion of profitable chips is high, of course everyone will have FOMO and be very happy. If this proportion is low, everyone will be very scared. You can look at the historical data. When PSIP is less than 50%, it is mostly a very extreme bottom of the bear market. Why do I say that? 50% of all the chips on the chain are losing money. Among the 50%, we have to exclude the lost chips, those long-term ones, such as those that have been held for seven or eight years without moving, and exclude the one or two million BTC of these chips. The actual number less than 50% is far more than 50%, and more than half of the people are losing money. What are you afraid of buying at this time?
Another one is the NUPL data of LTH (Long Time Holder), which is also very effective and very simple. It uses different colors, red, yellow, blue, and green. When it becomes red, it means that long-term holders have surrendered. What should we worry about when we buy at this time? When we talk about long-term holders, the MVRV of STH (Short Time Holder) is also a very important data. For example, when we pull back during the rise in the bull market, we look for opportunities to get on the train in this rhythm. I basically let everyone look at the MVRV of STH, because the price of the entire BTC in the bull market is determined by short-term holders. Some time ago, you can see that there is actually no selling by long-term holders, or there is no profit-taking and price sensitivity. It is the short-term demanders who determine the price, so at this time we have to look at the MVRV of STH. But when looking for the bottom of the bear market, we do the opposite. We should not look at the MVRV of STH, because this price reference is not very meaningful. We should look at the MVRV of long-term holdings. If the MVRV data of long-term holders is less than 1, it means that long-term holders, those who hold for more than 155 days, are the diamond hands of the market. They may be whales or some investment teams. Their ability to conduct research is far greater than that of our retail investors. Even they are in an average loss state. Do you think this is the bottom of the market? I think it is likely to be.
In addition, because I have mined for several years before, my understanding of the mining cost of miners may be different from that of some friends who have not mined. Because I can feel very empathetically that when the price is low to a certain extent, miners are in a state of torment every day, so I usually use a relatively reference-worthy price model to calculate (the cost of mining) from the perspective of the cost of mining for miners. Another way is to estimate the deviation between the average block time interval and the target in 14 days through the mining pulse index. Why 14 days? Because 14 days is a difficulty adjustment period. For example, the target of BTC is to produce a block in 600 seconds. You add or subtract 600 seconds from the average block rate of 14 days. If it is a positive value, it means that the actual block time is slower than the target time. The reason for the slowness is that some miners have shut down and withdrawn their computing power. We have done this before. The amount of BTC mined every day is not enough to pay my electricity bill after selling it. Why should I run this machine to mine? Wouldn’t it be better if I turned off the machine and bought it directly in the secondary market? So in this case, it will shut down, resulting in a longer block generation time. Of course, there are far more than these, I just give an example.
In fact, it is to follow the above five directions to find the market's severely undervalued range. If friends like or are interested, you can try it in the next cycle, which may be in 2025 or 2026. Use this method to find and test it. I believe that the method I just mentioned has an 80 to 90 percent probability of helping you buy at the relatively bottom of the bear market. Of course, it is only a relative bottom.
Then let's talk about how to escape the top. Actually, it's like this. In 2021, in the range of 52,000 to 48,000, I escaped the top mostly by luck. The money I made in the last cycle was the kind of money I made by luck, so I don't want to spend it by my ability in this cycle. Because I had a lot of chips dug up at the time, the cost was relatively low. As for whether it was sold at 60,000, 55,000, or 48,000, it actually didn't affect me much. I didn't have such a great psychological pressure, and I didn't have such high requirements for escaping the top and pursuing an absolute high point. It was nothing more than making less money. At that time, I also read a lot of news, both domestic and foreign, and then read other people's analysis. I even joined some teachers' fee groups at the time. I didn't talk in the group. I just watched the teacher say this point every day. When it was almost there, I started selling. Anyway, it was just hearsay. But I believe that I will definitely not do this in this round, because I will completely follow my own set of data analysis theories.
FC
Speaking of escaping the top, you must think that now is the correction stage of this cycle because the bull market has not ended. Then how can we use three indicators to judge whether it is likely to be in the top range?
Murphy
When we are trying to escape the top, it is really not enough to refer to three (data indicators), because these three indicators cannot cover all the attributes of the data. There are many types of data attributes, including emotional, capital, supply and demand, and metaphysical. You cannot cover all of them with three indicators. If I have to summarize, I think there are three that are more important to me.
The first one is the MVRV mentioned earlier. Some of the free indicators that you see are just a general MVRV, but there are two subcategories in it. One is STH, which is the MVRV of short-term holders, and the other is LTH, which is the MVRV of long-term holders. The two are used differently. But if you must look at the free MVRV, the simplest way is to sell when the MVRV is higher than 3. You don’t have to sell all of it. You have to formulate a trading strategy. When it reaches 3, 3.2, 3.5, and then falls back from 3.5 to 3.2, 3.1, 3, you have to sell all of it. In terms of such an inverted smile curve, it is an escape from the top. When we build a position, we have to make a smile curve, which is a smile that goes along. When you escape the top, it is an inverted MVRV. I explained the logic of MVRV before. It is a question of measuring the amount of unrealized profits, that is, the amount of bubbles. The bubble has reached 300%, and you don’t sell it. How much do you think it can reach? Can it still go up to the sky? According to my observation, except for the first round of bull market, I forgot whether MVRV reached 5 or 6. That was an outrageous time, because the market value of BTC was small at that time, and the number of participants was small. It was played by some geeks, not capital. At the current trillion-dollar level, basically MVRV is from 2 to 3, just like now it is 2. Many friends said that this time it was expected to reach 150,000, but now it is so slow to pass 70,000, because it is so big, it has reached the level of an aircraft carrier. This is an important reference.
The second thing to refer to is the URPD data, which is the structural data of the chips on the chain. I want to emphasize that the URPD data is very controversial. For example, I and Ni Da often use this data for analysis, but many friends think that this data is useless because it can neither judge long nor short, nor can it determine whether it will fall below or break through. This data itself is not used to look at long and short data. What is it used to look at? Let me give you an example. Let's look at the K-line data of the exchange. You can only see how much its trading volume is at a certain price, or how much it is on a certain day. You can't see how many chips it has in a certain price range. But URPD can see it. It can tell us how many chips have changed hands in each price segment, in a certain price range. Such a turnover range, we think it is a consensus range. When your chips accumulate more, the consensus will be stronger. When the consensus is strong, it will produce an effect. Ni Da thinks it is a support effect, but I think it is a resistance and stickiness effect. I won't talk about the resistance. When it breaks upward from below, there will be a sell-off, which will make it difficult for the price to break through this range. When it breaks downward from above, it will have stickiness. Stickiness does not mean that it cannot break through. It can break through. For example, its stickiness is now in the range of 60,000 to 64,000 and 64,000-69,000, two C1 and C2 ranges, but it ran to more than 50,000 some time ago. Didn't it break through? But when you look at the two ranges of 63,000-64,000 and 68,000-69,000, its chips did not become much less, that is to say, at more than 50,000, it did not completely form a large amount of price consensus, form a turnover, and digest the high chips above 64,000. If it is digested, the previous stickiness will be gone, and it will start from the new chip range. But what does it mean if it is not digested? It will not stay here for long, and it will go back soon. If you don’t believe this data, you can go and read a tweet I wrote called “Looking at the Evolution of the BTC Cycle from a God’s Perspective.” I compiled the data changes of URPD for each month of the previous cycle, and it does indeed have such a condition.
The third data that needs attention is the supply and demand relationship. In the entire BTC cycle, its supply side is actually LTH, the long-term holder, and STH short-term holders are the demand side. From the bear market to the bull market, long-term holders keep distributing their chips to short-term holders. From the top of the bull market to the bear market, short-term holders keep cutting their losses and return their chips. In each cycle, such a cycle can be clearly seen on the chain, over and over again. So when we haven't seen LTH being able to take a profit or leave the market in this cycle, I think it has not yet reached the bull market, but on the other hand, long-term holders have already started selling, or they have almost sold it, like the last time when it was 63,000-69,000, it was very obvious that LTH had almost sold it. It has started selling since the 63,000 wave, including in the previous round. LTH has also started selling since the bottom. So when the supply and demand relationship changes, we must pay attention.
FC
In fact, I like the third indicator very much. From the perspective of data, we can see the difference between the trading styles of retail investors and major players. What is chasing up and selling down? I think this is very obvious. I remember it very clearly. When it was 20,000, some of us said that it would reach 12,000. I think there is a kind of thinking that we must not have, called the magic number. We must not be obsessed with numbers, for example, some people are obsessed with integers. I think this is a big problem, and everyone must pay attention to it.
Murphy
Yes.
FC
I actually want to ask a question: How did you learn? What is your learning idea and path?
Murphy
First of all, you need to gather all the scattered information, including some foreign on-chain data analysts. There may not be many people doing this in China. For example, I and Brother Panda (Twitter@0xCryptoChan) are mainly engaged in this area, but there are many on-chain data analysts abroad. At the beginning, I actually used some of their analysis, but they would not explain it so systematically. They would talk about this today and that tomorrow. I would take the data and take notes. After taking notes, I would analyze the phenomenon he talked about and what his logic was. I would create it according to his algorithm. If I felt there was something wrong, I would slightly adjust the parameters of the algorithm or something like that. In fact, it is a process of accumulation from little to more. Later, I found that my brain was not enough after there were more. I couldn’t remember so many complex indicators. Some may be the top, some are to judge the bottom, and some are to judge the trend cycle. What should I do? I will make an Excel table, record the name, source, algorithm, and function of the data in each column, and add another column (indicator classification) after this table. This is the sentiment indicator, this is the indicator for looking at the cycle and trend, this is for looking at the top, and this is for looking at the bottom. The rest is very simple. For example, my worksheet should have more than 300 rows now, which means there are more than 300 rows of indicators as a reference. Excel has a filtering function. For example, we can now remove the indicators at the bottom and keep the indicators at the top and trend or sentiment. Of course, we don’t need to look at the top now, because we haven’t reached the top yet. Now we basically look at how long the trend cycle will last, where we are now, and how long I may need to endure. This is a question that everyone is more concerned about. The second is the current sentiment. What kind of state is the data surface that it reflects? Are we really going to enter a cycle of bull market turning into bear market? Is the bull market over? Slowly you accumulate, and it is actually like this. If you want to learn this data, it is very simple. You just need to write down all the indicators I shared on Twitter one by one, put them into Excel and list them. Then, match and mark them one by one. After a long period of accumulation, there will definitely be results.
FC
I think this is really practical. First find a teacher, then classify. Then, will you backtest? For example, to see if this indicator is accurate, will you combine it with K-line or cycle to see if this indicator is accurate?
Murphy
Backtesting is a must, because every time you make a judgment, you cannot guarantee that it is 100% correct. Some of the conclusions I came to some time ago were also wrong. For example, after the ETF passed the pullback, I wrote a tweet saying that we can still see BTC starting with 3. Later, it did reach 39,000, but in the analysis I wrote at that time, I felt that 39,000 was not enough, because I believe that there must be a deep pullback in every bull market, and this deep pullback must be at least 30%, but there has never been a deep pullback before, and it has been a few percent or so. So I think this is a good opportunity. After a one-time pullback, the next one will be a very high amplitude, but I made a wrong judgment at that time. Some friends may see my tweet at that time and miss such a good opportunity to get on board.
FC
Why do you think you were wrong at the time? Was it because the data told you that it might not be the case, but you were still obsessed with it?
Murphy
No, it’s because the data at that time was very difficult to judge. When is the on-chain data useless? It’s when you judge whether it is a long or short position in a very short period of time, or where it can fall or where it can rise. The accuracy of its indicators is very poor, but if you use this data to look at trends and cycles, it is very effective. So you can’t use a cannon to kill a mosquito, that’s probably what it means.
FC
This is good, and it has answered our next question, which is when will your trading strategy fail? I understand that it should be based on days, months, or weeks.
Murphy
Yes, it is invalid to judge short-term rise and fall, and it is also invalid to use this thing to make contracts, or to predict what the future top price will be, when the bottom price will begin to appear, all of these are invalid and cannot be done.
FC
I understand. Then why can’t copycats use on-chain data analysis?
Murphy
It is like this. The characteristic of BTC is the structure of UTXO, which is the unspent transaction output. This structure has a characteristic, that is, it has a timestamp function. You can use UTXO to generate the time point when the unspent transaction output is generated, and record the dollar value of BTC at this time point. Through these two data, a lot of changes can be made. For example, count those within 155 days as short-term holders, and those over 155 days as long-term holders. Then, various changes, including URPD, are made through this. However, other altcoins do not have UTXO, and ETH does not have this structure, so it will lead to a lot of on-chain data that cannot be counted, so indicators cannot be used to look at small currencies.
FC
I understand. Where do you think the cycle is now? When or where do you think the top range might appear? I emphasize again that we are not providing investment advice.
Murphy
As for the question of where the cycle is going, from my own point of view, in each round of bull-bear cycle transition, short-term holders will have two large-scale takeovers, which is related to their emotions: the first large-scale takeover often occurs before the halving. Everyone expects the halving to be imminent, and has experienced a very long bear market. Emotions have been suppressed for too long. Many high-level chips were also sold at the bottom of the bear market. Some of the chips were built at the bottom, so this part of short-term holders will have a very large emotional trigger point. Where is the first takeover of this cycle? It was when BTC exceeded 70,000, so this round of cycle is actually different from the previous two cycles. The main reason is that the ETF was passed, which changed the rhythm of the entire cycle. However, from the overall data, the first takeover was not much, nor was it large, so I think there will be another large-scale takeover of STH next, and the takeover is also the distribution of LTH long-term holders. The two correspond. These two time points are the relative top range of the next bull market cycle.
But in this top range, it may be a double top or a triple top. I don’t know whether the third top will be accompanied by the third acceptance and distribution, but there should be at least two times. In terms of the time period, as I said just now, there is no way to fully predict this time period from the on-chain data, but what a coincidence, from the three-line-in-one indicator I released two days ago, it is from March to April next year, because in that time period, except for this cycle, the first three cycles will have a phenomenon during this time period, that is, the MVRV value will be higher than 3. Of course, the first cycle is not only higher than 3, but also higher than 5. The second and third rounds are both higher than 3, sometimes to 3.5, sometimes to 3.2. As I said before, if this happens, we have to consider that it is an escape from the top. From this time period, it should be roughly in March and April next year, but this may not be accurate.
FC
Got it. I think you can follow Mr. Murphy, because he is really sharing unconditionally, and you can see when he says to escape the top. We put the fourth part of personal growth in my text version, so you can follow me. We have one last question, what is your stop doing list?
Murphy
A few summaries:
The first thing is to stop relying on luck. Because the purpose of the coin circle is to make money. Of course, you can make money in other places, but the coin circle is a magical place. It can allow you to quickly accumulate capital through some luck or opportunity, and make you earn multiples that are difficult to find in other traditional industries. So we often see, for example, in this round of ORDI, Mingwen and MEME, there are cases of getting rich overnight. You may buy 2,000 or 5,000 US dollars and make hundreds of thousands or millions of dollars in a flash. There are also people who make millions or even tens of millions through contracts of thousands of dollars. It would be a lie to say that you are not envious. I envy it too, but I don’t think I have the ability. So what I want to avoid is to stop relying on luck. Don’t think that if others can do it, I can do it too. In fact, others can do it, but I can’t. So from this point of view, I only do mainstream coins, or only do what I can understand. The position of the copycat is always controlled in a range that I think is dispensable. It’s okay if I lose money, and it’s best to make money.
The second is to stop being emotional. In fact, there is still a lot of noise in the circle, including the current controversy. There are two controversies. One is whether the bull market is over? Now it has reached 65,000 from 54,000. Will it go to 70,000 to reach a new high, or will it fall back to 50,000 and break a new low? There are all kinds of opinions. I think I should eliminate such noise, think calmly, and face the data I see and the logic behind it objectively.
The third is to stop frequent trading. I myself am not very good at frequent trading. I am not saying that frequent trading cannot make money, because as someone who used to work in a financial services company, I also understand that some futures companies do high-frequency trading, perhaps one order per few seconds, and they also make a lot of money, but this is something I am not good at, so I set a requirement for myself to stop myself from trading frequently.
Fourth, stop relying on a single source of information. When I usually post these tweets, you can also see that I usually don’t use a single indicator as the conclusion of the entire logic. It is possible that this time, due to the length of the tweet, I only posted a single indicator. I will post another data the next day to verify the previous data, and explain the principles of the previous and latter two data. Sometimes I may be lazy and only post the data of this cycle. Some friends replied below and asked Murphy to put up the charts of the previous two cycles. I will immediately make up for it. I think such friends are very good because they are very cautious and have also found out my usual lazy habits. So don’t use a single source of information to make judgments and bases.
The fifth is to stop making decisions before doing research. Other people’s opinions are always for reference only. You should always start from your own research path and make comprehensive considerations.
FC
Thank you. I feel like you have prepared too much. We have two questions that will be included in the text version. The first is about which three people Murphy usually follows, and the second is which trader Murphy likes and what content is better. You can follow Murphy and my Twitter.
I think this is what today should be like overall. There are actually four dimensions that we did not elaborate on just now, namely sentiment, capital, supply and demand, and metaphysics. It would take a long time to elaborate on these four dimensions, so I think we should find an opportunity, when we think we are approaching the top of the bull market, so that we can spend some time to talk about it together.
Murphy
Actually, I have a plan of my own. I think in the future, when I personally feel that the top range has appeared or is about to appear, I will write a series of tweets, for example, called the judgment of the bull market top range. We will verify it again and again, and judge whether we can escape the top at this position, and then escape the top again at the next position. When the bear market comes, we will look back and see whether the position where we escape the top is a relatively high position.
FC
Interesting. Actually, I think your and Ni Da’s Twitter are a record of personal growth, a way to practice your own trading logic. This is really interesting. When I grow up, I will do it with you. This is the end of our conversation today.
