Currently, almost all long-term holders (LTH) in the market are in a state of floating profit. Therefore, the ones under financial pressure are short-term holders (STH). STHs are often seen as new demand in the market, so during a bull market cycle, the holding mentality of STHs will largely determine the direction of the market. An important factor affecting STH holding mentality is the average cost basis (STH-RPC).
When the price of BTC pulls back to the STH average cost line and gains support, it indicates that investors are confident about the future and are generally unwilling to exit at a loss. When it rebounds to the cost line but faces resistance, it indicates that investors want to exit after breaking even, reflecting a lack of confidence in the market.
By taking STH-RPC as the central axis and adding ±1 standard deviation, we can obtain a visual range channel, divided into two ranges: High-Band and Low-Band (see Figure 1), which can be used to loosely define the boundary between bull and bear cycles. Specific cases and methods are as follows:
(Figure 1)
Throughout the entire bull market cycle, the channel shows an overall expansion pattern. This is because the upward fluctuations in price during a bull market are greater than downward fluctuations, leading to a larger expansion of the High-Band (the distance between the red line and the blue line) compared to the Low-Band (the distance between the blue line and the yellow line). Therefore, when this channel continues to show an expansion pattern, it means the bull market has not yet ended. However, such observations have a lag.
When the price enters the Low-Band range, which is below the blue line and above the yellow line, it usually indicates the range of a bull market pullback, where a phased bottom consensus is typically formed within this range. For example, the periods from August to October 2023 and from June to October 2024 reflect such situations.
The current range for Low-Band is $72,000-$93,000; the $20,000 price difference indicates that the current channel is very wide, which is a sign that the bull market is entering its later stage. The law of nature is that extremes may reverse, and the channel cannot expand indefinitely; it will inevitably start to contract after reaching a certain point.
We can define the lower boundary of the Low-Band (yellow line) as the dividing line between bull and bear markets. When the price falls below the lower boundary and fails to rebound back above the upper boundary (blue line), there will be a risk of the bull market ending. Since a similar situation has not yet occurred in this cycle so far, we can look back at the data performance from the previous cycle (see Figure 2).
(Figure 2)
We can see that under the influence of the May 19 incident, the price of BTC quickly fell below the lower boundary of Low-Band and continued to consolidate below the yellow line, which is a very dangerous signal. Fortunately, on August 9, 2021, it broke through the Low-Band range again and received effective support on September 12 and September 27 when it tested the upper boundary of Low-Band. As mentioned above, when the price pulls back and gains support at the cost line, it indicates that investors still have confidence in the market and are unwilling to exit at a loss, which also proves that the market has not directly entered a bear market.
On January 28, 2022, BTC's price fell below the lower boundary of Low-Band again and attempted to break through on April 5 but failed, confirming that the market had entered a bear phase. At this time, we can also observe that the channel is showing a contraction pattern. The price of BTC was $47,000, which became the last opportunity to escape.
(Figure 3)
A similar situation occurred during the 2017-2018 cycle (see Figure 3). On February 6, 2018, the price of BTC fell below the lower boundary of Low-Band, signaling danger. Subsequently, attempts to break through on February 19 and March 4 failed, confirming the market had entered a bear cycle.
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In closing:
This article is a continuation of the previous tweet and explains in detail the basis for 'Prediction 3'. Of course, we cannot always rely on 'mysticism'; ultimately, we must return to rigorous data analysis. A comprehensive judgment from multiple perspectives, including holding mentality, market sentiment, and consistency of investor behavior, is required to more accurately grasp market trends.
By this point, you should feel that this data is of great help in loosely defining the transition between bull and bear markets. However, the signals are lagging; by the time we see a complete pattern, the price of BTC has already significantly deviated from the peak. Therefore, it can only serve as the final decision-making basis for 'survival'.
So, are there leading signals? Of course! For instance, the trend decay judgment method we have repeatedly mentioned is a typical leading signal. When signals appeared last December and this January, they did not immediately reflect in the price, giving us ample time to take profits in batches.
After reducing our holdings, we should wait for the right-side signal before considering re-entering the market when the next trend starts. For example, when the price breaks through the Low-Band and the pullback can gain support at the upper band, it indicates that investors' confidence in the market has returned.
Only in this way can you avoid being in a constant state of tension, ready to escape at any moment.
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My sharing is for learning and communication purposes only, not as investment advice.
