Do you still not know the position of the market?
Are you anxious and worried about not getting on the bus?
Are you in the car and don’t know whether to sell your coins?
Do you follow various "teachers" and "experts" to give advice on the world?
Please don’t forget that we are Quants, we use data analysis and we speak objectively!
Today I will introduce some of my research on the quantitative analysis of the fundamentals of the cryptocurrency circle. Every week, we will monitor a large number of comprehensive fundamental quantitative indicators, objectively display the current situation of the market, and put forward hypothetical future expectations. We will comprehensively portray the market from macro fundamental data, capital inflows and outflows, exchange data, derivatives and market data, and numerous quantitative indicators (on-chain, miners, etc.). Bitcoin has a strong cyclical and logical reciprocation. Learning from history can find many reference directions. More fundamental data indicators are updated and collected ing~
Macro fundamentals data
1. Industry market value and share
The total market value of cryptocurrencies has reached nearly 2.5 trillion US dollars, and it is still one step away from breaking through the previous high. In the historical context that Bitcoin has already broken through the previous high, if another upward surge brings a breakthrough in the total market value, it can be regarded as the arrival of a new round of systematic bull market in the industry. At the same time, Bitcoin's market share remains at around 50%, which is lower than the 60% in the previous 21-year bull market. In addition, due to the influence of ETFs, Bitcoin is actually the hottest variety in the market recently, and its market share is still steadily declining in each round of bull market. I think that various projects in the crypto industry other than Bitcoin are receiving more attention from funds. If the bull market develops further, Bitcoin's market share may begin to decline, and more funds will flow into various sectors and varieties.
2. Money supply of the world's four major central banks
Let's look at the M2 money supply of the world's four major central banks (the United States, Europe, Japan, and China) to represent the amount of fiat money in the market. Compared with fiat money that can be created in large quantities, Bitcoin has the characteristic of "limited supply". Its creation in 2008 was to help ordinary people resist the depreciating fiat wealth. When the money supply of the four major central banks continues to rise, it may strengthen the market's doubts about the value of fiat money, which is beneficial to the trend of Bitcoin; conversely, when global monetary policy begins to tighten, it is not conducive to the trend of Bitcoin. It can be seen that when Bitcoin reached a new high in this round, the annual increase in the supply of the four major central banks' global currency was 0.94%, which was still low. Therefore, we should think about whether there will be more funds flowing into the industry if the monetary policy does not change. If the money supply surges, Bitcoin will have more room to move upward.
Funds Inflow and Outflow
1. Bitcoin ETF
The Bitcoin ETF has seen a large inflow of funds, with the total ETF assets reaching 56B, which has a strong correlation with the Bitcoin price. We need to continue to monitor the inflow and outflow trends of the ETF.
2. USD Stablecoin
The total market value of USD stablecoins has reached 150B, USDT has steadily ranked first in the market share, and the supply of stablecoins has broken through the historical high, indicating that Bitcoin's historical high has strong support from the US dollar. We need to continue to observe the amount of US dollars, because there is a price only when there is US dollars.
Exchange inflow and outflow data
1. Exchange token reserves
Let's look at the exchange's Bitcoin reserve data, defined as the total amount of tokens held on the exchange address. The total exchange reserve is an indicator of the market's sales potential. As the reserve value continues to rise, for spot trading, high values indicate increased selling pressure. For derivatives trading, high values indicate that there may be high volatility. It can be seen that Bitcoin has reached a new high recently, and the exchange's Bitcoin reserves have been declining, which is still a relatively healthy signal. Normal storage activities will deposit tokens into wallets, and only spot sales or trading behaviors will charge tokens to exchanges. I personally think that it is necessary to monitor the exchange's token reserves at all times, and beware of the exchange's reserves rising and long-term sideways. If it is combined with a price surge or high-level fluctuations, it will show a peak signal.
2. Exchange token inflow and outflow
We further observe the net inflow and outflow of exchanges. Exchange inflow refers to the action of a certain amount of cryptocurrency being deposited into the exchange wallet, while outflow refers to the action of a certain amount of cryptocurrency being withdrawn from the exchange wallet. Exchange net flow is the difference between the BTC flowing into and out of the exchange. An increase in funds flowing into the exchange may mean a sell-off by individual wallets (including whales), indicating selling power. On the other hand, an increase in exchange outflows may mean that traders have increased their HODL positions in order to store the coins in their wallets, indicating buying power. A positive trend in exchange inflows or outflows can indicate an increase in overall exchange activity, which means that more and more users are actively using exchanges to trade. This may mean that trader sentiment is at a bullish moment. It is observed that there have been more outflows from exchanges recently, and both inflows and outflows are relatively stable. We need to monitor the inflow and outflow data at all times and beware of large inflows and outflows that are far beyond the standard deviation of the average amount, which will indicate that important market trading behaviors and turns are slowly occurring.
Derivatives and Market Trading Behavior
1. Perpetual Funding Rate
Funding rate is a fee paid to long or short traders periodically based on the difference between the perpetual contract market and the spot price. Funding rate makes the perpetual contract price close to the index price. All cryptocurrency derivatives exchanges use the funding rate of perpetual contracts, the funding rate for a given period and exchange rate, and the standard unit is a percentage. Funding rate represents the traders' view on the betting position in the perpetual swap market. A positive funding rate means that many traders are bullish and long traders are paying short traders for funding. A negative funding rate means that many traders are bearish and short traders are paying long traders for funding.
As the price rises, the current Bitcoin funding fee is significantly increasing, reaching a peak of 0.1%, showing that the short-term market is hot, but it has slowly declined. In the long run, there is still a gap between the capital fee and the full bull market in 2021. I personally think that from the perspective of capital fee alone, it is far from the long-term top. We need to monitor funding fees at all times and pay attention to the extreme situations of the rates and whether they are close to historical highs. Personally, I think we should pay attention to the deviation between funding fees and prices. That is, the price keeps wavering to new highs, but the peak funding fee cannot surpass the previous high, which shows that the market price Excessive overestimation and insufficient actual support. If this set of circumstances occurs, it will be a signal of the top.
2. Long-short ratio of the entire network
Next, let's look at the long-short ratio of the exchange. The purpose of this data is to allow everyone to see the tendencies of retail investors and large investors. It is well known that the total position value of the long and short sides in the market is equal. The total position value is equal, but the number of holders is different, which means that the side with more holders has a smaller per capita position value, which is mainly retail investors, and the other side is mainly large investors and institutions. When the long-short ratio is large to a certain extent, it means that retail investors tend to be bullish, while institutions and large investors tend to be bearish. Personally, I think this data mainly observes the inconsistency between the overall long-short ratio and the long-short ratio of large investors. At present, it is still relatively stable, with no obvious signals.
V. Quantitative Indicators
MAVR Ratio
Definition: The MVRV-Z score is a relative indicator, which is the Bitcoin "circulating market value" minus the "realized market value", and then standardized by the circulating market value standard. The formula is: MVRV-Z Score = (circulating market value - realized market value) / Standard Deviation (circulating market value) Among them, "realized market value" is based on the value of transactions on the Bitcoin chain, and the sum of the "last moved value" of all Bitcoins on the chain is calculated. Therefore, when the indicator is too high, it means that the Bitcoin market value is overestimated relative to the actual value, which is not good for the Bitcoin price; otherwise, it is underestimated. According to past historical experience, when the indicator is at a historical high, the probability of Bitcoin prices showing a downward trend increases, and the risk of chasing high prices must be noted.
Note: In short, it is used to observe the average cost of chips in the entire network. Generally, the low position below 1 is more concerned. At this time, buying is lower than the chip cost of most people, and there is a price advantage. Generally, the high position around 3 is already very hot, which is a suitable range for short-term chip selling. At present, Bitcoin MVRV has risen a lot and gradually entered the selling range, but there is still a little room, so you can prepare a gradual selling plan. Referring to the historical decay, I personally think it is a good position to start selling around MVRV3.
2. Puell Multiple
Definition: The Peeler multiplier calculates the "ratio of current miner revenue to the average of the past 365 days", where miner revenue is mainly the market value of newly issued Bitcoin (the newly added Bitcoin supply will be obtained by miners) and related transaction fees, which can be used to estimate the miner's income status. The formula is as follows: Peeler multiplier = miner revenue (newly issued Bitcoin market value) / 365-day moving average miner revenue (all denominated in US dollars) The sale of mined Bitcoin is the main revenue of miners, which is used to subsidize the capital investment and electricity costs of mining equipment during the mining process. Therefore, the average miner revenue over the past period of time can be indirectly regarded as the minimum threshold for maintaining the opportunity cost of miners' operations. If the Peeler multiplier is far below 1, it means that the miners' profit growth momentum is insufficient, so the motivation to further expand investment in mining is reduced; on the contrary, if the Peeler multiplier is greater than 1, it means that miners still have the momentum for profit growth, and the motivation to expand investment in mining is increased.
Note: The current Peeler multiplier is relatively high, greater than 1 and close to the historical high. Considering that the extreme values of each bull market decay, we should start considering a gradual selling plan.
3. Transfer fee per transaction USD
Definition: Average fee per transaction, in USD.
Note: It is necessary to pay attention to extreme transfer fees. Every transfer on the chain is meaningful. Extreme transfer fees represent urgent large-scale actions. Historically, they are an important reference for the top. Currently, there are no overly exaggerated single transfer fees.
4. Number of Bitcoin retail and large investor addresses
Definition: From the distribution of addresses holding bitcoins, we can roughly know the trend of bitcoin holdings. We divide retail investors (holding less than 10 bitcoins) and large investors (holding more than 1,000 bitcoins) to calculate the "Bitcoin retail investor/large investor address ratio". When the ratio rises, it means that the number of bitcoins held by retail investors is higher than that of large investors. At the end of the bull market, large investors will distribute their chips to more retail investors, and the upward trend of bitcoin prices will be relatively loose; on the contrary, it means that the rise of bitcoin prices is relatively stable.
Note: Continuous monitoring is required. When large investors continue to distribute chips to retail investors, you can consider gradually withdrawing.
5. Bitcoin mining costs
Definition: Based on the global Bitcoin "electricity consumption" and "daily new issuance", the average cost of all miners to produce each Bitcoin can be estimated. When the Bitcoin price is greater than the production cost and miners are profitable, they may expand mining equipment or have more new miners join, resulting in increased mining difficulty and higher production costs; conversely, when the Bitcoin price is lower than the production cost, miners will reduce their scale or exit, which will reduce mining difficulty and production costs. In the long run, Bitcoin prices and production costs will show a step-by-step trend through market mechanisms, because when there is a gap between prices and costs, miners will join/exit the market, causing prices and costs to converge.
Note: It is necessary to pay attention to the ratio of each Bitcoin mining cost to the market price. This indicator shows a mean reversion state, reflecting the fluctuation and regression of the relative value of the price, which is extremely meaningful for long-term timing! ! ! The ratio fluctuates around 1 and is currently below 1, indicating that the price has begun to be overvalued relative to the value. It is gradually approaching the historical low and you can start to exit.
6. Proportion of long-term dormant coins
Definition: This indicator counts the total proportion of Bitcoins that were last traded more than one year ago. The larger the indicator value, the more Bitcoins are held for the long term, which is beneficial to the cryptocurrency market; conversely, the more Bitcoins are traded, which may reveal that large investors have taken profits, which is unfavorable to the market performance. Based on the experience of the past few Bitcoin bull market cycles, the downward trend of this indicator usually precedes the end of the Bitcoin bull market. When the indicator is at a historical low, it is more likely to be the end of the Bitcoin bull market. Therefore, it can be used as a leading indicator to judge the exit of Bitcoin.
Note: As the bull market progresses, more and more dormant Bitcoins are beginning to recover and trade. It is necessary to pay attention to the stability of the downward trend of this value, showing the characteristics of a top. It has not yet begun to stabilize after the decline.
7. Ratio of long and short coin ages
Definition: The proportion of the number of Bitcoins traded within 3 months counts the last time all Bitcoins were traded, and calculates the proportion of the number of Bitcoins traded within 3 months to the total. The formula is: The most recent transaction was within 3 months. Number of coins/number of all Bitcoins. When the indicator trends upward, it means that a larger share of Bitcoins have been traded in the short-term, and the frequency of changing hands becomes higher, indicating that the market is hot enough; conversely, when the indicator trends downward, then This means that the frequency of short-term changes of hands is reduced. The proportion of the number of Bitcoins that have not been traded for more than 1 year counts the last time all Bitcoins were traded, and calculates the proportion of the number of Bitcoins that have not been traded for more than 1 year to the total number. The formula is: Bitcoin coins whose last transaction was more than 1 year ago Number/Number of all Bitcoins. When the indicator trends upward, it means that the share of Bitcoins that have not been traded for a long time has increased, and the market's willingness to hold on for a long time has increased; when the indicator trends downward, it means that the share of Bitcoins that have not been traded for a long time has decreased, revealing that the original long-term holding Bitcoin chips are loose.
Note: This indicator focuses on the fact that the short-term value rises and then flattens, and the long-term value falls and then flattens, showing the top characteristics. Currently, the long-term declines and the short-term rises, which is generally healthy.
VI. Summary:
To sum up in one sentence, we are currently in the mid-term of the bull market and many indicators are performing well, but we should gradually take into account the overheating situation and start to formulate an exit plan and gradually exit when one or more fundamental quantitative indicators begin to not support the bull market.
Of course, these are just some representatives of fundamental quantitative analysis. I will integrate and collect more fundamental quantitative research systems in the currency circle in the future. Welcome to follow us to discuss and exchange ideas! We are Quant, we use data analysis, we no longer have to believe in all kinds of monsters and demons, we use objectivity to build and correct our expectations!
I’m TradeMan, my public account and Twitter account have the same name. If you have more quantitative ideas, you’re welcome to communicate with me and make progress together.
