The overall logic is to evaluate from two aspects based on on-chain behavior analysis and historical data.

‍🎈Method 1: From the perspective of STH-MVRV (short-term holders)


Short-term holders are important participants in the bull-bear transition, so the performance of STH-MVRV has extremely important reference value in the bull market cycle. As we all know, there were 2 daunting black swan events in the last cycle, which also triggered the#BTCprice to plummet. From the figure below we can see

When the March 12 incident occurred, STH-MVRV was as low as 0.59; when the May 19 incident occurred, STH-MVRV was as low as 0.67. This means that on March 12, STH (short-term holders) suffered an average floating loss of 41%, and on May 19, STH (short-term holders) suffered an average floating loss of 33%. This shows how tragic the market was at that time.

There have also been three impressive market capitulation events in this cycle:
1. On March 10, 2023, Silicon Valley Bank collapsed, and the price of BTC fell from $25,000 to $20,000. During this period, STH-MVRV dropped to a minimum of 1.02;
2. On June 5, 2023, Binance was sued by the SEC. The price of BTC fell from US$30,000 to US$25,000. During this period, STH-MVRV dropped to a low of 0.95.
3. On August 17, 2023, it was reported that SpaceX sold $373 million worth of BTC, triggering long leverage liquidation, during which STH-MVRV dropped to a low of 0.91;

The STH-MVRV values ​​under these special events correspond to the current BTC prices as follows:
STH-MVRV 0.59 = $37,979
STH-MVRV 0.67 = $43,129
STH-MVRV 1.02 = $65,659
STH-MVRV 0.95 = $61,153
STH-MVRV 0.91 = $58,579

 

I wonder if you have noticed that when the market moves out of the bear market bottom range, we can use the performance of STH-MVRV to evaluate the volatility of market sentiment. The depth of the STH-MVRV retracement also reflects the magnitude of the impact of the event that caused the BTC price to fall.

For example, the COVID-19 pandemic in 2020 swept the world, which was a severe test for human life and health. In the face of the survival crisis, no one could think about anything other than life, including investment. The impact of the 3.12 incident on the risk market was equivalent to a magnitude 9 earthquake. I think that in this round of bull market cycle, based on the current situation that can be predicted, the probability of a black swan event of the same level (affecting human survival) occurring again is almost zero. Therefore, it can be inferred that STH-MVRV will not reach 0.59, that is, the price of BTC will not reach $37,979 (can be ignored);

The cause of the 5.19 incident was a panic caused by the Chinese government's withdrawal of mining companies. Although it was also a black swan, it was not to the extent of "life-threatening". Therefore, STH-MVRV reached a minimum of 0.67, which was significantly better than the situation at 3.12. Therefore, I think that if the risk market shock caused by the US economic recession is similar to the level of 5.19, its maximum extent will be similar to that of 5.19. If this is used as a metric, the limit of BTC price retracement in this bull market cycle is around $43,129.

The current market's expectation of the Fed's postponement of interest rate cuts and the possibility of only one rate cut this year should have a similar impact on the crypto market as the "Silicon Valley Bank crash" and "Binance FUD". Therefore, I still maintain the view in the previous long tweet that BTC is more likely to make a wide range of adjustments in the C1 and C2 ranges (i.e., $60,000-64,000 and $66,000-70,000).

As of June 21, STH-MVRV is 0.99. In the bull market, when STH-MVRV is below 1, opportunities usually outweigh risks (only for BTC, not including ALT).

 

🎈Method 2: From the perspective of market fair price algorithm

We first need to introduce a new concept, namely "True Market Fair Price (TMMP)", whose algorithm and principle are as follows:

TMMP =（Realized Cap -Thermocap）/ (Liveliness x Circulating Supply)

There are 3 basic concepts to understand in this formula:


🔸1、Realized Cap：
Each UTXO is valued at the corresponding price at the time of the last move, and the value of all unspent UTXOs in the network is accumulated and summed to obtain the Realized Cap. Because it takes into account the last move time and price of each Bitcoin, it more accurately reflects the total capital investment that actually flows into the BTC market.

🔸2、Thermocap：
Also known as the total security expenditure, it is the sum of the dollar value of all block rewards (including block rewards and transaction fees) received by miners.

🔸3、Liveliness：
is the ratio of Coin Days Destroyed to all Coin Days Generated.
Coin Days (CD): is calculated by multiplying the number of days each Bitcoin is held by its quantity. One Bitcoin held for one day is equal to one Coin Day.
Coin Days Destroyed (CDD): When a Bitcoin is spent, the Coin Days it holds are destroyed. That is, Coin Days Destroyed is the sum of the Coin Days of all spent Bitcoins.

The numerator of the TMMP algorithm is Realized Cap minus Thermocap, which means that the portion of the total capital flowing into the BTC market that is paid to miners is deducted from the general cost basis of the market. The denominator is Liveliness multiplied by the circulating supply, which means the number of all currently active BTTC (spent).

It covers all active chips on the chain, including ETFs, whales, transfers in and out of exchanges, etc., and excludes the miners, and does not include long-term dormant or lost chips. Therefore, using TMMP as the on-chain cost basis for evaluating active investors to buy BTC in the secondary market is one of the most accurate mean reversion models for analysts to seek investors' on-chain holdings.

As shown in the above figure, the blue line is TMMP, and the gray line is the BTC price; whenever the BTC price stands on the blue line, it means that the market has exited the bear market and entered the bull market cycle. Although there will be false breakthroughs before this, after the effective breakthrough is finally formed, the price of BTC will hardly be lower than TMMP, even when the 5.19 black swan event occurred. But 3.12 is the only exception, which makes the price of BTC lower than TMMP again after entering the bull market cycle.

At the end of the bull market, once the BTC price falls below TMMP, it means the bull market is over. In other words, as long as it is still in the bull market cycle, the BTC price will not be lower than TMMP unless a super black swan event (a level that affects human survival) occurs.

As of June 21, the "real market fair price" evaluated by the TMMP model is $44,940. That is to say, even if a black swan event similar to the May 19 incident occurs, the limit of BTC price retracement will be around $44,900. This price is close to the limit value of $43,129 evaluated by STH-MVRV in the previous article, so I think this is a number worth referring to.

To sum up, we can draw some conclusions:
1. Under the premise that no super black swan event occurs, even if BTC is affected by other macro factors, the maximum retracement value will not be lower than 43,000-44,000;
2. The influence of the so-called super black swan must reach a major level that challenges human life (such as a nuclear war between Russia and Ukraine); obviously, "US economic recession" is not enough.
3. Since it is an extreme value, it means “it is unlikely to reach that value” rather than “it may reach that value”.
4. The above analysis period is in the bull market cycle. If the bear market comes, the limit standards of STH-MVRV and TMMP will be invalid.

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