Identifying Cycle Tops & Bottoms
Understanding Price Drawdowns
Price drawdown measures how far an asset has fallen from its all-time high (ATH). A key indicator for identifying market cycles and timing opportunities.
Formula: (Current Price - ATH) / ATH × 100. A 50% drawdown means the asset has declined 50% from its peak.
Key Insight:
Bitcoin drawdowns of 70-85% historically mark cycle bottoms and accumulation opportunities, while 0-20% drawdowns often signal cycle tops and distribution phases.
Key Patterns:
70%+ drawdowns: Cycle bottoms and capitulation. Examples: 2018 (-84%), 2022 (-77%)
0-20% drawdowns: Potential market tops with euphoria and media coverage
30-50% drawdowns: Mid-cycle corrections, not major bottoms
Deep drawdowns coincide with fear and panic selling, while minimal drawdowns occur during greed and FOMO. Use with other indicators and consider dollar-cost averaging rather than timing exact bottoms.
Price Drawdown from ATH
1 Year ROI Analysis
ROI-Based Cycle Analysis
The 1-year ROI measures percentage gain/loss over a rolling 365-day period, helping identify overheated markets and cycle reversal points.
Formula: (Current Price - Price 365 Days Ago) / Price 365 Days Ago × 100. Smooths volatility and reveals cycle trends.
Key Insight:
ROI >300-500% signals overheated conditions and potential tops. Negative ROI periods align with cycle bottoms and accumulation opportunities.
Key ROI Levels:
500%+ ROI: Extreme euphoria. Historical peaks: 2017 (1300%), 2021 (300%)
100-300% ROI: Healthy bull market with sustainable growth potential
Negative ROI: Bear market bottoms. 2018 (-85%), 2022 (-65%) marked entries
Combine ROI with other indicators for market timing. High ROI suggests caution, negative ROI suggests accumulation. Use staged position sizing rather than all-or-nothing approaches.
Understanding Realized Cap
Realized Cap represents the total value of all Bitcoin at the price each coin last moved, providing insight into actual capital flows rather than just market cap speculation.
Unlike market cap (price × supply), Realized Cap weights each coin by its last transaction price, filtering out dormant or lost coins. When Realized Cap rises, it indicates net capital inflow - new money entering Bitcoin. When it flattens or declines, it suggests distribution or selling pressure.
Key Insight:
Steep Realized Cap increases during bear markets often mark smart money accumulation phases. Flattening or declining Realized Cap during bull runs can signal distribution by early investors.
Reading Capital Flow Patterns:
Rising Realized Cap: Net capital inflow - investors buying and moving coins, healthy accumulation
Flattening Realized Cap: Reduced new capital - existing holders holding, potential distribution phase
Declining Realized Cap: Net capital outflow - selling pressure from existing holders, bearish signal
Price vs Realized Cap gap: Large gaps indicate overvaluation (tops) or undervaluation (bottoms)
Cycle Timing Applications:
Bear market accumulation: Rising Realized Cap + falling prices = smart money accumulation phase
Bull market distribution: Flattening Realized Cap + rising prices = early investor profit-taking
Chart Analysis Tips:
Observe the relationship between Bitcoin price (orange line) and Realized Cap (green line). When price trades far above Realized Cap, markets are often overheated. When price approaches or falls below Realized Cap, it typically represents strong value territory and accumulation opportunities.
Realized Cap & Capital Flows
MVRV Statistical Bands
The MVRV ratio (Market Value to Realized Value) compares Bitcoin's current market cap to its realized cap, revealing whether Bitcoin is trading above or below its aggregate cost basis. When MVRV > 1, holders are in profit on average; when MVRV < 1, holders are underwater.
MVRV is calculated as: Market Cap ÷ Realized Cap. A ratio of 2.0 means Bitcoin trades at twice its realized value, indicating significant unrealized profits. Historical MVRV peaks above 3.7 have marked major cycle tops, while values below 1.0 often signal accumulation opportunities.
Rather than using fixed lines at MVRV = 1 or MVRV = 2, statistical bands provide dynamic, data-driven levels that adapt to Bitcoin's evolving market behavior. These bands identify when Bitcoin is statistically overvalued or undervalued relative to its actual historical distribution, not arbitrary round numbers.
The statistical bands are calculated using mean ± 1 standard deviation from historical MVRV ratios. The system provides both all-time (cumulative) and 4-year rolling window calculations, showing how valuation extremes evolve over time.
Key Insight:
Fixed lines like MVRV = 2 ignore Bitcoin's changing market dynamics. Statistical bands automatically adjust as Bitcoin matures - what was extreme in 2017 may be normal in 2024. This adaptive approach provides more accurate signals than static thresholds.
Statistical vs. Fixed Levels:
Upper bands (+1σ): Data-driven overvaluation thresholds that evolve with market maturity, not fixed at arbitrary levels like MVRV = 3
Average line: Historical mean that adapts over time - more accurate than assuming MVRV = 1 is always "fair value"
Lower bands (-1σ): Statistical undervaluation zones based on actual distribution, not static lines
4-year vs All-time: Rolling bands capture market evolution while all-time bands show absolute historical context
Trading Applications:
Use statistical bands for position sizing and risk management. When MVRV approaches upper bands, consider reducing exposure or taking profits. When approaching lower bands, consider increasing allocation. The raw MVRV ratio provides the actual valuation context for these statistical levels.
MVRV Ratio with Statistical Bands
MVRV Z-Score Analysis
Understanding MVRV Z-Score
MVRV Z-Score standardizes the Market Value to Realized Value ratio, identifying when Bitcoin trades at statistical extremes relative to its "fair value" baseline. This metric has accurately predicted major market tops and bottoms throughout Bitcoin's history.
The calculation: Z-Score = (MVRV - Mean) / Standard Deviation. Values above 7 marked major tops (11.1 in 2017, 7.4 in 2021), while values below 0 coincide with cycle bottoms.
Historical Accuracy:
MVRV Z-Score > 7 has marked every major Bitcoin top with remarkable accuracy, preceding 80%+ corrections.
Key Z-Score Zones:
Z-Score > 7: Extreme overvaluation - major top signal
Z-Score 2-7: Overvalued - consider profit-taking
Z-Score < 0: Undervalued - accumulation opportunity
Practical Application:
Use MVRV Z-Score for cycle positioning: Z-Score > 6 suggests reducing exposure, Z-Score < 1 suggests accumulating. Markets can remain extreme longer than expected - use staged position sizing rather than all-or-nothing approaches.