BTC halving: Starting from MA, Z-Score, and Reserve Risk, analyze whether it is a good opportunity to enter the market
At present, most people believe that the halving of Bitcoin will definitely bring about a big bull market. These people are mainly empirical based on the previous two halving trends. As can be seen from the figure below, Bitcoin has been halved twice before, on November 28, 2012 and July 9, 2016. After the first halving, it took 367 days to refresh the highest price in history, and the currency price soared by 9260%. After the second halving, it took 526 days to refresh the highest price in history again, and the currency price soared by 2976%.
image description
Figure 1: Bitcoin volatility cycle
secondary title
Moving Average (MA)
Moving Average (MA) is to average the currency price (index) within a certain period of time, and connect the average values at different times to form an MA, which is used to observe the trend of currency price changes. This indicator is more inclined to believe that historical prices have a stronger influence on future trends. The more common MA indicators are 5 days/10 days; 30 days/60 days; 120 days/240 days MA indicators, which are respectively aimed at short-term, medium-term and long-term investment. In this article, we choose to use the half-cycle of Bitcoin——2-year MA and MA*5 two technical indicators as analysis tools, which mainly shows in which periods buying and selling Bitcoin can generate huge profits.
image description
Atman model (Z-score)
Atman model (Z-score)
The Altman model (Z-score) can show the top of the market with higher precision, and this indicator is more inclined to discover the true value of Bitcoin through OTC transactions. The formula looks like this:
Among them, Market Cap (market value) is expressed as the current price of Bitcoin multiplied by the number of coins in circulation; Realized Cap (fair value) represents the price of each bitcoin at the latest transfer, that is, the latest transfer from one address to another wallet Then all unit prices and quantities are weighted and averaged, and the average is multiplied by the total amount in circulation to obtain the Realized Cap. Realized Cap can usually represent the price of large off-exchange transactions. According to BTC.com data, as of January 3, 2020, the top 0.000349% of addresses held 15.14% of Bitcoin. The bitcoin market is still a highly concentrated market, and the price of large off-market transactions can to a certain extent represent the fair price of bitcoin.
image description
secondary title
Reserve Risk
Reserve Risk (Reserve Risk) gives entry/exit recommendations by measuring risk and return. This indicator tends to attribute the value of Bitcoin to long-term holders. The risk mainly depends on the destruction of currency days. Among them, currency days = the number of bitcoins * the number of days the coins are placed in an address, once the bitcoins are transferred, the currency days will be destroyed. For example, I buy 1 bitcoin and keep it in my wallet for 7 days, then I sell it and when it transfers from my wallet to the new buyer's wallet, the 7 days are destroyed. The larger the coin-day destruction value, it means that the number of long-term Bitcoin holders is decreasing during this period, and the risk of holding Bitcoin is increasing at this time.
image description
image description
We converted the currency-day destruction data into assets held for different periods, and the conversion results are shown in the figure below. It can be more directly reflected that with each round of currency price increase, the number of hoarded currency is also increasing. Among them, the 1d data can be approximately regarded as the daily on-chain transaction volume.
Figure 5: Bitcoin assets with different holding periods
Assets held with different periods are defined as HODL Bank. We believe that reserve risk is inversely proportional to HODL Bank and directly proportional to currency price. That is, the more coins you hoard, the lower the reserve risk; the higher the currency price, the higher the reserve risk. The formula is as follows:
image description
Figure 6: Reserve Risk
Above, we analyzed the current market cycle of Bitcoin from the three technical indicators of moving average (MA), Altman model (Z-score), and reserve risk (Reserve Risk). Obviously, it is currently the second best opportunity to enter this period since the beginning of 2019. However, it should be noted that the time-consuming increase of Bitcoin after halving has a tendency to gradually lengthen. It is estimated that it will take 2022 in this cycle to obtain a large return.
