Market Cycles Through On-Chain Data
The 4 Phases of Market Cycles
Bitcoin has shown repetitive market cycles centered around the approximately 4-year halving period. Using on-chain data can greatly help determine which phase of the current cycle we're in.
| Phase | Name | Characteristics | Duration (Historical Average) |
|---|---|---|---|
| Phase 1 | Accumulation | Long-term investors buy at low prices, period of disinterest | 6-12 months |
| Phase 2 | Mark-Up | Price rises, interest grows, FOMO begins | 12-18 months |
| Phase 3 | Distribution | Smart money sells, supply transfers to new investors | 3-6 months |
| Phase 4 | Mark-Down | Price falls, panic selling, capitulation | 6-12 months |
History doesn't repeat itself, but it rhymes. Reference past cycle patterns but don't follow them blindly.
Key On-Chain Cycle Indicators
Here we summarize what values each indicator shows at different cycle phases.
MVRV (Market Value to Realized Value)
MVRV is the ratio of Market Cap divided by Realized Cap. It shows whether the market as a whole is in profit or loss on average.
| Cycle Phase | MVRV Range | Interpretation |
|---|---|---|
| Bottom (Accumulation) | 0.7-1.0 | Entire market at loss. Near capitulation completion |
| Early Rally | 1.0-1.5 | Breaking even. Building confidence |
| Full Rally | 1.5-3.0 | Healthy profit zone. Bull market in progress |
| Overheated / Top | 3.0-4.0+ | Excessive unrealized profits. Increasing sell pressure |
NUPL (Net Unrealized Profit/Loss)
NUPL shows the network-wide unrealized profit/loss ratio. It indicates how much profit or loss all coins are at the current price.
| NUPL Range | Label | Cycle Position |
|---|---|---|
< 0 | Capitulation | Near bottom |
| 0-0.25 | Hope | Accumulation to early recovery |
| 0.25-0.50 | Optimism | Early to mid rally |
| 0.50-0.75 | Belief | Mid to late rally |
> 0.75 | Euphoria | Near top |
The point when NUPL transitions from negative to positive has historically been a strong buy signal. Conversely, crossing above 0.75 indicates extreme overheating.
Puell Multiple
The Puell Multiple is the ratio of daily mining revenue to its 365-day moving average. It gauges miner profitability and selling pressure.
| Puell Multiple | Cycle Position | Interpretation |
|---|---|---|
< 0.5 | Bottom | Mining revenue extremely low. Miner capitulation |
| 0.5-1.0 | Accumulation to early rally | Revenue recovering |
| 1.0-4.0 | Rally phase | Healthy mining revenue |
> 4.0 | Top | Mining revenue excess. Incentive for large-scale selling |
HODL Waves
HODL Waves classifies Bitcoin by holding period. Cycle position is determined by changes in long-term vs short-term holder proportions.
| Cycle Phase | Long-term Holding % | Short-term Holding % | Interpretation |
|---|---|---|---|
| Bottom (Accumulation) | Highest (70%+) | Lowest | Smart money accumulation complete |
| Early Rally | High (60-70%) | Low | Long-term holders still holding |
| Late Rally | Decreasing | Increasing | Long-term to short-term transfer beginning |
| Top (Distribution) | Sharp decline | Sharp increase (40%+) | Massive new speculative capital inflow |
| Decline | Increasing again | Decreasing again | Weak hands leaving, strong hands accumulating |
Hashrate and Hash Ribbon
Changes in hashrate and Hash Ribbon (30-day MA vs 60-day MA) show miner capitulation and recovery.
| Signal | Cycle Position |
|---|---|
| Hash Ribbon capitulation starts (30-day < 60-day) | Decline deepening, near bottom |
| Hash Ribbon capitulation ends (30-day > 60-day recross) | Bottom confirmed, buy signal |
| Hashrate all-time high | Network healthy, bullish environment |
Exchange Reserves
Exchange reserves is the total amount of Bitcoin deposited on exchanges.
| Change | Cycle Position | Interpretation |
|---|---|---|
| Sustained decrease | Accumulation to rally | Withdrawals for long-term holding. Supply decreasing |
| Sharp increase | Distribution to decline | Preparation to sell. Supply increasing |
CDD (Coin Days Destroyed)
CDD increases when long-held coins are moved. It detects long-term holder selling activity.
| CDD Level | Cycle Position | Interpretation |
|---|---|---|
| Sustained low | Accumulation | Long-term holders not moving |
| Intermittent spikes | Rally | Some long-term holders taking profits |
| Massive surge | Near top | Long-term holders beginning large-scale selling |
Bottom Signal Checklist
Confidence increases significantly when multiple indicators simultaneously show bottom signals.
| # | Indicator | Bottom Criteria | Check |
|---|---|---|---|
| 1 | MVRV | < 1.0 (market value < realized value) | [ ] |
| 2 | NUPL | < 0 (network-wide loss) | [ ] |
| 3 | Puell Multiple | < 0.5 (mining revenue at bottom) | [ ] |
| 4 | Hash Ribbon | Recovery cross after capitulation | [ ] |
| 5 | Exchange Reserves | Sustained decreasing trend | [ ] |
| 6 | HODL Waves | Long-term holding ratio at maximum | [ ] |
| 7 | Fear & Greed Index | Extreme fear (< 15) | [ ] |
| 8 | Active Addresses | Starting to rebound from bottom range | [ ] |
6 or more conditions met = historically very strong bottom signal. However, all conditions rarely align simultaneously, and 4-5 conditions met can still be considered a meaningful signal.
Top Signal Checklist
| # | Indicator | Top Criteria | Check |
|---|---|---|---|
| 1 | MVRV | > 3.5 (excessive unrealized profits) | [ ] |
| 2 | NUPL | > 0.75 (euphoria zone) | [ ] |
| 3 | Puell Multiple | > 4.0 (mining revenue excess) | [ ] |
| 4 | CDD | Massive surge (long-term holder selling) | [ ] |
| 5 | Exchange Inflows | Sharp increase | [ ] |
| 6 | HODL Waves | Short-term coin ratio surging | [ ] |
| 7 | Fear & Greed Index | Extreme greed (> 85) | [ ] |
| 8 | Stablecoin Dominance | At extreme lows | [ ] |
6 or more conditions met = high probability of approaching cycle top. This is a zone to consider scaling out or increasing cash allocation.
Framework for Determining Current Cycle Position
Rather than relying on single indicators, we present a framework for determining cycle position based on consensus across multiple indicators.
Step-by-Step Verification
Step 1: Establish Macro Position
- Check overall market profit/loss state using MVRV and NUPL.
- MVRV < 1 suggests accumulation phase, MVRV > 3 suggests possible distribution phase.
Step 2: Analyze Supply Structure
- Check long-term/short-term holding ratios using HODL Waves.
- Assess supply pressure using exchange reserves and exchange flows.
Step 3: Check Mining Ecosystem
- Verify network health using hashrate and Hash Ribbon.
- Evaluate miner profitability and selling pressure using Puell Multiple.
Step 4: Check Sentiment Indicators
- Check market sentiment using Fear & Greed Index.
- Observe smart money behavior through whale transaction direction.
Step 5: Check Capital Flows
- Check buying power on standby using stablecoin flows.
- Verify actual usage through network fees and active addresses.
Step 6: Cross-Check with Technical Analysis
- Check moving average alignment (bullish vs bearish).
- Reference RSI overbought/oversold zones.
Comprehensive Assessment Table
| Indicator | Accumulation | Rally | Distribution | Decline |
|---|---|---|---|---|
| MVRV | < 1.0 | 1.0-3.0 | > 3.0 | Falling |
| NUPL | < 0 | 0.25-0.50 | > 0.75 | Near 0 |
| Puell Multiple | < 0.5 | 1.0-4.0 | > 4.0 | Falling |
| HODL Long-term % | Highest | High→Decreasing | Sharp decline | Increasing again |
| Exchange Reserves | Decreasing | Stable to decreasing | Surging | Increasing then stable |
| Hash Ribbon | Capitulation→Recovery | Healthy | Healthy | Entering capitulation |
| Fear & Greed Index | Extreme fear | Neutral to greed | Extreme greed | Fear |
| Stablecoin | High dominance | Increasing inflows | Lowest dominance | Outflows |
Past Cycle Comparison
Key Metrics by Cycle
| Item | 2013 Cycle | 2017 Cycle | 2021 Cycle |
|---|---|---|---|
| Bottom MVRV | ~0.7 | ~0.6 | ~0.75 |
| Top MVRV | ~6.0 | ~4.7 | ~3.8 |
| Bottom to Top Duration | ~24 months | ~36 months | ~24 months |
| Top to Bottom Duration | ~14 months | ~12 months | ~12 months |
| Halving to Top | ~12 months | ~18 months | ~18 months |
A notable trend is that top MVRV has decreased with each successive cycle. This is interpreted as the market maturing and extreme overheating becoming less pronounced.
Caveats
Past Patterns Don't Guarantee the Future
Bitcoin's history is still short. Only 3-4 cycles have been observed, which isn't a statistically significant sample. Reference past patterns but don't treat them as absolute standards.
Cycle Length and Intensity Vary
Each cycle unfolds in its unique macro environment (interest rates, regulations, institutional participation, etc.), so duration and intensity can differ. There's no guarantee that the top will come within 12-18 months after halving.
On-Chain Indicators Alone Are Insufficient
On-chain data only shows activity within the blockchain. External factors like macroeconomics (interest rates, inflation), regulatory environment, and geopolitical risks must also be considered.
Divergence from Altcoins
Most indicators discussed here are Bitcoin-centric. Altcoins may show different cycles and vary significantly based on individual project fundamentals.
Practical Application Tips
- Monthly comprehensive review: Review all indicators monthly using the comprehensive assessment table above to update current cycle position.
- Use the checklists: Print or note the bottom/top signal checklists and check off conditions as they're met.
- Scale in/out: Always execute trades based on cycle assessment in tranches. Never go all-in or all-out at once.
- Maintain long-term perspective: Cycle analysis is suited for medium to long-term (months to years) position management, not short-term trading.
- Majority rule: Base decisions on consensus across multiple indicators, not single indicators. Act when 5 or more of 7-8 indicators point in the same direction.
Summary
Market cycles repeat through 4 phases: accumulation, rally, distribution, and decline. Current position can be determined by synthesizing various on-chain indicators including MVRV, NUPL, Puell Multiple, HODL Waves, Hash Ribbon, exchange reserves, Fear & Greed Index, and stablecoin flows. Use the bottom and top signal checklists to confirm consensus across multiple indicators, avoid blindly following past patterns, and make comprehensive judgments that also consider the macroeconomic environment. Make it a habit to regularly monitor on-chain data provided by BitInsight and systematically check the indicators learned in this series.
This is the final article in the BitInsight On-Chain Analysis Guide series. Start from the beginning: What Is On-Chain Analysis