For lovers of technical analysis of the cryptoverse, there are various methods and models used with the intention of predicting price action. With this, we will try to determine if the price of Bitcoin is a bargain according to said models.
It is worth mentioning that the models presented have shown a certain degree of precision. Which allows them to stay current in the interest of analysts.
Likewise, developers continue to observe and analyze the crypto market to try to understand it and explain it with new models that will emerge over time.
Determining if the Bitcoin price is a bargain
This may be the “holy grail” of the cryptoverse. For that reason, it cannot be left to chance or to horse issues.
At the moment, what interests us is to determine based on specialized models when the price of Bitcoin is a bargain.
In this way, have a technical basis and make a decision accordingly.
Of course, not all technical indicators have to coincide at the same time to take action. But in practice we know that the odds will increase in our favor the higher the matching signals.
For this reason, at CriptoTendencia we have prepared this article with the intention of providing guidance on the use of 3 specialized models used to predict the price of Bitcoin.
In the end, the interpretation and corresponding action will always be yours, as well as the gains and losses. Take into account that in trading, there is no 100% reliable model, strategy or indicator.
Difficulty Ribbon
Difficulty Ribbon is a gauge developed by popular bitcoin analyst Willy Woo.
This methodology aims to explain the best time to buy Bitcoin based on the dynamics of mining.
In theory, when mining costs are unprofitable, weaker miners sell more of their coins to stay in business.
When this becomes critical, some miners pull back, causing the hash power and network difficulty to be reduced (tape compression).
Therefore, according to the Willy Woo model, the price of Bitcoin is a bargain when Difficulty Ribbon is compressed (it becomes very thin). Or, when it turns negative. That is, when the dark and strong D200 line crosses above the weaker lines.
At the moment, it can be seen that the drop in the price of Bitcoin in the first half of March caused a subsequent reduction in the difficulty in mining.
This has caused a slight compression on the belt. So according to the model, if it continues like this or a subsequent crossing of lines, it will indicate that we are in an opportunity zone to accumulate Bitcoins.
MVRV, determining if Bitcoin is undervalued or overvalued
MVRV (Market-Value-to-Realized-Value for its acronym in English), is a novel indicator that allows estimating the fair value of a cryptographic asset, such as Bitcoin.
This indicator aims to estimate the ‘fair’ value of an asset using two metrics. Market value and realized value.
By combining both metrics, two historical thresholds are revealed. These thresholds signal the overvaluation and undervaluation of the Bitcoin price.
That is, it serves to locate the price levels where the holders have bought Bitcoin.
For those who want to know when the price of Bitcoin is a bargain, the key condition in terms of this model is given by:
When MVRV <1, holders can identify the best time to continue accumulation. For this, the importance level is when the MVRV is equal to or less than 1.
Since, it is the area where historically, the price of Bitcoin has been a good time for accumulation.
At the time of writing, MVRV ratio has a value of 1.33, while in the fall of March it reached a value of 0.877, something that some took advantage of.
Mayer’s multiple
Mayer’s Multiple (MM), is an indicator widely used in the cryptoverse by different traders as support when analyzing the Bitcoin market.
It is a simple price list, but cleverly provides clear and precise information when using it.
Mayer’s multiple is the current price of Bitcoin divided by its daily moving average of 200.
If the value of MM determines a value less than 1, then we are below 200-MA. If it returns a value greater than 1, then we are above 200-MA.
At the time of writing, Mayer’s Multiple indicates a value of 0.85, which tells us that Bitcoin’s price is below the 200-day moving average.
According to his interpretation:
Therefore, we are in a bullish phase when its value is greater than 1 and in a bearish phase when it is less than 1.
However, according to the official Twitter account that monitors the price of Bitcoin in terms of this model, historically 77.50% of the time, Mayer’s Multiple has been around a ratio equal to 1.45.
That is why, any price that gives you a multiple less than that value can be a very good buying area.
conclusion
Models are metrics that allow us to visualize certain market conditions with the intention of yielding enough information to predict behavior in the price of an asset.
As investors, we must adopt models or indicators that in a way adapt to our trading style.
However, as good as it may seem, we must never forget that regardless of the model or indicator chosen, at some point it will fail. This because none will be a glass sphere, but rather they are supporting tools.
Learn, learn and learn, there is nothing better than that.
