The best time to place your bet is going to be after a major market meltdown or right at the time when the macro environment is starting to improve.
This is the time where the downside will be severely limited and thus the time where the reward to risk ratio of your position will be reasonably optimal. All we have to do is wait for the signs.
That logic applies to all risk assets.
But for digital assets we can do more than that. On top of the standard metrics we have the luxury to track on-chain activity. We might be able to use those additional data points to detect signs of a recovery.
So what should we be watching for?
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On-chain turning point
When it comes to analytics the main difference between traditional finance and digital assets on the blockchain is of course the open nature of crypto.
By running your own node you can in theory do your own analysis of the data without any intermediary. I'm saying “in theory”, because in practice doing so requires a relatively advanced technical expertise as soon as you go past the basics.
Which is why in most cases analysts use services that have already extracted the relevant data from the blockchain to run their studies. To facilitate the analysis you have to trust that the blockchain data providers are doing a good job at extracting and packaging the data. As far as I’ve noticed they are doing their best.
Still, I have been wanting to develop some open source tools to allow people running advanced analysis directly from their Bitcoin node. But unfortunately this is a big project that I do not have the time to undertake at the moment. If anyone is interested though that would be a great for the space.
But I digress.
What we want to do is:
Look at Bitcoin’s on-chain metrics.
Try to see which patterns are compatible with a recovery.
Compare to the current situation to understand whether or not we are in a recovery phase.
Now there are a lot of different on-chain metrics each coming with its own flavour.
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