Bitcoin On-Chain Risk

11/25/24 •

Summaries by topic

• English

Bitcoin's on-chain risk metrics have been gradually increasing since late 2022, indicating a potentially heightened risk environment. The speaker discusses various individual on-chain risk components and highlights the importance of developing and adhering to a long-term strategy based on these metrics, recommending buying when risk is low and selling when it's high, to navigate market volatility.

On-chain risk components

• 00:00:55 The speaker explains that on-chain risk is a metric between 0 and 1, with 0 representing low risk and 1 high risk. The presenter breaks down various components like the MVRV Z-score, P multiple, MVVR risk, and market cap to thermo cap risk, all of which provide insights into potential market behavior. Some metrics have been increasing and reaching levels seen in previous market cycles.

Market Value to Realized Value Risk

• 00:01:22 Market Value to Realized Value (MVVR) risk is a key component that is currently a bit elevated. This metric often reaches 0.8-1 during market cycle tops. As such, it's crucial to monitor this specific metric closely. The market cap to thermo cap risk is another related metric that is also starting to increase.

Transaction Fees

• 00:05:03 Bitcoin transaction fees have seen spikes in previous price rallies, yet the current trend is not mirroring last year's pattern. There was an anomaly in 2023, where the spike was ending up. The presenter suggests monitoring transaction fee behavior as they are generally trending higher in a bull cycle but are currently trending lower. The presenter notes that the 'ordinal' stuff may have affected the usefulness of this as a metric.

Navigating Market Volatility

• 00:07:00 The speaker recommends using on-chain risk metrics for making investment decisions, suggesting a simple strategy of buying Bitcoin when the overall risk is below 0.2 and selling when it exceeds 0.8. They emphasize the importance of having a plan and sticking to it, regardless of short-term market fluctuations, to avoid emotional decision-making and improve investment outcomes.