Before analyzing, we must introduce a brand new data concept - the value deviation of active investors, namely AVIV (note! Here AV does not refer to a movie, but to Active Value); it is a newly designed analysis model created by Glassnode engineers, with design principles similar to the famous MVRV. Given that active investors can better represent the supply area of the market, AVIV compares market capitalization with the value of active investors.
The MVRV calculation covers all chips on the chain. If we include the extremely low-cost BTC from the early days, it will certainly pull down the average holding cost. However, AVIV's algorithm only targets the chips of active investors, excluding long-term dormant or lost portions; and when accounting for the overall capital inflow to the market, it deducts the portion paid to miners from general costs. Therefore, AVIV is closer to 'fair value', truly reflecting the scale of unrealized gains/losses for the market holding BTC.
Undoubtedly, the creator of AVIV must be a brilliant expert! But after watching its analysis and explanation, I found that it did not fully interpret the core role and powerful functions of this data; one can only say 'I am a genius, but may not know how to teach'...
Therefore, I want to use my own way to express the application method and underlying logic of this great design based on the experience of related data research.
I. Divergence of the Long Cycle
The chart below is the AVIV data, with the blue line at the top indicating the average holding cost of active investors (i.e., the market fair price); the orange wavy line below is the AVIV value.
Everyone pay attention, the green and red dashed lines I marked in the chart show that in each cycle, the price of BTC keeps rising, but AVIV keeps falling, indicating that AVIV has consistently followed the law of large-scale divergence over the past decade, meaning the peak of AVIV in this cycle will not exceed the peak of the previous cycle.
In addition to the large-scale divergence, there is also a medium-level divergence situation within the same cycle, where the high points of AVIV will be limited by the previous high points. For example, in the second peak of the 2021-2022 cycle, AVIV is 1.95, lower than the previous high of 2.67; and this high point is also lower than the peak value of AVIV 3.1 in the 2017-2018 cycle.
The underlying logic is that the turnover cost of all active investors is getting higher, and the unrealized profit that the market can generate will become lower. Because of the existence of this 'large cycle divergence' phenomenon, we can foresee that the future must be: the increase in BTC during the bull market will become smaller and the bottom of the bear market will become higher. In other words, we may never see the previous cycle bottom of $16,000 Bitcoin again. If BTC is to maintain its previous high growth in the future, the scale of incoming capital must grow exponentially; otherwise, the pattern of divergence will be hard to break. The first peak of this cycle occurred in March this year: AVIV 1.88; it can be seen that it did not exceed the two peaks of 1.95 and 2.67 from the previous cycle; AVIV 1.88/1.95/2.67 corresponds to the current BTC prices of $105,000, $109,000, and $149,000 respectively; according to the aforementioned logic, this means that in this trend, when BTC approaches $105,000, it will be suppressed by 'intermediate level' divergence. After breaking this barrier, when approaching $109,000 and $149,000, it will be subject to greater levels of divergence restriction. The essence of this restriction is the inherent game relationship between 'cost increase' and 'capital inflow'. Even if BTC in the future is vast and boundless, this final barrier (i.e., $149,000) has been a rule that has lasted for ten years and is not so easy to break. (Note: The calculated price will change over time)
II. Extreme Deviation Calculation
Using AVIV data to calculate the price deviation limits in cycles requires the probability of standard deviation in statistics. Standard deviation reflects the degree of deviation of data points from their mean; the larger the standard deviation, the more dispersed the data distribution; the smaller the standard deviation, the more concentrated the data distribution.
We set two extreme deviation areas for the historical average of AVIV: +2SD (red line in Chart 2) and +3SD (purple line in Chart 2). According to the empirical method of normal distribution (the three-sigma rule), 95% of data points will fall within 2 standard deviations (+2SD), and 99.7% will fall within 3 standard deviations (+3SD).
From Chart 2, we can see that in February 2021, the AVIV value could briefly exceed the purple line (+3SD), when the average cost for active investors was $21,500. By October 2021, AVIV was even struggling to exceed the red line (+2SD), as the average cost had risen to $36,000. As the average cost rises, the extreme deviation value of AVIV becomes increasingly difficult to exceed the range of +2SD.
The current +2SD is 2.05, corresponding to a BTC price of $114,000; this means that in this round, there is a 95% probability that the price of BTC will fall within this range. +3SD is 2.49, corresponding to a BTC price of $139,000; this means there is a 99.7% probability it will be within this range.
Summary
Combining the aforementioned cycle divergence logic, BTC is currently restricted by three price standard lines, namely $105,000, $109,000, and $149,000; among them, $105,000 and $109,000 happen to fall within the extreme deviation band of +2SD, so there is a certain probability it could reach. However, a pullback occurred yesterday when approaching $105,000.
The $149,000 has already fallen outside the extreme deviation band of +3SD, meaning the probability of achieving this target is only 0.3%. This is a very small probability event, and the required condition is an exponential increase in capital entering the market, completely covering the overall rise in market costs. Therefore, from this data indicator, the price limit for BTC in this round is around $120,000, which is currently a relatively reasonable assessment standard. At the same time, the mentioned price-sensitive price line can also serve as a reference marker for measuring the top range.
The above is not investment advice! It is only for data analysis and research!
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