Bitcoin Value Capture Heatmap

2024年12月2日

BTC Value Capture Heatmap answers a question originally posed by Willy Woo:

"How much pressure on Bitcoin's market cap does one dollar of purchasing power exert?"

The higher the print, the more market cap grows per dollar invested -- adjusted for global M2 growth.

Bitcoin Value Capture Heatmap = ( market cap / global M2 ) / realized cap


A NOVEL INGREDIENT REVEALS A UNIQUE USE CASE

Adjusting bitcoin's market cap for global M2 growth sharpens a legacy metric with a normalizing factor that 'stabilizes' its view across cycles.

The metric peaked at identical levels (4.2), three bitcoin bull markets in a row. On the same day bitcoin price volatility peaked for the cycle, every time.

One might naturally expect this to coincide with cycle tops. But it doesn't.

It precede's cycle's tops: in a consistent, very specific way, that predisposing a unique use case.



BITCOIN'S VOLATILTY TOP

The metric's true use case only comes into clear focus when paired with an unrelated insight:

Whether in distribution (in Spring 2021) or a parabolic blow off top (2017 & 2013), each of the last 3 bitcoin cycle tops shows tight consistent adherence to the Wykoff Distribution Schematic.



"But Wykoff schematics apply to distribution tops, not to blow off tops."

A closer look at the last 15-20 years of parabolic blow off tops, across all asset classes, viewed through a Wykoff lens, reveals recurring tight adherence to Wykoff's Distribution Schematic.

Including (and especially) BTC's parabolic top in Dec 2017; BTC's parabolic top in 2013; and ETH's blow off top in Jan 2018.



In our age of automation, this makes sense. Wykoff's schematics mirror the timeless archetypal goal of his 'Composite Operator': max pain for all other market participants.

A process that lends itself to automation, optimized a bit more each passing year.

Peak cycle volatility maps directly to the Wykoff Distribution Schematic's 'Buying Climax'.

An event that preceded parabolic cycle tops, by about 2 weeks.



Future BTC parabolas (should they recur) would come at exponentially higher market caps, so they may take longer to unfold -- I don't take the 2 week pattern too seriously.

But Parabolic Distribution as an emergent archetypal market structure is likely encoded.



PUTTING IT ALL TOGETHER

Bitcoin Value Capture Heatmap signals peak cycle volatility, on a daily close of 4.2 on the metric's Y axis. It has never reached that level twice in the same cycle.

Awareness that:

(a) peak volatility for the cycle has likely been reached, and

(b) peak volatility has a history of tightly preceding bitcoin cycle tops, can

(c) empowers traders with a data-driven 'guide post' to their likely exactly location in an increasingly archetypal topping process.


SPECIFIC USES IN AN EXIT STRATEGY

When the Heatmap's signal level is reached, one might (for instance):

* Hedge, since bitcoin is likely closing in on its cycle top, OR

* Start to DCA out, over a pre-planned time period OR

* Rotate up the risk curve, since BTC probably doesn't have much upside left, OR

* Wait for acceptance one leg higher, which (consistent with Wykoff logic) is the likeliest place to expect an actual cycle top.



Though the ratio (in the past) touched 4.2 each cycle, a closer look shows subtly lower peaks per cycle, like most other on-chain cycle oscillators.

Extrapolating out, one might expect bitcoin's next top on volatility to print on any touch of 4.0 or higher.

Or one might give it more room to run, consistent with record institutiional flows this cycle.

Alerts are enabled for both options.



The metric works on any timeframe, but should only be used on the 1D chart.

2024年12月12日

リリースノート

Minor settings update. Script output unaffected.

2024年12月16日

リリースノート

Minor code update, to remove the need for product keys.