Original Article Title: "On-chain Data School (8): A Brand-New, #Ark-Involved $BTC Magical Pricing Methodology (III)"

Original Article Author: Mr. Berg, On-chain Data Analyst

This article is the 8th in the On-chain Data School series, with a total of 10 articles. It will take you step by step to understand on-chain data analysis. Interested readers are welcome to follow this series of articles.

Related Reading: "On-chain Data School (7): A Brand-New, Ark-Involved $BTC Magical Pricing Methodology (II)"

TLDR  

- The Cointime Price series consists of three articles, this being the third  

- It is recommended to read the first article first

- This article will introduce another way to observe tops using Cointime Price  

- The article will also introduce the author's designed Distribution Rate Observation Indicator  

1. A Brief Review of the Previous Two Articles  

In the Cointime Price series, the first article introduced the basic principle of Cointime Price and provided a dip-buying application; "On-chain Data School (6): A Brand-New, Ark-Involved BTC Magical Pricing Methodology (I)"

The second article analyzed from the perspective of "the extent to which the price deviates from Cointime Price," sharing the author's designed Cointime Price Deviation model and using this model as a signal filter for tops observation. "On-chain Data School (7): A Brand-New, Ark-Involved $BTC Magical Pricing Methodology (II)"

If you are reading this series of articles for the first time, it is recommended to at least read the first article first, otherwise, the subsequent understanding may be a bit stuck

2. Escape Top Application Methodology: Cointime Price Daily Distribution Rate  

1. The Pattern of Cointime Price

Before we continue, let's take a look at the chart of Cointime Price:  

An attentive reader should have already noticed that the trend of Cointime Price actually has a very obvious characteristic: "Sharp Rise - Plateau - Sharp Rise - Plateau..."

Based on the content of the first article in the series, we know that:  

Cointime Price only rises rapidly when there is a large distribution by long-term holders, and Cointime Price is essentially the "time-weighted average cost of the market chips." During the distribution phase, the remaining holders on the field accept distribution, causing the holding cost to rise, which is reflected in the chart as a rapid increase in Cointime Price.

Utilizing this characteristic, the author has designed an indicator to observe the distribution rate, temporarily named "Cointime Price Daily Distribution Rate."

2. Cointime Price Daily Distribution Rate Indicator  

To measure the rate of change, the author has used the simplest formula: (Today's CP - Yesterday's CP) / Today's CP   followed by smoothing the calculation results with a moving average (*Note: CP is short for Cointime Price).

When this formula is entered into Glassnode, the following chart can be obtained:  

We can see that every appearance of the primary uptrend during a bull market is accompanied by a high distribution rate of Cointime Price. Except for one high distribution rate near the bottom in 2019, every time a high distribution rate occurs, it usually signals accelerated distribution by long-term holders. As for that instance in 2019, it would not actually lead to a misjudgment in practical operation because just looking at the price trend at that time would indicate that it was not likely the top.

3. Historical Top Distribution Rates & Current Market Stage  

Generally speaking, each time #BTC appears at a cyclical top, there usually won't be just one "distribution." This can be seen from indicators like UPDR, Realized Profit, and so on, and this logically holds true because distribution is a process, not an immediate event.

Readers can click on the image above (Image Three) to enlarge it. During the peak formation, the daily distribution rate often experiences more than one significant increase. In this current bull market cycle, the daily distribution rate saw an acceleration in March this year, which is also corroborated by Realized Profit data, indicating that some long-term holders did indeed choose to take profits at that time.

If you are not familiar with what Realized Profit is, you can refer to this post: "On-chain Data Classroom (Part Three): Have the whales who absorbed at the bottom taken profits?"

March of this year marked the first time during this cycle that the distribution rate saw a significant increase, and during the rapid price surge in November following Trump's election, the distribution rate saw a second increase.

This also aligns with the Realized Profit data quoted in the author's second Top Signal Weekly Report: "On-chain Data Classroom (Part Two): The Hodlers who keep making money, what is their BTC acquisition cost?"

From an on-chain data perspective, this is a warning sign that deserves continuous attention.

Original Article Link

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