Thread by @dilutionproof

1/12 Just published "Bitcoin Price Temperature (Bands) - An indicator for the price bandwidth of #Bitcoin's 4-year cycle"

The BPT (Bands) is an improved version of the #Bitcoin Price Z-Scores that I shared before

dilutionproof.medium.com/bitcoin-price-…

I'll summarize in this thread 👇

2/12 The article first describes why the #Bitcoin price appears to move in 4-year cycles:
- Halvings occur every ~4 years
- Halvings create a supply shock that may drive up the price as described here:

https://twitter.com/Croesus_BTC/status/1319734166557081600

- N=2.25, but price action so far supports the thesis

3/12 The #Bitcoin Price Temperature (BPT) is a metric for the relative distance between the daily price and its 4-year moving average.

More simply put: high BPT values reflect potentially (over)heated prices, whereas low BPT values are a sign of potentially (under)cooled prices.

4/12 With BPT, the relative price levels of previous market cycles are much more comparable.

Based on TA, several levels stand out:
- BPT=8 (red): All previous cycles topped soon after
- BPT=6 (orange): Resistance during bull run
- BPT=2 (green): Support/resistance at key points

5/12 The similarity of the relative price levels during previous cycles becomes even more apparent in this chart. #Bitcoins first period after launch was unique (no price, high inflation), but every halving cycle so far has had a similar boom-bust cycle shortly after the halving.

6/12 It is important to note that the #Bitcoin Price Temperature is solely backwards-looking and has no predictive power.

A good case for the 4-year cycles can be made, but it is also possible to argue against the hypothesis that those halving-induced cycles will keep repeating:

7/12 However, the current (2020~2024) and previous (2016-2020) halving cycles again are very similar (r=0.77) so far.

Clearly no guarantees about the future, but it might be interesting to monitor to what extent future prices will again mimic the previous cycle(s).

8/12 This brings us to the #Bitcoin Price Temperature (BPT) Bands; a visual representation of BPT levels on the #Bitcoin price chart, accompanied by a color-overlay that reflects the price temperature.

Observations:
1) If a BPT is reached again, it tends to be at higher price.

9/12 (continued)

2) If a price level is reached again, the 'temperature' has usually cooled off. E.g., late 2017 ~$20k had a BPT of ~8, whereas late 2020 ~$20k had a BPT of ~3.

3) Like Bollinger Bands, BPT Bands widen during high volatility and contract during low volatility.

10/12 The adaptiveness to volatility marks a key difference between the BPT (Bands) & the Mayer Multiple or other moving average-multiple based indicators. The BPT Bands slope up more steeply towards higher prices during volatility, which may be more appropriate in that context.

11/12 Future efforts could go out to creating a @TradingView indicator for the BPT (potentially using a wider range of Bands, e.g., -2 to 12) or creating a Python implementation that can be more easily be adopted on websites that host #Bitcoin price charts and indicators.

12/12 Special thanks go out to @Anoi30604540 for providing feedback and reviewing the draft of the article! 🙏

I am open for questions, improvement suggestions or anyone looking to further develop or implement this. The used code is available on GitHub:

github.com/dilutionproof/…