On Chain Bitcoin (OCB) Indicator - developed by Stockmoney Lizards
We have made significant progress in developing a technical Bitcoin indicator that leverages a combination of on-chain variables. By analyzing various patterns and utilizing oscillators and indicators, we have been able to strengthen our bullish sentiment. However, it is crucial to note that technical analysis alone is not sufficient, and a fundamental analysis is essential to complement it. While fundamental analysis for stocks and companies may appear more straightforward, the unique nature of the Bitcoin network presents some challenges. The availability of on-chain data provides a wealth of information, but not all of it is suitable for conducting a fundamental analysis.
To address these complexities, we conducted a comprehensive evaluation and screening of over 140 variables using a multivariate analysis approach (Figure 1). Through this process, we identified several key on-chain data points that are relevant and informative for our fundamental analysis. We integrated these variables into our own on-chain indicator, which serves as a valuable tool for assessing Bitcoin's fundamental position.
The foundation of our model is rooted in classic supply and demand models, which have long been applied to financial markets. By considering factors such as transaction volume, network activity, wallet balances, and other pertinent variables, we can gain insights into the underlying supply and demand dynamics within the Bitcoin ecosystem (Figure 2).
To facilitate a better understanding of our analysis, we present a visual representation of the current Bitcoin chart on a daily timeframe, spanning from November 2012 to August 2023. This chart is accompanied by our OCB (On-Chain Based) indicator, which serves as a graphical representation of our on-chain analysis. By observing the chart and interpreting the indicator, we can gain a clearer perspective on the current state of the Bitcoin market (Figure 3).
In our pursuit of improving the OCB indicator, we have recently implemented a modification to enhance its effectiveness. Initially, the OCB indicator relied solely on fundamental on-chain data for its analysis. However, recognizing the significance of momentum in understanding market dynamics, we incorporated the Relative Strength Index (RSI) into our indicator.
The RSI is a popular momentum oscillator used in technical analysis. It measures the speed and change of price movements and helps identify potential overbought or oversold conditions in an asset (Figure 4). By incorporating RSI into our OCB indicator, we gain an additional layer of insight into market momentum, complementing the fundamental analysis derived from on-chain data.
This modification strengthens the OCB indicator by providing a more comprehensive assessment of Bitcoin's market behavior. While on-chain data offers valuable fundamental insights, the inclusion of RSI allows us to capture market sentiment and identify potential trends or reversals. By considering both fundamental factors and momentum indicators, we can make more informed decisions and achieve a more robust analysis of Bitcoin's price action.
The integration of RSI into the OCB indicator aligns with the principle of combining multiple analytical approaches to gain a holistic understanding of market dynamics. It enables us to leverage the strengths of both fundamental and technical analysis, providing a more nuanced and accurate assessment of Bitcoin's current state and potential future movements (Figure 5).
By incorporating RSI alongside fundamental on-chain data, our modified OCB indicator offers an improved framework for evaluating Bitcoin's price dynamics. It facilitates a more comprehensive analysis, allowing us to identify potential entry or exit points, confirm or challenge our existing bullish sentiment, and further refine our understanding of Bitcoin's overall market outlook. This modification enhances the indicator's robustness and strengthens its utility as a tool for traders and investors seeking valuable insights into Bitcoin's performance.
It's important to emphasize that our work on this indicator is an ongoing endeavor. We are committed to continually refining and optimizing the model to enhance its accuracy and reliability. By doing so, we aim to provide a comprehensive assessment of Bitcoin's fundamental position, offering valuable insights for investors and market participants.
In summary, our technical Bitcoin indicator, bolstered by a careful evaluation of on-chain variables and a complementary fundamental analysis, enables us to gain a deeper understanding of the cryptocurrency market. This approach empowers us to make informed assessments of Bitcoin's current standing and aids in decision-making processes.