Analyzing Cost Basis Changes To Predict Market Corrections

According to BlockBeats, determining the end of a short-term market correction can be approached through various methods, including analyzing chip structure, financial pressure, and emotional feedback. A particularly effective method involves observing changes in the cost basis of different time groups.

A case study illustrates this approach by examining the long-term cycle bottom. In the study, the blue line represents the average turnover cost of long-term holders (LTH-RPC), the red line represents the average turnover cost of short-term holders (STH-RPC), and the black line shows the price of Bitcoin (BTC).

The analysis highlights two conditions that indicate a major cycle bottom and an optimal buying opportunity: when the BTC price is below the LTH-RPC and when the STH-RPC is below the LTH-RPC. This scenario suggests that the BTC price is significantly undervalued, with market bubbles largely eliminated. It also indicates that during price declines, many short-term holders exit at a loss, while new short-term holders enter, driving the short-term chip cost below the long-term cost. This is a signal of oversold conditions and bottoming panic sentiment.

The same logic can be applied to assess bull market correction timing. From February to May 2024, the process from trend initiation to decline and correction is marked by the gap between the blue and red lines expanding and then contracting. Eventually, the blue line moves to the top, while the red line is at the bottom, indicating a reverse arrangement structure of cost bases.

The analysis identifies three instances of reverse arrangement structures, marked by orange dashed lines, where the order from top to bottom is blue, yellow, red, or purple, blue, yellow, red. These correspond to relative bottoms during corrections.

Currently, the trend is transitioning from rapid expansion to gradual contraction, but the blue line remains below. For a short-term market resurgence, a reverse arrangement structure may need to form. The blue line is nearing the red and yellow lines, suggesting that with further consolidation, the structure could form, indicating a relative bottom.

In summary, using changes in cost basis across different time groups as a basis for judging correction timing, a reverse arrangement structure of blue, yellow, red from top to bottom suggests sufficient turnover and nearing bottom sentiment, indicating the correction may soon end.

This content is for research and discussion purposes only and does not constitute investment advice.

标签：TO