Pi Cycle Top Indicator Just Called the BTC Top
In fact, it’s gone up over 500% since October alone. This was the last time BTCUSD came anywhere close to testing its 20-week moving average, which has been one of the most historically reliable indicators regarding where the number one cryptocurrency currently finds itself in the market cycle.
In a bull market, it will typically remain above this 20-week moving average, testing and holding it as support as it sets higher-high after higher-low. During the bear phase, it tends to bump up against this moving average as resistance, failing to break above it as it sets lower-low after lower-high.
This past weekend saw the crossing of another milestone; bitcoin closed above $60k on the weekly chart (on some markets) for the first time in its storied history. As these new highs continue to be made on less volume and without significant follow-through and considering how far the price has already gone since mid-2020, many are starting to scout for the top.
Pi Cycle Top Indicator
In fact, an indicator that’s designed to do precisely this has just flashed a top signal for this specific bitcoin market cycle. The Pi Cycle Top Indicator uses a 111-day moving average and a 2x multiple of the 350-day moving average to predict market tops. When the 111-day moving average crosses above the 2×350-day moving average, it’s a signal that the top is in. The indicator takes its name from the fact that dividing 350 by 111 gives you 3.153, which is very close to Pi (3.142).
The image below plots the moving average crossovers mentioned above over a daily BTCUSD chart going all the way back to 2013. The vertical orange lines mark the points at which the two moving averages cross. They coincide with bitcoin’s last three peaks to within three days. On each occasion, a 60-80% correction ensued.
The first two peaks on the above chart technically belong to the same bitcoin cycle as they occurred in April 2013 and November 2013, respectively. Bitcoin’s first halving event had only just taken place on November 28, 2012. Some of you will recall that the European debt crisis was in full swing during that first peak in April, specifically the bail-in of Cypriot banks. Then, the second peak marks the implosion of Mt. Gox, the biggest bitcoin exchange at the time.
It’s interesting to observe that the indicator still appears to work despite those first peaks taking place in a radically different crypto market than we have today. It misses a previous cycle top (not included in the above chart) due to there not being enough of a daily history to calculate the 2×350- day MA. As you can see on the far right of the chart, the two moving averages crossed again this past weekend. So, does this spell imminent doom for crypto holders, or will this time be different?
Back to the 20-Week Moving Average
The Pi Cycle Top Indicator is certainly compelling; however, it does conflict with what the 20-week moving average appears to be suggesting. What’s noteworthy about the moves viewed on the weekly chart below is that we’ve yet to retest the 20-week MA once since the price went parabolic in late October 2020, signalling the end of the previous bear market. As you’ll observe below, previous bull markets have used this level as a gauge of the ongoing health of the rally, routinely taking profits down to it and then riding it up as support.
This is most noticeable in the extended rally we witnessed from 2016 to 2017. The price action retested that 20-week MA at least five times before surging on to its then all-time high at around $20k. From this perspective, the move looks like it’s only just getting started. Keep in mind that each week that goes by without significant consolidation sees the weekly MA rising even further, providing a higher cushion, if you will. It’s currently above $40k.
To Wrap Up
The fundamental picture is the same kind of thing we’re hearing in US equities. Stocks are overvalued, we’re seeing all sorts of technical divergences, but the broader macro picture suggests that they have further to go, and no one is willing to call a top just yet. Those same factors are also supporting crypto prices. Regardless of whether the Pi Cycle Top Indicator has it right or not, it’s still a long way down to that 20-week MA, and that would favour further upside for now.
by Giles Coghlan, Chief Currency Analyst, HYCM
Note: Cryptocurrencies are not available for trading under HYCM (Europe) Ltd and Henyep Capital Markets (UK) Ltd.
HYCM is the global brand name of Henyep Capital Markets (UK) Limited, HYCM (Europe) Ltd, Henyep Capital Markets (DIFC) Ltd and HYCM Limited, all individual entities under Henyep Capital Markets Group, a global corporation founded in 1977, operating in Asia, Europe, and the Middle East.
High Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.