W/e 12-Apr-2021 and why “Pi cycle top” won’t work

BTC: $59,932
OBTC: $24,866
VG: 7.82

Not much to report on the VG front — we’re continuing consolidation between VG ~7 and VG ~8. By the way, VG ~9 now corresponds to $76,000.

While usually I just stick to OBTC & VG on this blog, there seems to be a lot of buzz about how the top is in because the “Pi cycle top” signals it. Learn more about it here: https://www.lookintobitcoin.com/charts/pi-cycle-top-indicator

The probability of a macro top being in is very slim. So why will this indicator fail?

  • As I keep mentioning time and again, a sample size of 2 or 3 means very little.
  • Pi cycle top is a clever reverse calculation to see where a moving average cross happens at prior tops. Moving average crosses are typically when a short-term moving average crosses a long-term moving average.
  • Unfortunately, the limitations of this are that it is a naïve indicator based on price and time that does not account for fundamental token demand and supply. If there’s a strong disequilibrium of demand and supply, as there was when I started this blog 6 months ago, real price movements can easily outstrip predictions made based on a naïve extrapolation of price and time. Likewise, as BTC matures over the coming years and there’s lower volatility and a closer match between supply and demand, Pi Cycle Top will become a very lagging indicator.
  • This is where on-chain models like VG or Reserve Risk have the potential to be more accurate: because they guesstimate how far demand is outstripping supply fundamentally on chain.

Of course, this is not to say that Pi cycle top is not useful — it does tell you that we are right in the middle of the bubble. Perhaps a better name would be Pi-cycle-in-the-middle-of-a-bubble-or-maybe-the-top.

OBTC is an attempt to value BTC using on-chain activity. I’m just a bitcoin investor, not a professional quant, please do not take this conjecture too seriously