Before analyzing, let's introduce a brand new data concept - Active Investor Value Deviation, or AVIV (Note! Here AV is not a small movie, but Active Value); it is a newly designed analytical model created by Glassnode engineers, with design principles similar to the famous MVRV. Since active investors better represent the market's supply area, AVIV compares market capitalization with active investor value.
The MVRV calculation covers all chips on the chain. Including early BTC with extremely low costs will inevitably lower the average holding cost. However, AVIV's algorithm only targets the chips of active investors, excluding long-term dormant or lost parts; and when accounting for the total market inflow capital, it deducts the portion paid to miners from the general cost. Therefore, AVIV is closer to 'fair value' and truly reflects the scale of unrealized profits/losses for the market holding BTC.
Undoubtedly, the creator of AVIV must be an exceptionally intelligent expert! However, after watching their analysis, I found that they did not provide a complete interpretation of the core function and powerful capabilities of this data, I can only say 'I am a genius, but may not know how to teach'...
Therefore, I want to use my own way to explain the application method and underlying logic of this great design based on the experience of related data research.
I. Divergence of the Major Cycle
The image below is the AVIV data, with the blue line at the top representing the average holding cost of active investors (i.e., the market fair price); the orange wavy line below is the AVIV value.
Everyone pay attention, the green and red dashed lines I marked in the figure indicate that in each cycle, BTC's price continues to rise, while AVIV continues to fall, implying that AVIV has followed the pattern of major cycle divergence for the past 10 years, meaning that the peak of AVIV in this cycle will not exceed the peak of the previous cycle.
In addition to major level divergence, there are also intermediate level divergence situations within the same cycle, meaning that the peaks of AVIV will be limited by the previous peaks. For example, the second peak of the 2021-2022 cycle had an AVIV of 1.95, which is lower than the previous peak of 2.67; and this peak is also lower than the peak AVIV of 3.1 during the 2017-2018 cycle.
The underlying logic is that the turnover cost of all active investors is getting higher and higher, and the unrealized profit that the market can create will become lower and lower. Because of this phenomenon of 'major cycle divergence', we can foresee that in the foreseeable future: the price increase of BTC in a bull market will become smaller and smaller, while the bottom of a bear market will become higher and higher. In other words, we may not see the previous cycle bottom of $16,000 Bitcoin again. If BTC is to maintain its previous high increase, it requires an exponential growth in the scale of incoming capital; otherwise, the pattern of divergence is difficult to break. The first high point of this cycle occurred in March this year: AVIV 1.88; it can be seen that it did not exceed the previous high points of 1.95 and 2.67; AVIV 1.88/1.95/2.67 corresponds to current BTC prices of $105,000, $109,000, and $149,000 respectively; according to the above logic, this means that in this round, when BTC approaches $105,000, it will be suppressed by 'intermediate divergence'. After breaking through this level, as it approaches $109,000 and $149,000, it will face greater levels of divergence restrictions. The essence of this limitation is the inherent game relationship between 'cost rise' and 'capital inflow'. Even if BTC in the future is as vast as the stars and the sea, this last barrier (i.e., $149,000) is a pattern that has persisted for ten years and is not easily broken. (Note: The calculated price will change over time)
II. Calculation of Extreme Divergence
Using AVIV data to calculate the price deviation limits in the cycle requires the probability of standard deviation in statistics. Standard deviation reflects the degree of deviation of data points from their mean; the larger the standard deviation, the more dispersed the data distribution; the smaller the standard deviation, the more concentrated the data distribution.
We set two extreme deviation areas for AVIV's historical mean: +2SD (the red line in Figure 2) and +3SD (the purple line in Figure 2). According to the empirical method of normal distribution (the three-sigma rule), 95% of data points will fall within 2 standard deviations (+2SD), and 99.7% of data points will fall within 3 standard deviations (+3SD).
From Figure 2, we can see that in February 2021, the AVIV value could briefly surpass the purple line (+3SD), when the average cost for active investors was $21,500. By October 2021, AVIV found it difficult to exceed the red line (+2SD) because the average cost had risen to $36,000. As the average cost continues to rise, it becomes increasingly difficult for AVIV's extreme divergence value to surpass the +2SD range.
The current +2SD is 2.05, corresponding to a BTC price of $114,000; this means that in this round, there is a 95% probability that the BTC price will fall within this range. +3SD is 2.49, corresponding to a BTC price of $139,000; this means there is a 99.7% probability it will fall within this range.
Summary
Combining the above cycle divergence logic, BTC is currently constrained by three price standard lines, namely $105,000, $109,000, and $149,000; among which $105,000 and $109,000 are precisely within the extreme deviation band +2SD, so there is a certain probability of reaching these levels. However, there was a pullback yesterday when approaching $105,000.
And $149,000 has already fallen outside the extreme deviation band +3SD, meaning the probability of achieving this target is only 0.3%. This is a very small probability event, requiring the condition of exponential incremental capital entering the market to completely cover the overall rise in market costs. Therefore, from this data indicator, the price limit for BTC in this round is around $120,000, which is a relatively reasonable assessment standard. The mentioned price-sensitive price line can also serve as a reference mark for measuring the top range.
The above is not investment advice! It is only for data analysis and research!
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