Overview

--- This model attempts to detect transitional periods between bull and bear (green) markets, and bear to bull (red) markets. It is developed by assessing periods where both the correlation between Price and Percent Supply in Profit deteriorates below 0.75, and where an select indicator for extreme bull/bear is reached.

Regarding the deterioration in correlation between Price and Supply in Profit, this behavior can be described via one of the following scenarios:

• Transition from Bear to Bull Market 🟢, where the bear market is at its later stages and sellers are exhausted. The remaining investor cohort become reluctant to move their funds at depressed prices, and thus the correlation between price and supply profitability deviates from the 0.9-1 range.

• Transition from Bull to Bear Market 🔴, where the bull market enters an exuberant parabolic phase, and nearly 100 percent of the supply is in profit as prices trade to new ATHs. Therefore, the correlation between price and profitability diminishes until the market enters a sustained correction.

Bull and Bear Thresholds are added via double if-then statements, to help filter only for correlation breakdowns occurring at market extremes. The Mayer Multiple > 2.4 (bull tops) and MVRV < 1.0 (bear floors) have been selected in this instance. These thresholds are arbitrary, and may be changed, removed, or replaced to calibrate the signal (for example to be less sensitive for spotting for local tops/bottoms within a trend).

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Coined by

Glassnode in Market Pulse: Utilizing Drilling Concepts in On-chain Analysis (September 2022)