Cryptonerds

In this post, we’ll take a closer look at the Pi Cycle Indicator and explain why we believe it is unlikely to trigger in this cycle. Instead, we present an alternative signal that may better indicate the true Bitcoin top.Understanding the Pi Cycle IndicatorThe Pi Cycle Indicator has historically been highly accurate in predicting Bitcoin cycle tops. It consists of two simple moving averages:The 111-day simple moving average (SMA) (blue)The 350-day simple moving average (SMA) multiplied by two (green)A signal is generated when the 111-day SMA crosses above the multiplied 350-day SMA, which is marked by a red vertical line.Why This Signal Alone Isn’t EnoughWhile this signal has been useful in the past, we believe it doesn't provide the full picture—specifically, it doesn’t indicate how strong the crossover is. By transforming this indicator into an oscillator that measures the ratio between these two moving averages, we gain a more nuanced perspective:In the chart, the green line represents the ratio between the two moving averages. When it crosses above the red horizontal line (ratio > 1), a Pi Cycle signal occurs (marked by a red vertical line). Notably, the 2017 signal was significantly stronger than the 2021 signal, suggesting a pattern of diminishing returns. We highly recommend checking out our post on diminishing returns and the overall timeline for the current cycle here. Additionally, we've developed our own Bitcoin model that factors in the effects of diminishing returns. Check it out here.The TRUE cycle top signalThe key question is whether this diminishing return is strong enough to prevent a signal from forming in this cycle. Based on our analysis, we believe it is.By extrapolating this trend into the future using a white diagonal trend line, it becomes clear that the ratio will likely remain below 1, meaning no crossover is expected this cycle.Instead, we anticipate that the next Bitcoin top will occur at a ratio of approximately 0.9, as indicated by the orange area on the chart.In summary, while the Pi Cycle Indicator has been a reliable tool in previous cycles, its diminishing strength suggests that it may not trigger this time. Rather than relying solely on this metric, we suggest considering looking deeper into the true value of this indicator instead.