Very good thread (and idea), OP. Always happy to see some serious discussion of modeling the market other than bulls and bears going into shouting matches.
Completely agreed on your main point: don't just look at demand, but also supply. But also, as you already mentioned, mainly useful for alts (which I don't trade - I only buy a handful out of my long-term fundamental estimates), and not so directly applicable to Bitcoin for two reasons:
- reward halving happens rarely, so in effect, the supply side for a "price era" is more or less constant.
- difficulty estimating on-exchange volume across eras and exchanges. Across eras, because I don't think the base volume stays constant as price increases, and across exchanges, because zero fee and non-zero fee volume are qualitatively different imo and shouldn't simply be added up. (I have a so far relatively crude method to normalize volume, but it still needs fine tuning and testing).
Completely agreed on your main point: don't just look at demand, but also supply. But also, as you already mentioned, mainly useful for alts (which I don't trade - I only buy a handful out of my long-term fundamental estimates), and not so directly applicable to Bitcoin for two reasons:
- reward halving happens rarely, so in effect, the supply side for a "price era" is more or less constant.
- difficulty estimating on-exchange volume across eras and exchanges. Across eras, because I don't think the base volume stays constant as price increases, and across exchanges, because zero fee and non-zero fee volume are qualitatively different imo and shouldn't simply be added up. (I have a so far relatively crude method to normalize volume, but it still needs fine tuning and testing).
the good thing here is you have an indicator that is independant from the price of the coin and also from the $-worth of the tradevolume. All it does is compare supply to tradevolume - nothing more. How many dollars the tradevolume is worth or the costs for a single coin are doesn't matter in that.
With a halving of blockreward that number jumps up by 100% if volume stays the same of course.
I think the indicator can also help with trading bitcoin since it will enable better estimates what a reasonable price is after a halving and where the dump from the halving-rally could settle.
It's also of great help to determine if a coin is over or undervalued.
Next thing is it can combine a lot of data and compress things into a single number. Data you would normally take up to 30 minutes to analyse and click between 10 tabs and still wouldn't have anything exact.
As i said: there are a ton of usecases. It's the first method i have seen so far that manages to actually put the supply in relation to the demand/tradevolume. The idea is new and could be useful. Currently people just look at tradevolume and that's it. The indicator shows more than just tradevolume. So people using that likely will have a little edge over people not using it... i mean, look how many are still supporting VTC when the indicator is on 3 when they could be just holding btc which has far better outlooks. Look for how long they have been doing it. They do it because they see others do it and they have no way of connecting the oversupply to their situation other than guessing. They are just surprised why it suddenly drops so low.The last big decline of VTC could have been totally predicted with this thing well in advance. Same goes for myriad decline or rise of uno. These things show up cristal clear days and weeks before price moves.
Can also be applied to bitcoin. You'll be able to compare action before and after halving to each other and determine if price is reasonable or not. I'd expect this indicator to always gravitate towards the same level over time (which one i will find out in the future). Because if price is too high and demand not great enough to sustain it, indicator will be low and rising with pricechange again until it reaches a certain point where inflation and demand keep each other in check.
If demand rises you see the indicator rise and once it has reached a critical point price will change to the upside until the indicator normalizes back to that level where inflation and demand keep each other in check. So, no matter what price. Indicator too low for some time: pricechange to downside and it settles around the correct level in the end. Indicator too high for some time: pricechange to the upside until indicator settles around the same level (normilized level) again. Just that point where inflation and demand keep each other in check.
Kind of like a wave on an axis. This is the axis. Yoyo back and forth. Once you know it, it'll be of tremendous help.
If widely used and tested this could lead to greater pricestability aswell since people would learn not to move against it in a big way. Just some thoughts. Well, feel free to play around with it and please report if you find something useful to do with it.
