Conversation with Trader Murphy: On-chain data is not a futile effort; which four dimensions tell you where you are in the cycle?

Murphy is an on-chain data researcher who did not have a stable trading strategy in the last cycle. Therefore, in 2022, he decided to seek a trading strategy that could be effectively executed, replicated, and closed-loop, to avoid being influenced by emotions.

Murphy's trading strategy main features:

1. Asset Allocation: 90% mainstream coins (BTC, ETH, BNB), 10% altcoins
2. Expected Return: 200%-300%
3. Drawdown Tolerance:
   • Mainstream coins do not set stop losses, a pullback of 20%-30% is quite normal.
   • Cut losses if altcoins drop below 20%
4. Trading Logic:
   • Timing in large cycles, buying at relative lows and selling at relative highs.
   • Guide trading through on-chain data analysis

This trading strategy is suitable for:

1. Conservative investors, pursuing high certainty, can hold for a relatively long term.
2. Trend traders, most of the positions are in mainstream coins.

Murphy determines the timing for bottom fishing through the following 5 data points:

1. CVDD ( Cumulative Value-Days Destroyed ): Historically, the BTC price has never effectively fallen below CVDD, which can be used to assess the market bottom price.

2. RP ( Realized Price ) and BP ( Balance Price ): When the BTC price consolidates in the channel between BP and RP, it is a good buying opportunity.

3. PSIP (Person Supply in Profit): When it is less than 50%, it is usually an extreme bottom in a bear market.

4. LTH ( Long Time Holder )'s NUPL and MVRV:

   • When NUPL turns red, it indicates that long-term holders are surrendering, marking a market low.
   • When MVRV is less than 1, it indicates that the average long-term holders are at a loss, which may suggest a market bottom.

5. Miner's Perspective:

   • Mining cost: When the market price is close to the cost, it may be the bottom.
   • Mining Pulse Index: A positive value indicates miners are shutting down, which may be a buying opportunity.

To determine the "top" timing, mainly look at 3 indicators:

1. MVRV: When it exceeds 3, selling can begin, and a reverse smile curve forms near 3 to complete the sale.

2. URPD: Reflects the on-chain chip structure, showing the turnover volume in a certain price range, used to verify other peak signals.

3. Supply and Demand: Pay attention to the chip distribution situation of long-term holders (LTH). When LTH starts to sell on a large scale, it may be close to the top.

Murphy believes that the current market is in a bull market correction phase. He expects the next relative top range to possibly occur between March and April 2025, but it needs to be confirmed further with macro data.

Murphy's learning method:

1. Learn about on-chain data analysts in the market.
2. Record and classify metrics in Excel
3. Continuously refine and improve the effectiveness of indicators through backtesting.

Murphy's trading strategy may fail under the following circumstances:

1. Determine short-term price fluctuations
2. For contract trading
3. Predict the accurate peak and bottom prices and times
4. Analyze altcoins ( due to the lack of UTXO structure )

Murphy's Stop Doing List:

1. Stop the mentality of taking chances
2. Stop being emotional
3. Stop frequent trading
4. Stop relying on a single source of information
5. Stop making decisions without research.

Murphy emphasized that on-chain data analysis is not about seeking a sword by carving a boat, but rather understanding the logic behind the data and judging market trends in conjunction with changes in the macro environment. He summarized: "Macro dominates expectations, expectations change emotions, and emotions affect supply and demand, which ultimately determine the price of BTC."