The Mayer Multiple: measuring the market’s mood

crypto.inferno (67)in #bitcoin • 6 years ago

Veteran bitcoiner Trace Mayer offers new metric for gauging how under– or over-valued bitcoin is.

When the market’s going up, it’s bullish. When it goes up too fast, it’s a bubble. When it goes down, it’s bearish. When it goes down too hard, it’s capitulation.

This is ultimately what the Mayer Multiple says. Its value lies in helping show when the market is in a bubble or in panic-sell mode.

Trace Mayer has made a name for himself as an early bitcoin adopter, critic of the legacy financial system and commentator in the space. His ‘Mayer Multiple’ is a simple metric he uses to show whether bitcoin is unsustainably overvalued (a bubble that will burst) or undervalued (a buying opportunity).

The MM is the ratio of bitcoin’s price to its 200-day moving average. The 200 MA is a relatively slowly-reacting indicator, since it takes in around 7 months of data, so it smoothes out the worst of bitcoin’s bumps. Mayer implies that the price will gravitate back to the 200 MA, so an MM of 1 represents a reasonable price. He tweets:

‘Feb 18, 2019: The current Mayer Multiple is 0.71 with a $BTC price of $USD 3,713.79 and a 200 day moving average of $5,237.22 USD. The @TIPMayerMultple has historically been higher 87.98% of the time with an average of 1.49.’

The lowest the MM has fallen in this cycle is 0.51, in December 2018. Because the 200 MA slowly tracks with the price, rapid falls (or rises) make more of a difference since the MA doesn’t have time to catch up. In the last bear market, bitcoin dropped as low as 0.41, and its lowest ever MM was in the 2011 bear market, at 0.24.

Similarly, a high MM implies a bubble. Mayer suggests that it has in the past been best to buy BTC when the MM is below 2.4, since that value seems to mark the start of an unsustainable run-up, which always results in a crash.

With prices so far under the 200 MA, the Mayer Multiple is currently flashing ‘Buy’. But, of course, it’s a descriptive indicator, not a predictive one – it can’t tell you what’s going to happen in the short term, only the broad conditions of the market. Add it to your arsenal, but don’t rely on it.

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