Bitcoin Temperature Check: Bargain Or Bubble?
With Crypto, its virtually impossible to predict if the price is going to go up or down in the short term. However for the longer term there are indicators that can give some comfort in terms of highlighting if, based on historical trends, its probably a good or bad time to buy.
The indicator above shows how different the Bitcoin price is compared to its 4 year moving average, with different coloured bands representing standard deviations from this.
You can use the dropdown to see how the Bitcoin price has moved within these bands for different time periods to get an idea of what historically has been low, normal and high in this respect.
Bitcoin Temperature
A popular measure of Bitcoin hype is the Bitcoin Temperature metric. While this uses some complex mathematical concepts like standard deviations, it basically works off the premise that Bitcoin works to a 4 year market cycle, due to the halvening roughly every 4 years.
Hence by comparing the current price against the 4 year moving average of the price, this tool identifies how much the current price is different to the upward trend in the moving average. For further explanation see this Crypto School lesson on market cycles.
The value of the "temperature" is typically between 0 and 8, although it can go outside this range. Typically a value under 2(blue) would be mean BTC is potentially long-term undervalued, and over 6 (red) its likely long-term overvalued. This absolutely does not mean that the price will rise/drop when these levels are reached it more indicates there is more potential for the price to fall (if over 6) or rise (if under 2) over the subsequent years. For values between 2 and 6 the situation is less clear but gives a slight indication of under/over valuation.
Below summarises the historically significance of the different bands
| <0 Rarely has BTC been this low for long |
0-2 Normal when in a bear market |
2-6 Normal when in a bull market |
6-8 High with way more long term downside than upside |
More details are covered in our Crypto School lesson on Crypto market cycles
