The avid readers among you, will remember that back in November 2018, I was playing around with a propretary indicator/ratio that looks a little bit like an inverted, relative NVT - which I called the RVP, shorthand for Relative Velocity Proxy. The RVP is a way to track how an asset's daily volume (adjusted for a 30 day average) compares to the global volume and then further adjusting for its relative market cap. Below you'll find how the metric is derived - where Glovol is the 30 day moving average of the global volumes in crypto, and equivalently Glomcap is the 30 day moving average of global market cap of cryptoassets.

So what this effectively shows, is how much exchange volume is being driven through a cryptoasset, weighted by its market cap, all relative to the total cryptoasset universe. The relativity in this case helps reduce the noise introduced by mis-reporting on volumes from exchanges, by making it the common denominator. My intuition behind experimenting with this metric, was that periods of outter bound relative velocity, should mark pivot points for an asset's price - these are the points in the 1% edges of the probability density function of the RVP.

The bottleneck back in November was that we didn't have enough data available to be able to run a longitudinal analysis and see how the ratio behaves over time. However, at present, our newly build market tracking dashboard and database can finally power that type of analysis - and pretty much for any asset in the book. In fact here's what it looks like.

As I am still experimenting with the utility of this ratio, I decided to first focus on how it applies to Bitcoin; after all, the NVT - a sister ratio to the RVP - and its different variations, have been used widely in order to "value" Bitcoin. Below, you'll find a plot of the RVP and bitcoin's log returns since Jan 2014.

At first glance I found no obvious indication of signal, but it did feet like there was something hidden in the noise - and so I took a closer look at the edges of the distribution. This is what I found;

The coloured areas in the chart signify the respective market environment of the period - red (bear), yellow (accumulation), green (bull). What is really outstanding here is that the very top ends of the distribution in the RVP (RVP= ~120; black pointers in the chart), coincide perfectly with the perfect bottom of 2015 and the perfect top of 2018. How is it possible for the top of the distribution to point to opposite ends of the market cycle?

Considering the fundamental meaning of the RVP, the very top of the distribution points to conditions of extreme/outstanding volume or conditions of extreme capital flight (while the utility aka relative volume is constant) - aka blow-off tops and capitulation events.

So far so good, but the next observation here was the following: "if this thing is good at capturing capitulation events, then why did it not capture the capitulation event in Nov. 2018?" One reason we could potentially explain this, is that the November event was not a market-wide movement, but rather a concentrated action event that took place over a short amount of time.

Looking a little more closely, I found another commonality in the RVPs around the bottoming formations in Bitcoin's price - both are lie at the ends of the RVP probability density function (one at the top end, and one at the bottom end) AND both find the volatility of the RVP at a minimum. To illustrate, I have plotted the 30day standard deviation of the RVP against the log returns of Bitcoin below;

The last time the volatility of BTC exchange volume shares relative to the market share of Bitcoin was as low as it was in early April, was in April 2015 and December 2015 - ergo, very close to the beginning and the end points of the last Bitcoin accumulation phase!

Overall, some very positive indications here. This is still a work in progress and reservations should be held on the robustness and validity of the insights, but it is also likely that the early insights from the analysis of the RVP, may be an important step to solidifying one more valuable tool in the analyst's arsenal.

A proprietary indicator of Bitcoin tops and bottoms