Dialogue with Trader Murphy: On-chain data is not like carving a boat to seek a sword; what four dimensions tell you where you are in the current cycle?

Murphy is an on-chain data researcher who shares his research results on Twitter under the handle @Murphychen888. He has a background in traditional finance and has worked in marketing, which has given him a sensitivity to data. He entered the cryptocurrency space in 2017 and has experienced multiple cycles of bull and bear markets. In 2022, he began researching on-chain data, hoping to find a set of investment methodologies that can be effectively executed, replicated, and closed-looped.

Murphy's trading strategy

1. Capital allocation: 90% mainstream coins (BTC, ETH, BNB), 10% altcoins
2. Expected returns: 200%-300%
3. Drawdown Tolerance:
   • Mainstream coins: Only watch the cycle, do not set stop-loss, 20%-30% pullback is normal
   • Altcoin: Stop loss below 20%
4. Trading Logic:
   • Long-term timing, no swing or high-frequency trading
   • Guide trading through on-chain data analysis

How does Murphy determine the bottom and top of ###

To determine the bottom, mainly look at the following 5 indicators:

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

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

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

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

   • When NUPL turns red, it indicates that long-term holders are capitulating, marking the market bottom.
   • When MVRV is less than 1, it indicates that long-term holders are in an average loss state, which is likely the market bottom.

5. Miner Perspective:

   • Mining cost: A price close to the cost indicates a temporary bottom.
   • Mining Pulse Index: A positive value indicates that miners are shutting down, and it is a good time to buy.

To determine the top, mainly look at the following 3 indicators:

1. MVRV: Sell when it is greater than 3.

2. URPD( Unspent Realized Price Distribution ): Reflects on-chain chip structure, can be used to verify other topping signals.

3. Supply and Demand: When long-term holders (LTH) start selling off in large quantities, it may be close to the top.

The applicability of Murphy's trading strategy

Suitable for:

1. Conservative investors, seeking high certainty, can hold for the long term.
2. Trend traders mainly hold mainstream coins

Not applicable to:

1. Short-term swing trading
2. Altcoin Analysis ( lacks UTXO structure, making it impossible to perform a lot of on-chain data analysis ).

Murphy's learning method

1. Learn from the content shared by on-chain data analysts in the market.
2. Record and categorize metrics in Excel, continuously optimize and iterate.
3. Improve indicator effectiveness through backtesting correction.

Murphy's "Stop Doing List"

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

Murphy believes that macro-dominated expectations lead to changes in sentiment, which in turn affects the supply-demand relationship, ultimately determining the BTC price. Through on-chain data analysis, one can identify the factors and logic behind the data that reflect the supply-demand relationship, thereby judging trends and cycle transitions.