- With bitcoin’s rise to 17-month highs, the Mayer multiple (a ratio of price to the 200-day moving average) is teasing a break above 2.40 – a level that has marked the beginning of speculative bubbles in the past.
- BTC may see a short-lived spike to resistances at $17,230 (January 2018 high) and possibly to $20,000 (record high) if the Mayer multiple finds acceptance above 2.40.
- The hourly chart is flashing signs of buyer exhaustion, however, so a correction to $11,000 cannot be ruled out.
- A UTC close below the May 31 high of $9,097 would abort the bullish view.
Bitcoin’s (BTC) surging price over the last week is reminiscent of the bull market frenzy observed a year and a half ago.
The leading cryptocurrency by market value rose to a 17-month high of $12,936 on Bitstamp earlier today. At that price, the cryptocurrency was up $3,900 from the level of $9,036 seen a week ago.
Notably, with the near 90-degree rally to 17-month highs, the ratio of bitcoin’s price to the 200-day price average – known as Mayer multiple – printed a high of 2.42, a level which was last seen in early January 2018.
The Mayer multiple essentially quantifies the spread between the price and the 200-day MA. An above-1.0 ratio indicates BTC is in bull market territory above the 200-day MA, while a reading below one implies the cryptocurrency is in a bear market below the 200-day MA.
That said, over the years it has been observed that a reading above 2.4 signifies the beginning of a temporary speculative bubble – a self-feeding cycle of higher prices attracting more bids, leading to further rally.
The Mayer multiple rose above 2.4 on Mar. 4, 2013, when the price was trading at $36.00, representing 176 percent gains over lows near $13 seen in December 2012.
More importantly, the cryptocurrency rallied more than 600 percent to $259 in the following four weeks before falling all the way back to $45 on April 12.
Further, prices rose from $11,000 to $20,000 in sixteen days following the ratio’s rise above 2.4 percent on Dec. 1, 2018. Again, the bubble was short-lived, with prices falling to $12,000 on Dec. 22.
On similar lines, BTC had gone ballistic, rallying by more than 300 percent to $1,163 in three weeks following the Mayer multiple’s move above 2.40 on Nov. 7, 2013. By Dec. 18, however, the price was trading at lows near $350.
So, if history is a guide, then the fear of missing out may kick in once the Mayer multiple finds acceptance above 2.40, leading to further price rise toward the record high of $20,000.
As of writing, bitcoin is trading at $12,521, representing 10 percent gains on a 24-hour basis. Meanwhile, the Mayer multiple is seen at 2.40.
The cryptocurrency has pulled back from 17-month highs hit earlier today, leaving signs of bullish exhaustion on the short duration chart.
Bitcoin created a doji candle with a long upper shadow earlier today. The doji candle – a sign of bull indecision or exhaustion – is backed by highest sell volume (marked by arrow) since June 6.
Such candles often mark a local top, according to Alex Kruger, a prominent fundamental and technical analyst.
As a result, a deeper pullback, possibly to the psychological support of $11,000 cannot be ruled out – more so, as a widely followed long-term indicator is reporting extreme overbought conditions.
The 14-week relative strength index (RSI) is currently hovering above 81.00, the highest level since mid-December 2017.
While the case for a minor pullback is looking strong, the overall outlook will remain bullish as long as the price is held above the May 31 high of $9,097 and the cryptocurrency could chart another meteoric rise toward $20,000 if the Mayer multiple rises above 2.40.
Disclosure: The author holds no cryptocurrency at the time of writing
Green arrow image via CoinDesk archives; charts by TradingView