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

Murphy is an on-chain data researcher, skilled at using on-chain data analysis to guide trading decisions. He has a background in the advertising and financial industries, and is very sensitive to data analysis. He began researching on-chain data in 2022, hoping to find a set of investment methodologies that can be effectively executed, replicated, and form a closed loop.

Murphy's Trading Strategy

Murphy's trading strategies mainly have the following characteristics:

1. Capital Allocation: 90% allocated to mainstream coins (BTC, ETH, BNB), 10% allocated to altcoins.

2. Expected Return: 200%-300%

3. Acceptable Drawdown:

   • Mainstream coins do not set stop losses; a 20%-30% pullback is normal.
   • Stop loss if altcoins drop below 20%

4. Trading Logic:

   • Long-term timing, buying at relative lows and selling at relative highs
   • Do not engage in swing trading, contracts, and high-frequency trading
   • Guide trading through on-chain data analysis

There are several reasons why Murphy has formed such a trading strategy:

1. Lessons from the last cycle: no stable strategy, influenced by market sentiment.

2. Professional background: Marketing experience in the financial industry has accumulated data analysis skills.

3. Personal Traits: Cautious, Pursuing High Certainty

4. Capital Attributes: Own funds, no leverage, lower cost

This strategy is suitable for:

1. Conservative investors seek high certainty.
2. Trend traders mainly hold mainstream coins

Murphy's Bottom Fishing Indicator

Murphy mainly uses the following 5 data points to determine the timing for bottom fishing:

1. CVDD ( Cumulative Value-Days Destroyed )

CVDD is an indicator that the BTC price has never effectively fallen below in history, and it can be used to assess the market bottom price.

2. RP( Realized Price ) and BP( Balance Price )

   When the BTC price drops below RP and consolidates in the channel between BP and RP, it is a good buying opportunity.

3. PSIP (Person Supply in Profit)

   When PSIP is below 50%, it is usually the extreme bottom of a bear market.

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

   When NUPL is red, it indicates that long-term holders have surrendered, which is a buying opportunity. An MVRV below 1 is also a buy signal.

5. Miner-related metrics

   Determine the bottom based on indicators such as mining costs and block time.

Murphy accumulates these metrics through the following steps:

1. Learn from the content shared by other analysts
2. Build your own indicator library and continuously optimize and iterate.
3. Improve indicator effectiveness through backtesting

Murphy summarized: "Macro-dominated expectations, expectation changes emotions, emotions affect the supply and demand relationship, and supply and demand ultimately determine the BTC price." By analyzing on-chain data, factors and logic that influence the supply and demand relationship can be identified, allowing for the assessment of possible trend changes.

How to Determine the Top of a Bull Market

Murphy believes that multiple data points need to be considered to determine the top, mainly including the following three indicators:

1. MVRV

When MVRV is greater than 3, you can start considering selling. You can sell by completing a reverse smile curve during the process where MVRV gradually increases from 3 and then falls back to 3.

2. URPD ( on-chain chip structure data )

URPD reflects the trading volume within a certain price range and can be used to verify the effectiveness of other indicators.

3. Changes in Supply and Demand Relationship

When long-term holders (LTH) start to sell off in large quantities, it may be close to the top.

Murphy believes that top judgments are more complicated than bottom judgments and require a comprehensive analysis of multiple data points. However, based on the "three-line convergence" indicator, this relative top range is expected to occur roughly between March and April of 2025.

Murphy's Trading Strategy Failure Situations

The Murphy indicators have the following main limitations:

1. Unable to determine long or short positions or specific prices in a very short period of time.
2. Cannot be used to analyze altcoins
3. Unable to accurately predict top/bottom prices and timing

Murphy's "Stop Doing List":

1. Stop having a mindset of luck.
2. Stop Emotional Trading
3. Stop Frequent Trading
4. Stop relying on a single source of information
5. Stop making decisions without research

Murphy's Learning Method

Murphy's learning path mainly includes:

1. Learn from the content of other on-chain data analysts.
2. Take notes, understand the logic, adjust the algorithm
3. Create an Excel spreadsheet to categorize and organize various indicators.
4. Continuously adjust and improve the effectiveness of indicators through backtesting.

Murphy believes that on-chain data analysis is best suited for assessing medium to long-term trends and cycles, and is not suitable for short-term price predictions. For altcoins, due to the lack of UTXO structure, a lot of on-chain data cannot be counted, hence this analysis method is not applicable.

In general, Murphy emphasizes the need to view data objectively and rationally, without being influenced by market sentiment, and to improve analytical skills through long-term accumulation and practice. He believes that on-chain data analysis is an effective tool for supporting trading decisions, but it should be used in conjunction with other analytical methods.