Drawdown Index as a Method of Bitcoin Analysis

Using a drawdown (%) model to short-term, medium-term, and long-term forecasting BTC price action.

I was inspired to write this short article by an idea recently published by my colleague in the CryptoQuant verified authors’ team, Jan Wüstenfeld.

Fundamental rules:

• A line with a value of 0 is considered as the top of the cycle, i.e., the end of the bull rally or heralds that Bitcoin is already close to the top, i.e., the final design of the top takes place;
• Lines with a value of -0.85 and -1 are considered the bottom of the cycle, i.e., the end of the bearish pressure or portends that Bitcoin is already close to the bottom, i.e., the bottom is being finalized;

Drawdown (%) model/index for Bitcoin. Source: TradingView

Based on the above fundamental rules, we’ll apply the methods of classical technical analysis. You can easily import this Glassnode metric through your TradingView profile. Important: on the TradingView scale, the “regular” setting must be set!

TradingView profile chart settings

Applying Classical Technical Analysis to a Drawdown Model

As examples of the top of the Bitcoin cycle, I will give you two cases.

• First case. November 2020-April 2021, when the indicator indicated the final formation of the top of the cycle;
• Second case. October-November 2021, when the model immediately pointed to the top;

In the chart below, you can see that on November 30, 2020, the drawdown (%) indicator curve reached 0 for the first time, and somehow the pattern stayed that way until April 13, 2021, marking the end of the top cycle. On the chart, I plotted two global support trend lines [green lines] that were broken [gray circles] on April 18, 2021, and May 13, 2021, indicating the end…