Pi Cycle Top Indicator – Genius or Self-Fulfilling Prophecy?

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  • The Pi Cycle Top Indicator has been much discussed among the crypto community
  • The chart has signaled the top of prior bull runs and did so again last week
  • The Bitcoin price dumped $14,000 days after the cross, but was it just coincidence?

Much has been made of the Pi Cycle Top Indicator, which topped out nine days ago. The tool, which plots two long term Bitcoin moving averages against each other, has famously identified the top of the last three Bitcoin bull runs within three days. When the two moving averages cross, so the adage goes, the bull run is in. These moving averages crossed on April 12, and lo and behold Bitcoin dumped just two days later. Is the Pi Cycle Top Indicator really that good, was it simple coincidence…or was it a self-fulfilling prophecy based on nothing but plain and simple human psychology?

Pi Cycle Top Indicator Is Correlational, Not Causal

When the Pi Cycle Top Indicator crossed on April 12, Bitcoin was at $60,000. It hit around $65,000 two days later before crashing $14,000 six days later, leading many to speculate on social media that Pi Cycle Top Indicator had gone and done it again. Of course we don’t yet know if this is the absolute top of the Bitcoin bull run (there are several factors that suggest it’s not), but even if price does rebound, $14,000 is a big correction at a time when everyone was screaming for $70,000 plus.

Pi Cycle Top Indicator

Source: LookIntoBitcoin

Indicators like the Pi Cycle Top Indicator are not hard and fast rules. In the case of the Pi Cycle Top indicator specifically, no one is saying that because the two moving averages have crossed that the price will automatically dump. What this indicator is saying is that on three occasions in the past, the Bitcoin price has topped out when they cross – it’s not causal, its correlational.

Self-Fulfilling Prophecy

The Pi Cycle Top Indicator doesn’t take into account the state of the market, where the sentiment behind Bitcoin is, or anything else surrounding it except for those two historical moving averages. What it does however is create an increasing spiral of probability. The more people talk about the Pi Cycle Top indicator and how accurate it has been in the past, the more people will expect Bitcoin to dump when it crosses. This creates a feeling of fear and doom around the cross, which will lead to more people selling at the first sign of weakness after the cross. If a large number of people sell, this creates a liquidation cascade and voila – the Bitcoin price dumps!

If the Pi Cycle Top Indicator had not been talked about so much, would price still have rejected and collapsed when it did? We will never know, but it cannot be coincidence that Bitcoin dumps when tens or even hundreds of thousands of people were fearful of such an event happening. Nevertheless, this is clearly an example of the self-fulfilling prophecy at work, and now it’s finally over we can resume the bull run.

Or can we…?