The MarketVector™ Crypto Heat Index serves as a barometer for market sentiment and valuation extremes in the digital asset space. Built to capture broad market conditions, the Heat Index classifies the crypto landscape into periods of undervaluation, neutral sentiment, and overheating.
Combined with a trend-based signal framework, it helps investors identify tactical entry and exit points—not by attempting to time exact bottoms or tops, but by recognizing momentum shifts when market conditions change.
As shown in the chart below, the index moves within three distinct zones:
- Undervalued (0–25%) — Historically associated with strong forward returns.
- Neutral Zone (25–75%) — Periods of market balance.
- Overheated (75–100%) — Often preceding market corrections.
How Signals Are Generated: SMA(20/50) Trend Reversals
To identify actionable turning points, we apply a simple moving average (SMA) crossover to the Heat Index itself:
- SMA20 — fast-moving gauge of recent sentiment
- SMA50 — slower, structural sentiment measure
A BUY (Rebalance Up) signal occurs when the SMA20 crosses above the SMA50 while the Heat Index is in the Undervalued Zone (0–25%). A SELL (Rebalance Down) signal occurs when the SMA20 crosses below the SMA50 while the Heat Index is in the Overheated Zone (75–100%). This method highlights trend reversals, meaning signals emerge precisely when momentum shifts direction. It avoids trying to predict extremes and instead focuses on confirmation of a trend change, historically making the signals more robust.
Performance by Signal
Using historical signals since 2017, we evaluate the forward returns following each Rebalance Up (BUY) and Rebalance Down (SELL) event. The results below summarize the median returns across multiple time horizons.
Signal | 7D | 30D | 90D | 200D | 1Y | 2Y | 3Y |
BUY | +0.7% | +3.9% | +20.4% | +48.1% | +76.7% | +80.2% | +518.0% |
SELL | –2.9% | –8.5% | –10.3% | –35.0% | –46.7% | –42.7% | +165.9% |
(returns represent median cumulative performance of Bitcoin following each signal)
Key Insights
- Buy signals (green zone) historically precede strong medium- to long-term returns, with gains compounding up to several hundred percent over multi-year periods.
- Sell signals (red zone) have tended to warn of impending drawdowns, particularly over 3–12 months.
- The Heat Index effectively identifies extreme sentiment reversals, helping investors manage exposure and rebalance portfolios tactically.
Conclusion
The MarketVector™ Crypto Heat Index provides an intuitive framework for gauging crypto market extremes. While not a timing tool, its signals highlight risk-adjusted opportunities by distinguishing periods of excessive optimism from deep undervaluation — a valuable lens for long-term digital asset allocators.
View the latest Heat Index here.
About the Author:
Jonas Weber is an emerging expert in digital assets and investment strategies. As a Digital Asset Analyst at MarketVector, he excels in generating innovative index ideas, building out the quantitative research infrastructure, conducting in-depth research, and supporting client communications. Before joining MarketVector, Jonas honed his skills as a working student in Investment Consulting. At Lurse AG, a pension consultancy firm, he was instrumental in developing new investment strategies and analyzing the risk and performance of model portfolios. His collaboration with Lurse AG also extended to his master’s thesis, which he completed summa cum laude, focusing on various investment strategies and deriving optimal guarantee levels.
For informational and advertising purposes only. The views and opinions expressed are those of the authors but not necessarily those of MarketVector Indexes GmbH. Opinions are current as of the publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, that do not reflect actual results. It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments based on that index. MarketVector Indexes GmbH does not sponsor, endorse, sell, promote, or manage any investment fund or other investment vehicle that is offered by third parties and that seeks to provide an investment return based on the performance of any index. The inclusion of a security within an index is not a recommendation by MarketVector Indexes GmbH to buy, sell, or hold such security, nor is it considered to be investment advice.
Get the latest news & insights from MarketVector
Get the newsletterRelated:
