Bitcoin on-chain analysis, an overview of 2/11/22–2/18/22
- The general market is, for the most part, in a dangerous, trendless chop.
- Bitcoin 1D correlation to Nasdaq has flipped negative
- Currently sitting at a crucial pivot point from a price structure standpoint
Bitcoin On-Chain and Derivatives Update
To preface this I think it should be stated that current market conditions are very murky and certainty about uncertainty seems to be extremely high.
For short-term traders, it may be wise to wait until more clarity after March’s FOMC meeting. This will be oriented towards longer-term investors.
Let’s first take a peek at the derivatives market and then segway into the on-chain.
Before we get into anything price-wise, can we just take a moment to appreciate the recovery of the Bitcoin hash rate?
After China banned Bitcoin mining, we have seen a full recovery of hash rate; meaning machines and human capital migrating across the world and replugged in a completely decentralized way.
The Bitcoin network continues to prove its resiliency and the network is currently more secure than ever before.
First of all, from a price structure standpoint still looking at the same areas of interest we’ve highlighted for a while:
Currently watching to see if BTC can hold the 40k area and set a higher low here, they would be expecting to see a push up to 47k.
If BTC starts closing back below, would be eyeing a retest of 30–33k area. 40k has been an area that has defined much of the last year of trading for BTC.
Also still believe 47k is the most important area to reclaim from a high time frame perspective, lots of confluence of importance there.
Now on to derivs.
The indicator at the bottom of this chart compares a weighted average of the price of all BTC perp contracts and the weighted average of all spot BTC. This gives you the premium or discount depending on if perps are trading above or below the spot.
Currently, Bitcoin has been in a prolonged regime of spot premium. This is overall healthy for the backdrop of current market conditions and something to consider when putting other metrics or thesis’ into context.
The way I see this is that the longer and more aggressive a regime, the more impactful the move will likely be once that regime finally changes.
An example of this was early 2021: degen longs got used to a persistent spot bid bailing them out and leveraging longing every dip. This complacency, as a byproduct of being at one extreme of the spectrum and participants expecting the current regime to continue forever, set the precedent for a massive liquidation wipeout.
Very similar, over summer last year shorts got comfy shorting range highs at 40k, and towards the end of the re-accumulation period got comfy shorting 35k.
This complacency fueled the move back up as market participants were mentally trained to view every rally as a short opportunity.
Still feel that the 30–35k area is viewed as a value area for large market participants.
First of all, based on price action if we think of the last year of trading between 30k-60k as one giant range, that area sets range lows.
Second, we can look at spot order books and see where areas of interest are for large players. Seeing a confluence across several major exchanges of interest at that 30k level.
And lastly, looking at whales’ holdings, saw a fairly substantial uptick on the move down to 30k a few weeks ago, showing that was a level that they were interested in doing business. After grinding up off that low their holdings have gone flat.
Quarterlies are now below 5%, showing a continued decrease in froth from the derivs market.
A dip into backwardation would be an awesome buy opportunity if given.
The trend between the 7DMA and 14DMA of quarterlies is interesting to note.
Whenever the 7DMA is substantially below the 14DMA has been a decent buy opportunity.
Simply buying backwardated quarts has historically been a great buy opportunity though.
Another chart to watch has been the correlation of Bitcoin to traffic and the Nasdaq in particular.
Interesting that the peak of correlation talks and posting of charts comparing the Nasdaq and BTC was actually when the regime of correlation was starting to revert.
Correlation is currently negative. Human psychology never changes; at extremes of trends we expect them to continue that way forever.
Now onto the on-chain.
In a very broad sense we view the low 30ks as a value area, and overall think the asymmetry is not skewed to the downside for someone with a year-plus time horizon, and therefore see it as a nice time to dollar cost average into the asset.
Let’s look at a few data points to illustrate this.
First, we have the Mayer multiple; which simply compares Bitcoin price to its 200 days moving average. Currently sitting at the lower extreme of where it has historically oscillated.
Next, we have dormancy flow. This compares the annualized USD value of destruction to the 365 moving average. This gives you a gauge of how many old coins are being spent relative to the recent overall trend.
Similar story with MVRV and STH MVRV as well. Showing Bitcoin’s market price set by the marginal buyer/seller relative to the cost basis of market participants.
The cost basis ratio, comparing the average buy-in of both short and long-term holders is also in the lower 25th percentile of historical values.
- 5 Best Crypto Exchanges in UAE | SimpleSwap Review
- 7 Best Ways to buy Dogecoin | ZebPay Review
- Best Futures Trading Signals | Liquid Exchange Review
- Crypto Trading Signals for Huobi | Swapzone Review
- Best Crypto Trading Bots | Buy Solana | MatrixPort Review
- Coldcard Review | BOXtradEX Review | A Guide to Uniswap
- Coinbase Review| Deribit Review |FTX Review
- NGRAVE ZERO review | Phemex Review | PrimeXBT Review
- Best Blockchain Analysis Tools | Earn Bitcoin
- Cloudbet Casino Review | Ignition Casino Review