How I Kept My Sanity In The May Time Panic?
Case Study into Bitcoins on-chain analysis (Part #2)
This story is a continuation of the case study, I recommend you to read the previous one…here
May 17, 2021 to May 23, 2021
Bloodbath, yes that is actually what people texted me on the 19th of May, I myself was looking at tradingview watching a massive bear candle bleed my portfolio and yes I panicked too! Did the thought of selling my portfolio cross my mind, Yes again! Did I sell it, No. I in fact was geared up to buy more, but no thanks to overextended servers due to panic sellers the exchange went down. In those 45mins of market sell-off and recovery, I experienced the most extreme mood swings so far.
Realized losses mean when you actually sell a token/coin at a price less than what you bought it for. This metric looks at the fiat price when a UTXO was created and spent.
The realized losses have never seen such a big sell-off, on 19th May alone losses faced by spent coins was $4.53 Billion.
We have discussed this graph in my previous story and the inserting things to notice is that when the price of bitcoin was around 42k, 77% of the on-chain entities were in profit and after this move to lower 30ks still 76% of the on-chain entities are in profit, what my personal take from this was that these 76% entities are the smart money players who have been long term holders and also that these holders are not playing the game of leveraged trading. More on this later editions as I will explain what caused that massive bear candle to wick.
This kind of on-chain scenario happened in 2011, 2013, 2016 all before a bull run, reinforcing my bullish bias.
Spend output age bands
What this chart measure is the percentage of tokens/coins spent on-chain belonging to a certain age band/range. It achieves this by comparing the time gap between when a UTXO was created and when it was spent to determine its age and then calculates its percentage by diving it by all the transactions which took place.
This shows us that most of the losses realized were by the people who bought in the market within the last 3 to 4 months. Thus the Shot term holders(STH).
Here is the point which I made in the last story, i.e Be fearful when others are greedy and greedy when others are fearful. The smart money holders know this.
What do I mean? When comparing this to the spending data of long-term holders, we see the opposite trend being followed, these holders spent their coins much early, which I also suggested in the previous story that bitcoin was changing hands from learned hands to STH investors by looking at the URPD.
See the spike in spending happening when the price of bitcoin was ranging between 55k to 58k, after which there has been a significant drop in spending by these holders ranging from 1–3yrs thus the LTHs.
For the following weeks, bitcoin went into an accumulation phase and the price did not do much, since I still was very bullish on bitcoin I started to find more opportunities to enter. For me, the baseline support was at 30k price level as this is the golden ratio level for this cycle below which bitcoin does not break in its bull cycles.
In search for finding meaning in what was happening and how to capitalize on the massive discount the spot price is trading at, I came across the Wyckoff Accumulation.
This is the schematic graph which I first started to compare the price with,
The drawback of this analysis which I will later realize is that my time frame was very small, I was applying the analysis in a 1-hour time frame. According to which my analysis was as following,
I had a green zone of support ranging from 32k to 34k and a resistance marked with red ranging from 40k to 42k.
Following my personal entry strategy, I saw a possibility of the bitcoin price falling back to the support zone, so I stayed calm and did not enter the market in haste and as it will later turn out these open-minded tweaks which I kept doing to my analysis did play out well.
In the later stages of my technical analysis, I did not see price move with enough momentum and my short term indicates started showing the possibility of another touch at the support.
I was a little too early to call this out, the price did climb a bit higher before it came back to the support zone. Looking at this, I studied the accumulation model further and came across another schematic of the same.
As per this schematic, there was a possibility of a spring stage that could take the price again to lower 30ks, thus into my support zone at that time.
This presented me with the entry opportunity I was looking for.
June 13, 2021 to June 19, 2021
After a long time bitcoin had shown over 20% movement in a week but only to die down and return to the lower 30ks support.
It is times like these when maintaining a positive outlook becomes hard and you start to question your technical analysis, that is when the on-chain analysis helped me get back my confidence.
Here is why,
Let me break down this graph for you.
This chart shows on-chain holders divided into 4 categories,
- Long term holders who are in profit in dark blue
- Long term holders who are at a loss in light blue
- Short term holders who are in profit in dark red
- Short term holders who are at a loss in light red
In the bull run the LTH started to offload their bitcoin and the STH started to accumulate more and more coins as a majority of them were in profit. Which did not last for long, after the peak when the sell-off began these STH were in massive drawdowns and most of whom panic sold their tokens/coins.
Notice that when these STH were offloading their coins and realizing losses, the LTH were buying more despite their coins going into an unrealized loss(see the small light blue region at the right end of the chart).
This is the important mindset shift new entrants into the markets should understand. As I said in my previous story that big money is not made in bull runs but in crashes, and this is how it looks.
Chinese Ban
The ban caused the largest migration of bitcoin hash power outside of China, dues this drop in hash rate the network was likely to slow down, like in terms of transactions. Which I felt will have a negative effect on the price.
Similarly from 18th to 21st June, the price accumulated just below my minor support marked around 35–36k and likewise by personal technical strategy showed the possibility of another dip to the lower 30ks. (The chart of which I did not save, just put it up on my Instagram)
I knew this was an opportunity to dollar cost average and add other positions, but the thing which stopped me from buying in was the fact that the price dipped below 30k and went as low as 29k. This made me wait and look for more confirmations,
This was my set-up, again looking for entry between the 30k to 31k range, as the upper bound of my convection zone(personal strategy) were converging.
Also while I was studying the graphs further I realized that my Wyckoff analysis was just partially right as I was looking at it in the wrong time frame, I then applied it to a longer time frame(4 hour).
Now with this, the move down to 29k made sense, as it was the actual spring stage. After discovering this and reading more about the accumulation, there could be multiple spring stages or tests. Thus with china fud and hash rate dropping to new lows which I will discuss in the next article, I saw the likelihood of another entry in this range.
Even though this won’t play out till 20th July, with the help of on-chain and my personal technical strategy I waited patiently.
June 27, 2021 to July 3, 2021
The above is for information purposes only. It is not investment advice.
