Bitcoin: Find Market Tops With HODL Waves

BTC News #32

I woke up this morning and the first thing I did was make myself a coffee and read Jan & Yann latest newsletter. They’re the co-founders of Glassnode and write the BEST Bitcoin newsletter in my opinion. Every investor trying to sound smart about Bitcoin rarely ever talks about actual metrics that drive Bitcoin demand and supply. Jan & Yann do it the best.

In todays newsletter I will focus on two charts they talked about that caught my attention the most. As this market cycle gets more volatile, finding a market top or close too is becoming extremely important.

Every Bitcoin bull cycle consists of local tops and a global top. Local tops are short-term tops before a larger pullback, followed by another price uptrend. During previous Bitcoin bull markets we have seen multiple local tops followed by 30%+ pullbacks. A global top is the final top of the current Bitcoin bull cycle before a likely 80% correction.

Long-term holders generally don’t panic from local tops because they understand the volatility of a Bitcoin bull cycle. They’re more concerned about finding the global top. Short-term holders have likely bought in do to the mania and don’t want to miss out. They’re more inclined to get nervous during local tops and pullbacks. It’s this difference in mindset that causes global tops.

When short-term holders control more of the liquid Bitcoin supply, panic sells become stronger in the market. As short-term holders grow, a global top becomes more likely.

Luckily, with blockchain technology we can track how old a Bitcoin is by tracking when it was last moved.

Here is one of Jan & Yann’s charts

They have found that when Bitcoins that are 1 month old or younger (short-term holders) start to make up 60% of the realized cap or more, a global top is coming. For a breakdown of what realized cap is click here.

They have also found that towards the end of the bull cycle there are three tops on this metric before the final 80% correction. Currently, we stand at one top for this metric this bull cycle.

Another metric that pairs nicely with this is how long-term holders’ Bitcoin are affected in this metric.

Let’s look at another chart by Jan & Yann.

As short-term holders start to dominate on-chain activity, long-term holders with Bitcoin that are 6 months or older start to decrease in realized cap. According to Jan & Yann, when these long-term holders get to around 6% we get into extreme territory when weaker hands are controlling most of the liquid Bitcoin.

Currently, we stand at around 20% giving Bitcoin more room to increase in price.

The reason for all of this goes back to the mindset difference we spoke about at the beginning. Weaker hands sell faster in a pullback out of fear. If weaker hands control the majority of the liquid Bitcoin supply, a bigger price correction occurs; local top becomes global top. This mixed with larger savvy investors taking profits creates a massive sell-off until the Bitcoin price finds a new cycle bottom.

To better understand this metric and many more I would recommend signing up for Jan & Yann’s newsletter here. For this newsletter I have used their charts.


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Resources I Use

Glassnode - Track Bitcoin on-chain metrics

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Nothing in this article is investment advice. I’m not a financial advisor. Do not make investment decisions based on what is in this article or any other article written by BTC News or Blockedia.