The past week has been a volatile period for Bitcoin. Many popular investors, not too familiar with Bitcoin, were calling for the end of the bull cycle. Some were calling for a $30k or even $20k price. This could still happen but very unlikely. This is the dilemma many green investors face when dealing with Bitcoin. They know it’s volatile but tend to underestimate its price increases and overestimate its drawdowns after local tops during bull cycles.
Technical analysis is great for trading through trends, however on-chain metrics tell us the full story over a longer term picture. The recent correction in price served more as a launchpad for Bitcoins next move than it did as a top. Many on-chain metrics that were starting to get over-extended have now reset. This combined with Bitcoin back above $55k and Tesla announcing how impressed they were with Bitcoins liquidity, the price is poised for another all-time high.
Let’s go through some of the metrics that have reset and are ready for liftoff.
aSOPR tracks whether spent UTXO’s are in a profit or loss. When it is above 1 it means spent transactions are in profit on aggregate. When aSOPR retraces back to around 1 during bull cycles, sell pressure slows down because investors do not want to sell at a loss. The recent downtrend in aSOPR tells us short-term holders were likely selling to hodlers and were at an aggregate loss.
Market Cap to Thermocap ratio tracks the Bitcoin price compared to the total security spend by miners. As price goes parabolic, a price premium begins to form compared to the amount miners are spending to secure the network (infrastructure, electricity, equipment). This has been a reliable metric to find cycle tops and bottoms. The recent downtrend in price allowed this metric to take a breather and settle around half way to market top area.
NUPL tracks sentiment in the Bitcoin market by tracking the unrealized profit compared to unrealized loss. When this metric gets to Euphoria - Greed levels, it has been a reliable sell signal. The Bitcoin price was getting very close to this zone, however this recent price correction allowed it to retrace back and reset giving this bull cycle more time to run.
MVRV Z-Score is an interesting one because it poked through the sell zone, however the price correction allowed it to reset before piercing through which has been a signal for previous cycle tops. The current consolidation looks similar to 2017 right before its parabolic advance. The reason for it being high and closer to the red zone is likely due to more long-term holders causing market cap to outpace realized cap.
The chart above is from Glassnode’s recent newsletter. It shows us an uptick in coins that are less than one month old being spent. This gives us further indication that the main sell pressure was short-term holders or newer investors/traders.
ASOL tracks the average age of coins spent. There has been a steady decline since January, telling us that long-term holders are still confident in the trajectory of this bull cycle. In other words….WE’RE NOT SELLING!!
Along with these metrics, open interest, funding rates, and leverage have all had a chance to reset. When these start to get too high, there tends to be larger retraces from liquidations.
Are your laser eyes ready?
In the news…
If you’re interested to learn more about crypto trading, macro analysis, and on-chain metrics, you can get a free intro course and access to a crypto chatroom run by my friends at Bulls on Wall Street.
Resources I Use
I use Glassnode for all the metrics I track on the Bitcoin network. Their platform is extremely user friendly and fun to use.
Binance is the main exchange to trade the crypto markets.
Coinsquare offers Bitcoin trading in Canadian dollars and is one of the top exchanges in Canada.
I use Tradingview daily to analyze trading charts and find areas of support and resistance.
I use TokenTax to calculate my crypto taxes at the end of the year. They plug in directly to the exchange you use through an API. After you get the full report you can send it to your accountant or have their accountants finalize everything.
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.