March 28, 2024

Sentence Compression Continues - Onchain Pulse from July 31, 2021

In the new survey, the analyst Will Clementeanalyzes the current situation in the bitcoin market, with the help ofon-chain metrics separating signal from noise.

Dear readers, I hope you have a good week.After several weeks of strong divergence between signs of investor behavior and price, it appears that we are finally seeing the on-chain trends that I have written about in previous issues begin to be reflected in price movements. As we predicted last Saturday, a short squeeze occurred overnight between Sunday and Monday, eliminating more than $110 million in short positions in a matter of minutes.

BTC futures shortcut elimination (all exchanges)

This created momentum for the rally, in which the market has formed 10 green daily candles in a row to date.

Chart executed in TradingView

Let's take a look at how things have developed this week in terms of on-chain metrics. As always, I'll start with the key points:

  • Very strong outflow of BTC from exchanges.
  • Miners continue to accumulate.
  • “Strong hands” (network entities with a short sales history) continue to accumulate.
  • All major cohorts of users are increasing their Bitcoin holdings, with the exception of the 100-1000 BTC group (remaining the same).
  • There has been some profit taking from the current rally in the past few days - mostly young coins (likely bought in the same range).
  • The level of on-chain activity (active addresses, BTC transfer volume, etc.) generally remains unchanged.
  • The BTC offer is trading at a profit again.

I suggest starting with a metric that tracks more thanthe broad context of accumulation in the bitcoin market. I invented this indicator myself. It is a 365-day Stochastic RSI (Stoch RSI) applied to a 30-day net change in illiquid supply (the difference between an illiquid supply today and a month ago). I use it to track the wave of "supply shock" that is brewing in the market. The Stoch RSI chart shows what I mean by supply shock “wave”: I have marked the corresponding moments with green arrows. A similar supply shock triggered a bullish rally in late 2020. Looking at it today, one can state not only a buy signal, but also a rather impressive rate of change from the May sell signal to the current values. In my opinion, this indicates the strength of the momentum from the current wave of supply shock.

Stoch RSI for liquid BTC supply

Just for fun, here's how the same metric performs in 2017-2018 data. It gives buy signals infrequently, but when they happen, they turn out to be very accurate from a macro perspective.

Stoch RSI for liquid BTC supply

Important note:all data used below on illiquidsupply, exchange balances and shares of BTC supply held by different cohorts of users do not take into account data for the last two days. I've never resorted to such restrictions, but this time it seems appropriate to me, and here's why: Thursday there were multiple reports of large BTC outflows from several exchanges, including over ₿108k from Kraken, whose total balance was being reduced. up to ₿62,859. I am extremely skeptical about these movements, which affect other data associated with network entities, including illiquid supply. I suspect this is just a routine internal rebalancing at the end of the month that will be picked up by Glassnode's heuristics in a few days. Therefore, in this case, I preferred to play it safe and not hastily distribute data that probably needs updating. I hope you will understand this. By the time the next review is completed, the data will likely have been adjusted if necessary as Glassnode takes a deeper look at these streams.

So, looking at the broad supply shockperspective, let's now take a closer look at this movement of coins from “weak hands” to “strong hands”. To do this, we use the liquid supply ratio, at which we can observe the next upward impulse. I've been writing about this re-accumulation process since June and it's now almost complete. The supply shock is at the same levels last seen at $50-60k/BTC.

Liquidity supply ratio. BTC is flowing from "weak hands" to "strong"

Exchange balances fell again, confirming the accumulation: they were down 66,655 BTC this week. As I mentioned, this does not include data for Thursday and Friday.

BTC balances on exchange addresses (all exchanges)

As a result of this reduction in exchange balancesBollinger bands for BTC exchange flows formed a clear buy signal. This indicator tracks large capital movements at exchange addresses: when there is a large influx of BTC to exchanges, this is evidence of a potential sale; on the contrary, a large outflow of BTC from exchanges indicates the likely accumulation of coins by users. This system generates buy / sell signals when the metric breaks through the Bollinger Bands in any direction.

Bollinger Bands for BTC streams on exchange addresses

However, at current levels there issome profit taking from the current rally, with net realized gains of $2.4 billion on Tuesday, which is not a cause for concern in my opinion and is to be expected after sitting at the lower end of the price range for several weeks. But just to get a clearer picture, it might be wise to look at the age of the coins being sold. If we see pronounced profit-taking on each bounce from older coins seeking liquidity to exit, this may raise some concerns. So what are the results?

Net realized profit / loss

The average age of coins sold is stillis in a sideways trend, and the broader multi-month trend is still clearly downward. In fact, Tuesday saw a dip in the age of coins traded, coinciding with net realized gains of $2.4 billion, suggesting that these coins were likely purchased recently, in that same range, by inexperienced market participants.

ASOL adjusted for users

And to end the topic, here's another splashnumber of coins between 1 week and 3 months old (i.e. purchased in the $30-40K range) spent on Tuesday. However, no significant coinciding surge is observed in older cohorts.

Ages of Outputs Spent

It can also be stated that this is a rallyincreased the profit percentage of the withheld offer from 65.82% on July 20 to 82.58% at the time of writing. The last time the percentage of supply in profit was this high, BTC was valued at ~$50k. Among other things, this is another way to note how many coins were reabsorbed in the $30k - $40k range, since that was However, the last time the coins should have been spent at lower prices.

Percentage of supply in profit

And one last note regarding profit-taking.Let's take a look at the SOPR (Spend Output Rate) adjusted for users using Glassnode's clustering methods. The metric shows that the market is once again trading in net profit territory. To confirm the bullish thesis, it would be good to see the stabilization of this indicator above 1 (black line) or a rebound from 1 during price correction.

SOPR adjusted for users

Miners continue their intensive accumulation forwhich we have been following since June. After the hash rate has dropped and the difficulty has been adjusted on a large scale, mining is very profitable for the remaining participants in the network. This is due to the reduction in the number of hashing powers competing for the block reward.

Miners wallet balances (all miners)

Finally, the level of on-chain activity remainsextremely low. Meanwhile, of course, I would like to see an increase in the number of transactions, the size of the mempool and the number of active addresses, in order to gain additional confidence that online activity is showing the same optimistic signs as the metrics indicating a re-accumulation of BTC.

The number of transactions in the network, adjusted for users (7d MA)

 

The article does not contain investment recommendations,all the opinions expressed express exclusively the personal opinions of the author and the respondents. Any activity related to investing and trading in the markets carries risks. Make your own decisions responsibly and independently.

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