as always, the market newsletter is split into two parts: Bitcoin outlook by Joseph and on-chain analysis by Cole.
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The Bitcoin Outlook
Decentralized alternatives to everything are gaining traction due to concerns of censorship and the heightened level of restrictions.
In the U.S., a New Jersey gym that stayed open had its bank account seized by the state without any notice.
James Todaro shared this story and pinpointed the importance of Bitcoin. He said:
“New Jersey gym that stayed open against lockdown mandates has its entire bank account of $173,000 seized by the state without notice. This wouldn’t have happened if they owned #bitcoin You don’t control the money in your bank account. Don’t forget that.”
Bitcoin is a decentralized store of value, often described as gold 2.0.
But it is also a blockchain settlement layer by nature, and it allows anyone to transfer data, such as payments, without middlemen.
This grants every holder of Bitcoin the ability to secure and store their own capital that cannot be forcefully seized without obtaining the underlying private keys.
Atop the rising institutional demand, I expect the outcry for censorship resistance and decentralization to eventually translate to a general increase in the demand for Bitcoin.
On-chain indicators show high selling pressure
Bitcoin continues to consolidate and stagnate at around $36,000.
On-chain data and indicators depict a conflicting picture. Some show Bitcoin is primed for an explosive price movement, but whether that will be downwards or upwards is conflicting.
Let’s first take a look at the level of unrealized profit in the market.
Bitcoin entity-adjusted relative unrealized profit. Source: Glassnode
There is a lot of profit to be realized by both individual traders and entities.
The level of relative unrealized profit is significantly higher than the July 2019 peak.
As more investors and entities take a profit on their position, there will naturally be high selling pressure on Bitcoin.
Then let’s take a look at miners selling their Bitcoin holdings.
I personally think that the selling pressure coming from miners is being dismissed.
Miners are highly profitable because of the recent rally.
Miner’s Position Index on CryptoQuant.com
The Miners’ Position Index (MPI) estimates the amount of Bitcoin moving away from the wallets of miners.
When the MPI is high, it shows that miners are likely moving their funds from their wallets to exchanges.
We’ve seen fairly large transactions linked to miners in the past several days.
The biggest problem with Bitcoin in the short term is that the futures or the derivatives market continue to get overheated while BTC drops.
When the momentum of Bitcoin is slowing yet traders continue to buy every dip, it can raise the probability of a long squeeze.
Bitcoin futures funding rates. Source: Bybt.com
A long squeeze occurs when overleveraged longs or aggressive buyers get “squeezed out” of their positions. This can cause a sharp sell-off in the near term.
Market X-Ray by Cole Petersen
The past week has been quite boring compared to what we have seen throughout the past few weeks.
Bulls and bears have largely reached an impasse, which comes as institutional inflows show signs of slowing as its upwards momentum turns into a bout of sideways trading.
This consolidation isn’t necessarily bearish, but it may be coming about as the result of potential “mega-whales” selling on Coinbase. There is a bullish note to this occurrence (of which I’ll dive into deeper below) and that is the fact that BTC has yet to see any sharp sub-$30k selloff.
Each dip has been absorbed by a flurry of buying pressure from retail buyers and potentially larger buyers executing a TWAP strategy to accumulate.
Whales place sell-side pressure on Bitcoin, but bulls fight back — a positive sign
Bitcoin’s price has been suppressed by selling pressure from large holders who have been offloading their coins on Coinbase.
These “mega-whales” — as Joseph described them in a recent tweet — have been staking the sell-side books with orders over the past few days, which has made it incredibly tough for BTC to gain any momentum.
One interesting byproduct of this trend is a consistently lower BTC price on Coinbase as compared to other exchanges, which is something that is beginning to dissolve as BTC shows signs of strength.
“Bitcoin looks primed for a big move. - one concerning trend is that BTC continues to trade lower on Coinbase. - so-called ‘mega whales’ keep selling [shown by chart below]. So far, there are no indicators of a big move up. This could change though.”
But are retail investors losing faith in the BTC rally?
The retail fomo that was, at least in part, behind the recent uptrend appears to be subsiding quite a bit. An example of this is Coinbase’s app ranking on Apple’s App Store, which reached highs of nearly 20 before dropping down to the 80 region this week.
It’s not surprising that this class of investor, often called “dumb money” (and rightfully so), loses interest in the market during consolidatory periods, but will likely rush back in and fuel the next leg higher once BTC picks up steam.
On the other side of the fence, there are still signs of immense interest from Wall Street-level investors looking to purchase BTC allocations through regulated venues.
This can be seen while looking towards Grayscale’s buying activity, which has been surging as of late.
So, in conclusion, I think we’re at a bit of a crossroads at the moment. Bitcoin is consolidating as some whales exit while others accumulate, and retail is waiting for a surge higher before rushing back in.
The level I’m closely watching in the near-term is $40,000. This has clear psychological significance, and flipping this to support could be all that it takes for the crypto to post another leg higher.
Joseph Young is a cryptocurrency analyst who has been in the space since 2014. He contributes to Forbes, CoinTelegraph, and a host of other top crypto news sites. Over his 6+ years in the space, he has built countless connections with industry leaders and has amassed over 100,000 followers on Twitter.
Nick Chong is a passionate crypto researcher who specializes in identifying and extracting conclusions from trends within the rapidly emerging DeFi-space. He has been involved in the crypto markets since 2016, and sources deals for a Vancouver-based crypto venture fund.
Cole Petersen first learned about Bitcoin in 2013 and began working in the space in 2017. While on a gap year as a student at the University of California, Irvine, he now leads LINKPAD, a DAO-owned venture capital fund, and does part-time work as an associate at BlockVenture.
Pepe of the Day:
Pepe the Frog has become the unofficial mascot of the crypto markets, so we feel it is only fitting to add a “Pepe of the Day” section highlighting only the finest and rarest Pepes.
Today’s featured Pepe: “We’re all geniuses in a bull market”