Market forecast: massive Coinbase selling drives 17% drop, where does Bitcoin go next?

Hi Frens,

as always, the market newsletter is split into two parts: Bitcoin outlook by Joseph and on-chain analysis by Cole.

If you want access to the exclusive interviews with top traders and industry executives, our research about DeFi and crypto trends, and the additional DeFi letter, you will need to subscribe. But have no fear, it’s only $14.99 a month, or $139.99 a year. Get yourself a belated holiday present and subscribe to Alpha Alarm today.

It’s literally the cost of one Uniswap trade a month or a few Starbucks coffees - it’s cheap.

We’re going to release an interview with the BIGGEST trader in the space next week. You don’t want to miss out.


Tl;dr

Market sentiment check: cautiously optimistic for a short-term trend reversal. I’m confident the market recovers gradually in the upcoming days.

Positives:

  • Bitfinex settled with the New York Attorney General’s office. This lawsuit presented a potential existential threat to crypto, if it negatively affected Tether.

  • Bitcoin is defending the $44,800~$45,000 support level fairly well. It didn’t break after three retests.

  • Bitcoin is coming off of a near 20% drop in 1 day. Typically, in a bull cycle, this often leads to a relief rally.

Negatives:

  • Bitcoin exchange netflow rose sharply as the price of Bitcoin plummeted.

  • Coinbase premium is still hovering at negative to neutural. This indicates lackluster buyer demand from the U.S.

  • Stablecoin inflows into exchanges are not high.

Key Bitcoin price levels:

Support levels: $45,000, $44,800, $41,000. Below $44.8k is short-term bear zone.

Resistance levels: $49,000, $55,500, $58,000. Above $49,000 is a sign for bullish reversal.


Overall thoughts on the Bitcoin and crypto market

The price of Bitcoin has been very shaky in the last two days. I would be lying if I said I was not surprised by how deep the market dropped.

I was not so surprised by Bitcoin, but rather by Ethereum, which dropped all the way down below $1,400.

I see two scenarios and potential reasons behind drop.

First, I think a big fund might have taken profit on their Bitcoin position built up from $30ks.

The Coinbase premium dropped to -$600 at one point. Coinbase trades higher than Tether-using exchanges by default, like Binance. So when the premium turns negative, it means there is massive selling pressure.

I think a major fund was selling $1 to $2 billion worth of Bitcoin on Coinbase. Only this scenario would explain why the premium would fall so hard.

Second, miners might have sold large amounts of Bitcoin.

Santiment found that a huge Bitcoin deposit was made right before the sell-off. It was much bigger than the 3,000 BTC spotted right before the crash to sub-$4,000 in March 2020.

So, in the near term, continue keeping an eye on the Coinbase premium.

Here is a chart of the Coinbase premium below, it can be accessed on CryptoQuant.com.

Coinbase naturally has to trade higher than Tether-using exchanges, because it directly deals with the U.S. dollar.

The red line in the chart above is the Coinbase premium, and the black line is the price of Bitcoin.

You can see that the red line has been hovering above 0 for quite some time in the last 48 hours. This indicates big selling pressure and is not a good sign. The premium would have to return to normal for Bitcoin to see a sustained recovery.

There are lots of positive news, however.

Square, the $115 billion payments giant, bought 3,318 BTC for $170 million.


On-chain indicators and data recap

There are two negative signals at the moment coming from on-chain data.

First, Bitcoin netflow spiked very hard as the sell-off started. This shows that there were big sellers in the spot market that drove the price down significantly.

The all Bitcoin exchanges netflow chart as shown above calculates the difference between BTC flowing into and out of all exchanges' wallets.

When the netflow is high, it means investors are depositing large amounts of Bitcoin to exchanges, likely with the intent to sell.

Then, we have stablecoin inflows into exchanges lagging behind. This is also not ideal to support the continuation of the Bitcoin rally.

The Stablecoin Supply Ratio (SSR) as shown below shows stablecoin deposits have started to slow down once Bitcoin hit $60k.

This trend shows that sidelined capital has not been aggressively buying Bitcoin in the past three to four days.


Key technical levels and structure

The heatmap of BTC/USDT pair on Binance shows three key resistance levels in the near term.

$49,000, $55,000 and $58,000.

Bitcoin breaking past $49,000 will confirm a breakout of a local range and give it some momentum to try resume its rally.

It will also prevent Bitcoin from moving into the bearish territory, which would happen if it falls below $45,000.

So, the $45,000 to $49,000 range is very very important. This $3,000 price range will likely dictate where BTC goes next in the near term.

As seen in the technical levels above, Bitcoin is currently ranging between, $45,000 and $49,000.

Ideally, Bitcoin takes it level by level. It first breaks $49,000, stabilizes above it, ranges between $49,000 and $56,000, and then try to take the all-time high again.


What top traders think

High Stakes Capital: [Top trader on FTX leaderboard] “You will often get many mixed signals. Keep things simple will help you make better decisions,” referring to Benjamin Crowen’s video on Bitcoin support levels, which is $40k if BTC continues to drop.

Alex Wice: [Top trader on FTX leaderboard] “Nope, I'm not actually long. I'm using CT as liquidity for my shorts. Oh shit, I forgot to short.” - seemingly long Bitcoin

Ki Young Ju: [CryptoQuant CEO] “As expected, "they" protected the 44k level. I think $BTC will go up or sideways as there's no more Tether FUD.”

Bitcoin Jack: [Predicted $4k bottom, called $19k rally] “Not sure whether to expect a deep capitulation or a giga chad candle up but something gotta give rather soon than later as tension keeps building, not seeing it so not playing it.”

Kyle Davies: [co-founder of top crypto fund Three Arrows Capital] “The most significant existential threat to crypto has been lifted today.”