Chain Gang 7/17
This week, the price of Bitcoin made a gradual decline. It began the week at nearly 34.5k, then spent much of the week in the 31.5k range. A lack of sharp price action, paired with the inability to breach support or resistance of 30k–40k only adds to the “price squeeze” on the horizon. This now makes two entire months in this range, as many predicted that BTC would break to one side or the other a long time ago. A sharp break below the 30k level is in play, but the price would not be expected to stay there for long. This could be due to highly leveraged traders getting liquidated as price drops. This all comes amid fairly bullish on-chain indications…
Every time a trade is made on an exchange, a fee is collected. One way to see how much trading is taking place is to look at how much those exchanges are bringing in on their fees. As we can see, the Total Exchange Transaction Fees chart shows that liquidity is nearly at a 12-month low. This is neither a bearish nor bullish signal by itself. It does mean that the price of BTC will be far more sensitive to traders, and could be more prone to sudden price movements in either direction. For example, if a whale decided to buy up a large amount of BTC in a short amount of time, the price would increase substantially.
As BTC headed to all-time-highs earlier this year, we saw a sharp decrease in Bitcoin being held on exchanges. This was followed by an increase of BTC flowing onto exchanges that may have resulted in the decreased price of the asset that can currently be seen. Since mid-May BTC supply has been steadily decreasing on exchanges (bullish signal). The trend continued this past week with BTC available on exchanges decreasing by nearly 5k.
Another telling on-chain metric comes from the Balance in Miner Wallets. This shows if miners are selling their coins once they have been mined, or if they are keeping the coins on their own balance sheets. Another possibility is that miners could go a step further and even buy more coins after they have allocated some to their balance sheet. We see that the decrease in BTC balance for miners is correlated to the price decrease several weeks ago. However, miners have been stacking since then.
One glaring metric is the Net Entities Growth chart. This chart shows how many new wallets are coming on to the Bitcoin network. Large growth seen on this chart typically takes place during a bull run when herds of new retail investors want to hop on the bandwagon. Understandably so, each bull market was prefaced with a sharp decline in the amount of new entities arriving to the network. That has not been the case whatsoever for this time period. In fact, this past week saw an even more aggressive push to the upside.
The creator of the Stock-to-Flow model has been rather quiet as of late on social media. The fact that the chart stayed accurate as long as it did is impressive in and of itself. The indicator shows that price for BTC should be roughly 85k, while the actual price of the asset is on the low 30k area. This is not to say that the model is invalidated forever. Many notable traders have forecasted a 100k-220k BTC by the end of 2021. The S2F indicator only has a price projection of 87k for the end of the year. Either way, it would not be a surprise to see the price of Bitcoin drastically above or below where the model projects.
At Cryptology we use technical analysis and fundamentals to position ourselves in the current market. A holistic approach is implemented for each one of our holdings and investments. For more information, education, and our entire portfolio, join the Cryptology Discord.