Chain Gang 7/2

Adam Gotelli
4 min readJul 2, 2021

This week’s price action for Bitcoin remained in the 30k-40k range. This is no surprise, as it has been the case for nearly 6 weeks at this point. Other than a few blips on the radar (such as the 29k drawdown for a matter of minutes), BTC has been essentially trapped in this price range. The on-chain metrics paired with technicals have been hinting at significant price action outside of that range for quite some time now. This may mean that when either threshold is broken through, that we will see significant movement. Many believe a move to 22k to the downside or 47K to the upside is reasonable. The FUD (fear, uncertainty, and doubt) to end the month of June wrapped up one of the worst months of mainstream media attacks BTC has ever seen. Nonetheless, the price is still well above 33k at the time of writing.

This week’s SOPR (spent output profit ratio) action shows a day where short-term holders took more losses in a single day than ever before. As a reminder, this metric is simply a ratio of what someone paid for a BTC, versus what they sold it at. An individual is classified as a short-term holder if they have not owned Bitcoin for over 155 days. Throughout the month of June, $4,456,786,884 of losses were realized. This should not come as a surprise, as short-term holders generally have a get-rich-quick mentality when entering the markets. Not only do they typically enter on FOMO, but it is safe to say that they do not take into account chart technicals when exiting a position.

The net realized profit/loss for all wallets has been heavily correlated with the SOPR indicator. This is expected, as this week’s losses dove deep into the red. One promising inconsistency observed with this chart is that BTC has not seen an actual price drawdown consistent with previous drawdowns seen in relation to this chart. For example, slight showings of net realized losses in winter of 2018/2019, and similar sentiment in spring of 2020 was paired with dramatic drawdowns in the price of BTC. Both of those dips in net realized profit loss are minuscule compared to the action in the chart we have seen over the past few months. Yet, the price of BTC has not seen a dramatic downturn to match those previous movements.

The illiquid supply change continued to build on bullish patterns that began a few weeks back. The chart shows wallets that have held Bitcoin for over 155 days, who generally have low selling behavior. When these wallets begin selling at an abnormal rate, the indicator drops below zero. The metric has returned to mid-April levels seen earlier in the year and appears to be headed towards steady growth.

When looking at the Bitcoin balance on exchanges, there seems to be a decision point approaching. Typically, when BTC moves off exchanges, holders feel the asset is going to climb up in price for an extended period of time. Inversely, when coins flow onto exchanges, a selloff is usually looming. Rarely do the price and balance of coins on exchanges act in unison. In the winter of 2020, the two indices met and were followed by a sharp uptick in price. It is safe to say that these two indicators are inversely correlated and it will be interesting to see if the two continue to move closer over the following weeks.

The SF2 (stock to flow) model has one last hope heading into the coming weeks. With the price of BTC closing June at $35,037, the model has only seen one other drawdown of such proportions that was seen in 2019. Any further decline in price would almost surely invalidate the model. It is important to remember that this is not a model that is used by traders to actively predict the market, but more so a model that provides context for the overall demand for Bitcoin. A return to the S2F variance would nonetheless be an extremely bullish sign at this point.

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