Bitcoin has been ranging for quite sometime especially around the area of $60,000 – we have had a few rejections at the $60,000 mark, and with that I would like to shed some light in terms of my current opinions regarding the state of the market.
While Bitcoin has been ranging for quite sometime, the volatility of this cryptocurrency has been actually decreasing quite dramatically. Surprisingly, the volatility has not been this low since December last year. This is a quite important point which I will revisit later in this post.
In this article I will try to cover both the bearish and bullish arguments and come to a conclusion that should be easy to decipher for both long and short term holders. While I have been a big supporter of Bitcoin since 2014 – I think it is especially important to consider both sides of the argument. So if you are significantly bullish, I still implore you to review the bearish argument to make sure you are not over exposing yourself to unnecessary risk.
Price of Bitcoin at the time of writing this Article: $59,207 USD
Realized Bitcoin Holding Term
We can see from the chart below, past cycle tops have often occurred when the market capital is held significantly by short term holders instead of long term investors. From the most recent data, we can see this shift forming, but it is not nearly at the previous levels.
High Funding Rate
I will do additional write-ups to explain funding, but in this situation, funding has been consistently high in the past several months. This is quite bearish since, this essentially suggests for the people trading futures, it is expensive to be in a long position. Additionally, it shows that longs are overcrowded. Why is this bad? Well, larger traders prefer not to be involved in expensive trades so they are more likely to not take on long positions. In general, when funding is high, this favours traders who take a longer term short position or neutral position.
Thankfully, high funding rate is often only an issue when the market is driven by derivatives and margin contracts. This time around there is quite a strong emphasis on spot buying. Which I will cover a bit more later.
The chart from Crypto Quant above shows that Koreans are currently purchasing Bitcoin at a larger premium. Looking at the 2017 cycle top, the premiums Koreans were paying was quite large as well. I wanted to mention this but due to regulations performing Bitcoin Arbitrage has become quite unfeasible. This does not need much emphasis, however, I thought to include it for good measure.
Heavier Mempool Weight
Having a larger memory pool weight is a bad thing. It makes it more difficult to utilize Bitcoin in day to day transaction. Having a large mempool weight in general translates to longer transaction time and larger transaction fees which simply is bad for business.
A significant amount of demand comes from the Grayscale Bitcoin Trust, so understanding what is happening may be useful. Looking at the Grayscale Investment Bitcoin Holding Index on Bybt, we can see that their investment holdings have plateaued quite a bit since January of 2021. There has even been a slight decline in March of 2021. This trust is currently closed so we can leave it at that. Overall this action from Grayscale can be considered bearish since they have been one of the primary drivers of demand and price in the cryptocurrency space. Additionally, the premium is also ranging in negative territory which could have a potential downside impact.
In a different note; Grayscale has been quite optimistic and are looking to turn their trust into an ETF (Exchange Traded Fund) – this would be fantastic, the chances SEC would allow it at this point is quite high, and if this were to pass, GBTC would be the worlds second largest traded commodity ETF, second only to gold!
Since we are already speaking about ETF’s, the Canadian Bitcoin ETF (Purpose Bitcoin ETF) currently has just above 17,000 Bitcoin in holding and they are adding to it consistently with a larger size. That is fraction of the size of Grayscale but it is great news regardless. This paves the way for more ETF’s in the coming years.
The on-chain analysis suggests that we are nearing the overbought levels. The reverse risk shows the confidence of longer term holders. While this metric might be getting higher – it doesn’t suggest we are in overbought territory yet.
Total Hash Rate
Total Bitcoin Hash rate and difficulty is climbing consistently as can be seen from the chart below. This suggests the network is doing quite well and growing consistently.
Miners are currently making significant amounts more revenue than ever before. Not much else to say about this.
Transaction value is at an all time high. So for anyone who thinks Bitcoin does not have any use case, they should feel silly since Bitcoin is currently one of the largest payment networks in the world. Regardless of your sentiment, Bitcoin is clearly being utilized heavily.
There are currently a little over 10,000 Bitcoin Lightning Nodes currently in operation. The lightning network is growing steadily which is also great to see!
Overall, the fundamentals look alright, they aren’t too exciting for either narrative. This to me is great, Bitcoin is reliable and safe which in turn makes it boring. However, it is the most decentralized and robust network in the space. Bitcoin is a storage of value and it does not need to be any more than that.
Spot Volume for Bitcoin is absolutely flying sky high. Over the past few weeks it has gone down a small bit, but this is typical during market consolidation. For reference, the March 2020 black swan event still had a significantly lower volume than today’s volume.
Tether Market Cap
Tether’s market cap looks great. It is continuously increasing which suggests that there is still a larger demand. Alongside this, Tether settled the legal disputes, which reduces uncertainty about Tether quite a bit.
Miner Sell Pressure
Selling pressure from miners have decreased dramatically. Seems like miners are not offering liquidity to the spot exchange at all. Additionally, miner outflow overall is quite low.
Exchange Spot Reserve
Most exchanges have a very low spot reserve at this time. This suggests that there is a significant and constant demand of spot Bitcoin being purchased.
Net Bitcoin Spot Flow
The net bitcoin spot flow gives us further confirmation. Except for the two large inflow outlier – most significant flow of Bitcoin has been outflows. This gives us further confirmation that the massive consolidation range we have been stuck in is most likely re-accumulation.
While derivatives are blowing some safety rules off the top, there is a SOPR close to reset which suggests that the ratio between market participants at a loss and in profit is generally evenly distributed. These SOPR resets are perfect opportunities for buying in bull markets.
Bitcoin Google Search Volume
Retail investors are not driving this bull rally, according to google search volume – searches for Bitcoin on google is high but it is nowhere near the search levels it was at during the last bull market. Majority of the users may already know about Bitcoin and might not be googling the term anymore.
Crypto Exchange Web Traffic
Another evidence to showcasing that retail investor mania is not here yet is the web traffic to retail exchanges such as Coinbase. Web Traffic has been consistently increasing to cryptocurrency exchanges, but again, it is not nearly where it is to be expected compared to last rally.
Coinbase Google Searches
Same thing can be said about the search volume of users looking up Coinbase. Their verified user base is constantly increasing but this is not where majority of the volume is coming from.
Coinbase Total Volume
Based on metrics, Coinbase’s volume has exploded, but the percentage of retail volume out of the total traded volume is extremely low. During the last rally, everyone suggested that the institutions were coming, well, we were right, and they are here buying now.
This is a small list of Bitcoin Treasuries which shows how much Bitcoin each institution owns. This only includes the companies that have been transparent about their holdings. I am assuming there are quite a bit more companies which are not vocal about their positions yet.
Insurance is another sector that has been investing in Bitcoin, that is amazing to see.
The whole crypto space is growing, in the last bull market most of the projects that were out in this industry were full of lies with poor to no infrastructure. This time around, there is so much more being built with most projects having fantastic use cases. Looking at Defi for example, it has a constant increase of total value locked into projects with a net value of just over $45 Billion Dollars.
Trade Volume of NFTs
NFTs are also doing great. Regardless of your stance or opinion about NFTs, they have been gaining a tremendous amount of traction and have gained worldwide attention. The best part? You can’t learn about NFTs without learning or investing in Crypto. It is another version of adoption and I am all for it.
NFTs and Defi are more related to Ethereum, but the exposure as a whole is great for crypto as a whole. I won’t get into it in this post but Ethereum also looks absolutely fantastic, but Bitcoin will forever be the King.
Now we are getting into the most important stuff in my opinion. In terms of the Bid-Ask spread of Bitcoin the liquidity is looking good. During the last bull run in 2017, liquidity was a huge problem. This time around the spreads look good.
The slippage looks great this time around as well.
Derivative Bid-Ask Spread
Coinbase IPO – April 14th, 2021
Finally, the Coinbase IPO that is set to release in April 14th. There is a lot of ways this can help or even deter crypto. There is quite a lot of disagreement even among larger traders in regards to what this event will entail. I will be watching the markets closely on the 14th. As of right now, I would like to believe this would be a confidence booster for the retail investors.
Some traders suggest that this is a “sell the news” type of situation. However, this would imply that the price has gone up significantly prior to the news, but looking at the chart we have been nearly ranging for the last 2 months. This news does not look priced in.
As mentioned at the beginning, the volatility of Bitcoin is still quite low. So if the cycle top is nearby it would be a first time for Bitcoin as it has never printed a cycle top while having low volatility. So this would be unlikely. With the launch of Coinbase IPO, we will be able to buy shares of a large crypto currency company that has been doing so well!
With that news in mind, I am under the impression that there may be a large volatility increase again soon.
From the tone of this post, I am sure you can assume that I think the volatility will move the price to the upside. The only reasonable bit of skepticism that might be worth addressing is the question, “How much higher can it get”
To that I say, between all the new institutions that are purchasing crypto, Visa Stable Coin Testing, PayPay Integration of Crypto, Tesla accepting Bitcoin , maybe this time around we can admit that things will be different to the prior bull market.
Under no circumstances would I suggest that there won’t be corrections anymore. Just this year alone we have seen three massive liquidation events. But I am under the impression that during this bull run the 4 year market cycle structure that we have been used to with Bitcoin might break.
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