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CryptoCurrency Investment

Everything You need to know about bitcoin – April 2021

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

Bearish Analysis:

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.

Realized Bitcoin Holding Term

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.

Kimchi Premium

Bitcoin Korean Premium

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.

Memory Pool Weight Graph

Grayscale

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.

Bitcoin Grayscale Holdings

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.

Canadian Bitcoin ETF

Fundamental Analysis

On-Chain Analysis

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.

Bitcoin On-Chain Analysis

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.

Bitcoin Total Hashrate

Miners Revenue

Miners are currently making significant amounts more revenue than ever before. Not much else to say about this.

Bitcoin Miner Revenue

Transaction Value

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.

Bitcoin Transaction Value

Lightning Network

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!

Lightning Network Growth

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.

Bullish Analysis

Spot Volume

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.

Bitcoin Spot 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.

Tether Market Capital

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.

Miner Selling Pressure

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.

Bitcoin Exchange Spot Reserve

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.

Net Bitcoin Spot Flow

SOPR

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.

SOPR

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.

Bitcoin Google Search Volume

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.

Crypto Exchange Web Traffic

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.

Bitcoin Treasuries

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 Investments

Insurance is another sector that has been investing in Bitcoin, that is amazing to see.

Crypto-Environment Growth

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.

Ethereum

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.

Bid-Ask Spread

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.

Slippage

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.

Conclusion

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.

If this post was useful to you, please leave a comment or subscribe to my email list, with more attention – I would love to do more of these more frequently.

Chart Sources:

Whale Map

Crypto Quant

Coinalyze

Bybt

The Block Crypto

Skew

Blockchain.info

Woobull

Trading View

Trading Sources:

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Obligatory: This is not financial advice.

Investment

A Simple Guide to earnest money

During a purchase of a home it is important to show the seller that you are serious about purchasing their home. Typically this can be done using a Good Faith Deposit – also known as Earnest Money.

Earnest money can be a formal way of requesting that the seller take their house off the market to give you time to do home inspections, appraisal, financing or time to sell your existing home. This way the seller knows you have skin in the game and backing out in short of a deal breaker will have them compensated for the time their property is off the market.

You may get a refund of your deposit if you cancel during your due diligence period. (Inspections, Appraisal, Financing or Time to sell your existing home. ) However, if you move past those contingencies and you decide to cancel, most often your seller would be entitled to that money.

Here are some points that can help you make your decision:

What is Earnest Money

Buyers use earnest money as a tool during the purchase of a property. Often in the form of deposit money held in escrow. Earnest money is used to assure the seller that you are a highly prospective and sincere buyer, given that certain conditions are met. Here is an article outlining how can you save up for an earnest money deposit.

While the laws don’t require earnest money, sellers may require it. The amount can be negotiated if you don’t have access to a large liquid fund.

How Much Earnest Money Do You Need?

Most often it is 1% of the purchase price of the home. However, this purely depends on the real estate market you plan to purchase in.

The more money you put down the more you look serious to the sellers. When multiple offers are being put down on a property there is a higher chance the seller will go with another buyer if they offered more earnest money.

At the same time, the more money you put down in the deposit, the more money you stand to lose. Especially during a finding of a deal breaker not mentioned on your contingencies.

Buying a family home

How to Protect your Earnest Money

Escrow Account

Typically, earnest money is held in an escrow account. Once it is deposited into an escrow account both the buyer and seller have a legal right to the money in that account. Under no circumstances should you entrust your earnest money directly to your seller or a real estate brokerage.

Understand the Contract

To protect the buyer and seller, most contracts will have contingencies appended to them. This allows room for both parties to back out depending on the conditions listed. Read through it yourself or have a lawyer take a look to ensure your side of the deal is met.

Some common contingencies include:

  • Inspection Failures
  • Issues with Title Searches
  • Issues with Land Surveyed
  • Unable to Secure Financing
  • Issues Appraising the Property
  • Unable to Sell Existing Home

Check out this website to find out more about common contingencies.

It is your responsibility to ensure the contract drafted is read thoroughly. Remember! Laws can vary state to state. State agreement purchase contracts may be used however a lot of agents may use their own private purchase agreements.

Breach of contract

Speak to your agent to ensure you are never in a breach of contract. You should be ready to move forward with the purchase, have a go ahead from the lender, and have the property is appraised for the offer price. You may also negotiate a buy price after an appraisal and inspection is complete. However, if you were to back out after all of that, you would lose your earnest money deposit.

Some common ways the seller may keep your money include:

  • Issues Posted Past the Due Diligence Period
  • If the Buyer Waived the Contingencies
  • Enforcing “Time is of the Essence” Clause (TOE)
  • Requesting the Escrow to Cash the Check

If your buyer requests to waive the contingencies, this can be favorable to both the buyer and seller. Waiving of contingencies may allow you to get a better deal on the property. However this can be detrimental in the case of a deal breaker. Always speak with your broker before removing any contingencies. If the seller refuses to find a middle ground, it maybe time to look elsewhere.

Earnest Money Deposit Contract

How to use Earnest Money to your Advantage

Earnest money shows your purchase power. It isn’t unheard of to use a large sum of money if you are ready to purchase in cash to secure the offer. Seller may even choose a lower priced offer from someone who is offering a larger sum in their earnest deposit. The chances that the seller will favor your bid over others is more likely in those situations.

With due diligence and a good real estate agent you can use the deposit to fund the closing costs. If you deposited $3,000 dollars into your earnest deposit and your closing cost is $10,000 dollars. You would only have to pay the remainder $7,000 dollars at closing.

Closing points to protect you:

  • Do not remove contingencies, they are there to mainly protect you as the buyer.
  • Pay attention to the contract timelines. Sticking to that schedule should be your priority.
  • Do not offer on a property with a earnest money deposit unless you are 100% sure you love it.
Deposit on a home

Conclusion

Once again, earnest money is an amazing way to secure a deal you really want. Only if you know how to use it. Make sure you speak with your real estate agent and perhaps an attorney before signing any documents regarding earnest money.

In a competitive sellers market using earnest money is the one of the ways you can settle the deal to your favor. Make sure you are committed to purchasing that property before making the jump. A lot of times the bidding process can make people commit to a home they are not in love with. There are many ways to sweeten a deal, don’t try everything in the book because that will lose you money in the long run. A good real estate agent will be able to walk you through any questions you may have regarding what strategies to use to win an offer.

Good Luck!