Letter no. 10: New Highs
Date: 11/11/2021 BTC’s Price: 65k
Hey subscribers,
Welcome to letter no. 10 of Dor’s On-chain Analysis Newsletter.
In my last letter, I have focused on long-term holders’ supply & spending behavior, along with a macro view and a few words about the derivatives market. As expected, BTC has continued higher and achieved another ATH, which was followed by a downtrend to 65k levels at the time of writing.
Key Takeaways
On-chain activity is picking up, signaling for an early bull market stage.
Leverage wipe-off provides healthy ground for a spot-driven uptrend.
LTH Supply-to-STH Supply ratio signaling for peak accumulation. Thus, the macro uptrend has began.
Coins are continually being locked in Illiquid Entities addresses with low probability of being spent.
The lifespan of coins (Binary Liveliness) is suggesting spending of smart money’s coins that is indicative of a bull run.
Bitcoin’s price momentum is staying positive and is likely to continue this way.
Analysis Breakdown
I’ll start off this letter with an on-chain category I have not covered in a while. Which is on-chain activity, looking at the Active Entities metric we can see an uptrend in activity of entities on the network.
Although it still has a way to go to reach peak activity and interest in Bitcoin, an uptrend in activity is typical to the early stages of a bull run.
Another angle to look at on-chain activity is through the New Entities metric, which is providing data about the newcomers of the network.
This metric is a good measure of retail investors joining, which is an integral part of a macro uptrend. Retail investors help to fuel the peaks of the macro uptrend due to FOMO, and are those who provide demand to absorb coins of more experienced market participants.
I’ll move on to a short cover about the derivatives markets. Looking at funding rates first, in the last few days, we have seen still relatively high funding rates which were followed by flash down due to long liquidations that have decreased funding to more normal levels.
To complete the picture, the chart below shows almost 70 million dollars of long liquidations in an two hours.
As I expected and according to the data I provided about derivatives in the last letter it was quite obvious that leverage wipe-off was about to happen. Now that it did, we have healthier ground to build again a spot-driven uptrend.
Continuing with a ratio between LTH supply and STH supply which helps to assess supply dynamics and what it can say about BTC’s macro environment. As I already mentioned in previous letters, once LTH starts to distribute coins it’s an indication of a macro uptrend beginning.
Comparing LTH Supply with LTH Supply/STH Supply ratio we can see that the ratio is more sensitive and indicative than the LTH Supply metric. Historically the ratio started to downtrend before LTH supply and in a more severe way.
As we can see, the ratio has already started its downtrend and doing so in a more aggressive way than LTH supply. This gives a confirmation that LTH Supply metric has peaked & the macro uptrend began.
Another supply relating metric is Illiquid Supply Change, which measures the 30d change in Illiquid supply which is defined as supply that is held by entities that tend to spend 25% or less of their supply.
What’s beautiful is, that along with price increase (higher incentive to sell coins), the supply held by Iliiquid entities is climbing. This suggests that prices are not higher enough to satisfy these entities to sell. Therefore provides an indication that higher prices are ahead of us.
I will round up this letter with two macro metrics, the first of which is Binary Liveliness, and the second is 140-day Market Gradient which both were created by one of the great on-chain teachers and analysts out there Checkmate.
Reminder: Liveliness trending up means that more coin-days are destroyed (older coins are spent), probably experienced investors start to take profits, same as the LTH Supply metric shows. Both indicate the beginning of a macro uptrend because long-term investors are always the first to take profits in a bull run.
Binary Liveliness is measuring the destruction of coin-days (spending) relative to it’s 30-day moving average. If there is more spending the metric will be valued at 1, and if there is less spending than the average it’ll be valued as zero, therefore binary.
Two interesting things to pay attention to; first of which is the fact that the Daily Change is at levels as same as those that have been at the beginning of the last bull run. And second is that the binary level is climbing to 1. Again, same as been at the beginning of the last bull run. Both indications in confluence come into one bullish indication that suggests a macro uptrend is ahead of us.
140-day Market Gradient metric which provides insight into the relative momentum between spot and on-chain pricing. Doing so by assesing how ‘vertical’ a price move is relative to a non-stationary baseline: the realised cap.
Simply put, it’s a momentum metric, taking it’s 140-day variation makes it a more macro metric.
As the chart below shows, every time the Delta Gradient crossed from below to above it has indicated a macro uptrend. The cross has happened a month ago and since then the metric continued to trend higher indicating a continued positive macro momentum and according to it’s historic pattern indicates a macro uptrend.
Conclusions
So, on-chain activity is picking up, we had a leverage wipe-off, supply dynamics indicate a peak accumulation and a macro uptrend, lifespan of coins is suggesting that macro uptrend is ahead and momentum is still positive and is indicative of a bull run ahead. To be honest, whichever on-chain data I look at is indicating that a macro uptrend is ahead of us. I’m still strongly bullish for the upcoming months. Expecting price to continue break highs with no major correction at least up to the 80k area.
Links and References
Newsletter Archives: Dor’s On-chain Newsletter
Data Sources: Glassnode (T3 paid subscription)
Disclaimer
Nothing written in this newsletter is to be considered as an investment / trading advice, do your own research.
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