Letter no. 13: COVID Dip
Hey Subscribers,
Welcome to letter no. 13 of Dor’s On-Chain Analysis newsletter.
In my last letter I’ve focused on short-term holders and touched on a few on-chain categories through which I explored on-chain data and what picture it paints about Bitcoin’s market.
Since then, bitcoin managed to climb up to 60k from which he dropped down to 53k lows due to news about the new COVID variant. At the time of writing, bitcoin is trading at almost 58k, rebounded from the lows.
In this letter, I’ll analyze on-chain to find out wheter the macro picture is still intact, and in light of the last price movements where we’re likley heading short & long term.
Key Takeaways
Profit / Loss dynamics suggests return to an uptrend in the short-term.
STH-LTH Cost Basis indicating another leg up ahead, along with LTH supply confirming the beginning of a macro uptrend.
Value Days Destroyed provides a natural to positive macro picture.
New entities joining the network in a suitable rate according to the macro uptrend stage.
Derivative market seems healthy; low leverage enviroment.
Profit & Loss Dynamics
I’ll start off this letter covering profit and loss taking; looking at Net Realized Profit & Loss metric. We can see an interesting pattern repeating itself throughtout this cycle.
Profit taking is coming along with price increase, after that we see a correction which decreases profit taking down to a point of very minimal levels / realizing minimal losses. When that happens, it suggests a reset and an exhuation of sellers / profit takers. Which from there price have the ability to go higher with less sell pressure.
In the last week the metric has reached the “reset” point, which suggests a return to an uptrend in th short term.
STH-LTH Cost Basis Ratio
Looking at the STH-LTH Cost Basis Ratio metric we can see repeating pattern; while it’s decreasing it’s indicative of a macro uptrend, until a point where it reaches a low and starting to round back up to form a peak that is indication of bear market low - generetinal buying opportunity.
Moreover, we can notice the similarities to 2013 double top cycle, not long ago we formed a small peak (right star) and currently the ratio is back downtrunding. Probably will do so until it reaches below the red level which will suggest that the macro top is near.
Additionaly a continuation of coins distribution in a gradual pace by LTH holders, giving us confirmations that macro uptrend is ahead of us.
Value Days Destoryed
An interseting metric created by TXMC called Value Days Destoryed; “compares near-term spending behavior to the yearly average, as a means of detecting overheated and undervalued markets. It's effectiveness is due to the nature of how market tops are formed: via the increasing spending of older coins that eventually overpower demand, ending euphoric bull runs.”
The metric provides an interesting macro view. After breaking above the 1.4 level (gray one) and finds support there it provides a clear confirmation that a macro up trend is ahead. Currently, the metric is uptrending to this line, an eye should be kept on whether it manages to break above and find the level as support.
On-chain Entities
Being still at the early stages of the upcoming macro uptrend, we’re seeing a continued new entities joining on the network.
Still at low levels relative to the last macro top, but as expected at this stage. Retail investors are joining the network gradually along with price increase, and accelerate their appearing along with accelaration in price action to the upside. They’re an integral part of absorbing sold coins and helpig fuel the peak of the macro top.
As for now, we have some way to go before the joining of new entities will indicate a macro top.
Derivative Markets
Funding rates remining at relative low levels, along with decreasing open interest. Both of which indicate a low leverage enviroment, and less likely of liquidation cascades.
At least for now, it seems like price have ground for healthy spot-driven price increase.
Conclusions
Although we’ve seen price draw-down in light of new COVID variant news, on-chain data remaining unchanged. Profit taking suggesting uptrend in the short-term, dynamic between STH & LTH cost basis suggesting another leg up is coming, on-chain new entities gradually joining and derivative markets are healthy.
The ones who read my letters will notice that I tend to not provide price pretictions either short-term nor long-term. That is because I’m basing myself on on-chain data which will provide the indications of macro top when the time comes and at whatever price it will be.
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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