Letter no. 18: LTH & Probable Bottom
Date: 10/2/2022 BTC Price: 45k
Hey Subscribers,
In my last letter, I’ve mentioned that we’re on the edge of knowing whether the price will continue downward or as a few indications have suggested; price is forming a bottom.
Since then BTC has started to climb up aggressively, moving from 36.7k up to 45k with almost no major correction or resistance.
In this letter, I’d focus on LTH, how they react to market behavior and if and how they’re affected by it.
Analysis Breakdown
I’ll kick off this letter with Entity-Adjusted LTH NUPL, which represents the net unrealized profit/loss of UTXO with lifespans of at least 155 days while disregarding “in-house'“ transactions and therefore accounts for real economic activity.
Looking at the metric we can see the 0.5 level as acted as a support/resistance area during Bitcoin’s history and has also signaled that a break below suggests a continuation and a protracted period of downtrend into a bear market.
Price has not yet broken below it and currently is bouncing off it, we’d want to keep an eye on this metric to assess whether a protracted period of downtrend is ahead. On the other side, a break above 0.75 will assure that more uptrend is ahead.
Moving on to LTH Net Position Change, which represents the 30 day change in LTH supply. If comparing it to the early bull market dynamic, we can see that an acceleration in spending by LTH is suggestive of a continued macro uptrend.
After a short period of accumulating, we’re starting to see a beginning of distribution, this comes along with a few on-chain macro metrics that signal for the bottom (check the previous letter). The confluence might suggest that BTC is forming a bottom and is ripe for a return to an uptrend.
I’ll close off with the metric I’ve created and mentioned in the previous letter; Realized Price-to-Liveliness Ratio.
In the last letter, I’ve mentioned that a break below the metric is an early signal of a bear market, and I’ve also mentioned that the metric is providing macro support/resistance levels.
It seems like the break below the metric that I’ve mentioned in the last letter has reverted and price managed to break above, which means it was actually being supported.
Therefore, I see this as a bullish signal that the macro uptrend is still intact.
Conclusions
We’re seeing LTH returning to deplete their supply and distribute coins which is typical behavior to macro uptrend and is being seen in the 30-day change in the supply they hold. Price is bouncing off NUPL 0.5, but still, need to pay attention that a break below it doesn’t occur. Lastly, RPLR is providing support and suggesting that the macro uptrend is ahead of us.
After a protracted period of around 50% correction, I think that BTC is likely forming a bottom. If this is not the case price will get rejected from the 45k area and probably head back down to around 24k (realized price level) might break a bit below it and start from there the second phase of the bull market.
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 investment / trading advice, do your own research.
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