Letter no. 19: More downtrend?
Date: 10/2/2022 BTC Price: 35.4k
Hey subscribers.
In my last letter, I’ve focused on LTH and what they can tell us about market direction and sentiment. I’ve talked about a possible bottom and about a possibility of a continued downtrend.
In this letter I’ll continue doing so, focusing on exchanges, moving of coins, and stablecoins. From this perspective, I’ll analyze what is likely to happen next while showing a macro metric that will give a glance at the broad picture.
In the last couple of weeks, Bitcoin has managed to hit a bi-weekly high of 44.6k, affected by macro parameter, from there it started trending down to 35k with no major pullback.
Analysis Breakdown
A short reminder before I start, the available supply in exchanges can give an indication about market participants’ sentiment. They’re likely to deposit coins into exchanges when they’re inclined to sell them, and vice-versa. They’ll withdraw them to cold-wallet to HODL them for a long period of time.
Now, let’s start off with the balance of coins in all exchanges.
As we can see the big picture looks good, since March 2020 investors’ idea about Bitcoin has changed for the better, they’re more inclined to HODL their coins for understanding it’s real value proposition and scarcity.
But I’d like to focus here on the marked period in this image above, since October 2021 and the formed higher low exchange balances are in a sideways movement; characterized by waves of depositing and withdrawing. In my eyes, it signals indecision and a sign of cautiousness.
Going even deeper, looking at the last month, we can see that coins are mostly being withdrawn from exchanges. A hint of bullishness, but we’d want to see the withdrawing accelerating, causing less liquid coins on exchanges and therefore an upward effect on price.
Another angle to look at the market sentiment through exchanges is to check the dominance of fees.
In this chart below we can see that overall deposits fees are dominating, meaning investors transfer coins to exchange probably with an inclination to sell them sooner or later. But another pattern appears where along with price decline deposits are slowing and withdrawals are picking up, this is something to keep an eye on and will be positive if continued.
I’ll close off with a macro metric that will give us a look at the broad picture. A metric created by Checkmate (one of the best on-chain analysts out there). The metric is called Market-Realised Gradient Oscillator, “a metric that models momentum relative to capital inflows”.
We can see that every uptrend is followed by an accelerating momentum and every downtrend is followed by declining momentum. Currently, the overall momentum seems to be going down, turning negative not long ago. This of course is not a positive sign, a reclaim of the zero line; momentum turning positive is something crucial to the decision of whether a macro uptrend is ahead.
Conclusions
Looking at the market sentiment through the lens of exchanges gives us a neutral indication, suggesting the market is in indecision and as I mentioned above a sign of cautiousness.
As for now, I’m turning a bit bearish, it seems like more downtrend is ahead. As I outlined in the last letter, a downtrend to 24k is still on the table, while many on-chain indicators are very close to bottom signal.
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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