Is Bitcoin moving sideways? On-chain analysts offer what could happen next.
Puell Multiple. MVRV. Miner Capitulation.
Not every trader has the time or inclination to study these and other crypto fundamentals. But for on-chain analysts, the real story of the future of digital currencies lies in the analytics. Not the headlines.
“For investors who believe in the intrinsic value of bitcoin, ether, and other cryptocurrencies, bear markets shine a spotlight on tools and metrics useful for gauging market sentiment and shaping a long-term investment strategy,” CoinDesk reported in its weekly newsletter, “Crypto Long and Short.”
Yes, the news of late has been using the term “bear market” to describe the current state of crypto. And that’s not surprising considering the hype and excitement Bitcoin generated as it soared past $65,000 in April, only to plunge back into the $30,000 range in May, where it currently remains. But for those who follow Bitcoin and crypto analytics, moving toward what looks like a bear market doesn’t necessarily mean gloom and doom for digital currencies.
Pointing to the April metrics for Bitcoin, on-chain analyst and 19-year-old crypto wiz William Clemente III tweeted out to his more than 125,000 followers that the market is ready for another bull move. “Bitcoin is entering its first major volatility squeeze since the one that pushed price down off ATHs in April and the one that propelled us into the bull run in July 2020,” he tweeted on July 11.
Clemente also pointed out the number of new whales in the Bitcoin market.
“Retail has been buying heavily for weeks now, but we finally got the uptick in whales that we were waiting for,” he said in his most recent newsletter. “There were 17 new whales birthed on the blockchain this week, while at the same time, the overall holdings of whales increase up [sic] by 65,429 BTC.”
On-chain analyst Willy Woo also points to positive signs in the fundamentals that he says are indicative of another bull run in Bitcoin’s future.
“The estimated user count seen on Bitcoin’s blockchain is growing faster now than any other time in its 12-year history,” Woo tweeted on July 10. “Even during this dip? Yes, especially during this dip.”
Analyzing something as simple as who is buying and who is selling Bitcoin is another metric Woo uses to determine the market’s temperature. “On-chain shows a lot of accumulation which is not reflected in the price,” Woo pointed out in The Pomp Podcast. “We last saw this in the months before in October exploded into a bullish run.”
Another metric, MVRV (market value to realize value) “has yet to reach the highs it historically hits before profit-taking, which suggests there are still unrealized gains in the crypto markets traders can capitalize on,” CoinDesk reported. “In addition, a second metric known as the “Puell Multiple,” which is calculated by dividing the total dollar value of bitcoin mined in a single day with its 365-day moving average, dipped to a one-year low recently, signaling undervaluation of BTC and a potential weakening of bearish market momentum.”
Watching to see what the Bitcoin miners are up to is another area analysts factor into the market equation. Following the “hash ribbon” is another metric analysts use was it can signal miner capitulation.
“The hash ribbon is an indicator that uses the hash rate in order to determine miner capitulation, meaning that the cost of mining is higher than the rewards,” explains Yahoo! Finance in a recent report. “It does that by using a 30-day and 60-day MAs of the hash rate. In the chart below, a cross between the MAs is represented by a shift from light to dark red. Historically, these values have represented bottoms.”
Miners in China, which dominate the landscape, were thrown for a loop in June as China announced a crackdown in mining operations. The hash rate for bitcoin mining was dramatically reduced as miners scrambled to regroup.
“We previously noted that miners who remained operational at this time would experience a dramatic boost in profitability, minimising the compulsory sell-pressure,” said on-chain analytics company Glassnode. “To support this thesis, the Miner Net Position Change metric has returned to accumulation. This indicates that what sell-side pressure is coming from offline miners, is more than offset by accumulation by the operational miners.”
Whatever fundamentals you choose to follow, the wealth of information about the crypto market provides retail traders with the opportunity to look beyond the headlines to determine a strategy. Waiting for the news media to report on what’s happened after the fact could mean opportunity lost. On-chain analysts offer research on their social media sites that’s available to the crypto world. Sideways, bullish or bear market? Let the numbers tell the story.
Joyce Pavia Hanson