JdB38 - EN : Testing confidence
While short-term market conditions are influenced by global macroeconomic uncertainty, the market structure under construction since May is strengthening.
After brief moment above the 200DMA, forming a weekly top of $48,878, the price of Bitcoin is subject to a further decline. Forming a local floor around $40K, Bitcoin is this week testing investor’s conviction.
Today let's take a look at how the price of Bitcoin is reacting to the recent news from the Chinese and American markets.
Correlation between economic and financial markets
As I write these words, the coordination of a macroeconomic system that leaves nothing to chance is at work: a contagion is taking hold of the Chinese debt markets, the US stock indexes and is now affecting the crypto market.
While major chinese land developing companies and S&P500 plummet, Bitcoin falls below the 200DMA once again to be repriced around 43K$.
As some may hear the wind of panic, let’s focus and question how is Bitcoin behaving because, in fact, we’ve already seen this type of price action by the past.
Remember to March 2020. COVID is hitting the US and the stock market takes it straight to the south : the S&P500 drops by -35%.
But this dump wasn’t confined to the stock market. Indeed investors that didn’t expect a strong dip were heavy on leverage positions. Then, when the price dropped, most of those entities had to face margin calls.
This is where its gets contagious. To answer the calls these entities will need to bring capital, potentially by sell others assets. This is when everything including gold or Bitcoin can be sold off to get liquidity.
And while Bitcoin market structure is far different today from what is was back in March 2020, a same cause might not necessarily provoke similar consequences.
Weak hands selling, strong hands buying
Assessing the recent profit/loss ratio, we see that aSOPR went negative and NRPL flashed red. Not only did people sell coins during the dip, but no less than 650M$ of loss has been realized so far.
The NUPL, which represents the latent profit/loss state of the market is nearing the 0.5 threshold that represent the paradigm shift between belief and anxiety, while the percent of supply in profit is currently around 75%.
Some entities did sell. But it is still not comparable to what we saw during the May sell-off. Even if holding to a positive NRPL is a best case scenario, more downside is possible as the support of 40K$ could be retested soon.
Thus, the selling pressure doesn’t belong to the long term holders cohort whose expenses seems to calm down, according the numbers and volume of old coins spending.
Conversely, some younger coins seems very active as a vast majority of volume of recently spend coins is aged of less then 24 hours. Yesterday, volume of coins aged less than one hour even spiked to 95%, indicating that very few HODLed coins are being spent.
Adding to this thesis, the total supply held by LTH continues to skyrocket. Long term entities does now own about 500K coins more than they did one year ago.
As a confirmation that conviction holds tight, we can observe the Liveliness metric heading taking down again. Liveliness increases as long term holder liquidate positions and decreases while they accumulate to HODL.
Old hands are once again proving their strength as the market drop and instead of panicking, they’re simply buying BTC tokens like if there was not tomorrow. Even El Salvador does so.
With this second dip also comes a drop of the interest for futures market. The recent peak of volatility might have put a bad taste in the mouths of leverages institutional traders, who are now less willing to participate.
A slightly positive funding rate is then welcome, indicating an overall moderate bullish bias even though the price dipped by 7% today.
Along with this macro drop, we can observe how are BTC flow behaving. Assessing a slight inflow into exchanges increasing their overall balance, it seems that most of BTC holders didn’t even flinch.
Even though some BTC has been deposited onto exchanges, the scale doesn’t compare with what we’ve seen during the May sell-off (larges inflows indicating a capitulation). Then, i wouldn’t be surprised to see BTC outflowing from exchanges, resuming a decrease of reserves, in the upcoming days.