JdB43: On your marks...
Bitcoin appears to be ready up for an explosive Q4. While the current market structure favors a medium-term uptrend, on-chain activity is showing encouraging signs.
A grateful thanks to superswell (@SwellCycle) who graciously shared T3 charts to support this piece.
The BTC price recently formed a new all-time high of $67,238 before correcting above the 21EMA, forming a weekly low of $59,274.
As we did last week, let’s look at multiple indicators to get an overview of LTHs spending and derivatives before looking at the network’s activity.
Get ready
Over the past few days, the Bitcoin market has continued to build promising price action by breaking its ATH.
A resurgence of old tokens in both count and volume of spent outputs indicates some LTHs slowly realizing their profits without bringing any worrisome selling pressure.
Following the recent slowdown in accumulation of this cohort, we can now see that the supply held by these HOLDers is decreasing a bit.
This conformation could indicate the beginning of a reversal and lead to a distribution of BTC from LTHs to the wallets of STHs.
Key element in the case of a bull run continuation, this distribution would :
provide liquidity to the market to satisfy growing demand;
propel Bitcoin into price discovery mode;
let LTHs increase the BTC realized price in the strength of a new leg up.
As noted by analyst superswell (@SwellCycle), the profit/loss ratio of spending is currently forming a base (B) above the neutral zone: the participants are making good profits, but not too much.
Ideally, a bullish acceleration of aSOPR (C) will tell us in the coming weeks that the market is realizing higher profits as the price of BTC reaches new summits.
Continuing our liquid supply tracking, we see that after a 2nd period of about a month, 4 million BTC are again leaving the exchanges.
In other words, demand is strong enough to :
absorb selling pressure from LTHs and bears;
reduce exchanges reserves.
Clearly, bears had a no fun October. Suffering liquidation after liquidation as the price approached $64K, some of them were forced to contribute to the recent rise in order to cover their shorts.
Their consolation prize: some bulls saw their trades liquidated following this week's slight correction. A good time for BTC to breathe.
The total capital allocated to future contracts has been steadily increasing since mid-Sept. and is now close to 25 billion USD. Easy 2X.
FTX seems to be experiencing a strong inflow of speculators recently. Many institutional investors are already in place and are patiently waiting for the buy signal.
Some of them have even chosen to collateralize their leveraged positions with BTC rather than stablecoins.
The difference? Yep. The risk and the expectation of gain.
Ensuring their solvency by backing their loans with BTC, these entities benefit from both :
the increased profitability of their trade;
the appreciation in value of their guarantee.
In the best of all possible worlds, the expectation of profit increases drastically.
However, the risk shall not be forgotten.
Then, if a careless long player see BTC correcting, he will suffer from both :
the negative profitability of its trade;
the depreciation in value of his security deposit;
a growing probability of a margin call.
The resurgence of this risk taking is an indicator of the expectation of some speculators that BTC will reach new highs in the coming weeks.
Network is pacing up
After spending several quiet months, the network activity seems to be showing reassuring signs of life.
On a weekly basis, the transfer volume of the Bitcoin blockchain pumped in early October before printing a value of about 250K BTC transfered each day.
Constructive consequence of the return of optimism, this rise in volume indicates that the network is being used more and more in recent weeks.
An observation supported by the fact that the number of Tx has been steadily increasing since BTC freed itself from the $30K support to attain nearly 225K daily transactions.
This resumption of on-chain activity was expected by many analysts, considering it as a crucial sign of vitality for Bitcoin as a distributed network.
Furthermore, the neutral growth in Mempool size over the past few weeks shows that the network is far from running at full capacity.
The same goes for the number of pending Tx.
As things stand, this phenomenon can be explained by multiple factors:
May's capitulation literally ejected many individuals, private and institutional participants from the market;
many of them have not yet returned;
the development of the LN allows to migrate growing number of Tx to off-chain layer.
Yet, one can notice that the rate of addition of Tx to the Mempool is clearly increasing.
So why don't they appear on the two graphs above? Simply because Bitcoin is doing its job well.
If the inflow of Tx is not enough to swell the size of the list of Tx waiting to be confirmed, it is because they are quickly validated and taken out of the Mempool to be included in the next block.
Although the Bitcoin network is running at half speed, it is perpetuating its eternal goal with the precision of a watchmaker.
Bitcoin wakes from its nap and stands ready for a the next tsunami of unconfirmed Tx.
To Sum Up
Finally, this week is marked by several encouraging facts.
the accumulation of LTHs seems ready to turn into distribution;
exchanges outflows are picking up;
speculators are starting to take risky positions;
on-chain activity is starting to rise again.
If you've survived this far, sit back, prepare the popcorn and wait for the show.
In advance, happy Whitepaper Day.