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Bitcoin’s On-Chain Analysis Still Has Bullish Indicators

The Tokenist

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The Tokenist
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Managing Director - Lakeview Capital, Co-founder of Protective Technologies Capital & The Tokenist

Bitcoin has accumulated so much good news this year – could it really fall to pre-2021 levels?

Not everyone entered the crypto market for the long haul. As people need immediate access to cash, they are even willing to sell at a loss. Countering them are buy-the-dip BTC accumulators.

Bitcoin Enters Bearish Momentum

Not too long ago, on April 13th, Bitcoin reached its all-time-high (ATH) price of $63.5k. The following month, Elon Musk’s tweet combined with repeated China miner news, nearly halved Bitcoin’s value, affecting the entire crypto space. Now, BTC price has breached the $30k resistance level, constituting a 53.8% drop from April’s ATH.

In the immediate aftermath, it became apparent that most sell-offs transpired from exchange addresses, indicating retail investors exiting the market. At the same time, institutional investors increased their portfolio by 34k BTC. In other words, short-term holders became skittish—which is not exactly a new trend.

Many had bought BTC for the first time above $40k, $50k, or even above $60k, not realizing they had entered the crypto market at its peak, expecting its continued surge. When one is unaccustomed to crypto volatility, it is easy to forget the golden lesson from stock trading – avoid buying high and selling low.

This market “treachery” appears to have created a negative sentiment, triggering a rolling bearish momentum. First, let’s see what the latest graphs tell us.

The MACD Technical Indicator

Although all indicators are just that – indicators as opposed to fortune tellers – some are more popular than others for their utility value. MACD is one such technical indicator, standing for Moving Average Convergence Divergence. You will see shortly it is less complicated than it sounds.

MACD pairs two moving averages (MAs), which combine the asset’s price for a set time period. Effectively, MA removes the noise from short-term price fluctuations.  MACD consists of two lines:

  • MACD line – Created by subtracting the 26-day Exponential Moving Average (EMA) from 12-day EMA.
  • Signal line – A 9-day EMA.

The interaction between the two lines tells us whether the market is bullish or bearish, based on either convergence or divergence between the lines. When the blue MACD goes above the signal line, it indicates bullish momentum. Whereas, if the red signal line goes above MACD line, it signals bearish momentum.

Bitcoin’s candlestick chart combined with MACD indicator. (Image credit: TradingView.com)

As you can see, at press time, the red signal line crossed over MACD line, pointing to bearish market. Additionally, as you can see from the histograms, when the blue MACD line diverges from signal line, histogram value increases. Conversely, with the MACD line under the signal line, histogram goes under zero into negative, bearish territory, which doesn’t appear to be happening.

Therefore, the greater the divergence, the taller the histogram pillars. During May’s crypto crash, the MACD line was well under signal line with record-high negative histograms. With that said, MACD indicator has some downsides – lagging data and false signals in range-bound markets. For this reason, we have to look at other indicators.

Short-Term Holders Selling BTC at a Loss

Blockchain analytics firm Glassnode has confirmed the existing trend once again. HODLers are HODLing while some new crypto investors are running away in panic. In numbers, about 6.2 million BTC, constituting 33% of the circulating supply, are holding an unrealized loss – a sell that would result in a loss.

Image credit: Glassnode.com

If that is the case given current BTC price right around the $30k mark, we can safely assume that one third of BTC had been bought above $30k. Moreover, such a price only came about in January, so we are talking about crypto newcomers.

On the other hand, 75% of BTC circulating supply is in the addresses of HODLers. If 92% of them decide to sell BTC right now, they would do so at a profit, not loss. Nonetheless, Glassnode presents a bearish case, noting the lack of capital inflow into Bitcoin ETFs, with $353 million per day realized losses.

Image credit: Glassnode.com

Another bearish case could be made based on the fact that 10.5% of BTC supply had been traded within the $31k – $34k price range. This represents a wide pool of people who may decide to (panic) sell. In turn, this could trigger a panic-selling cascade.

Image credit: Glassnode.com

After all, if some percentage of them see the BTC price fall at the new resistance level of $26,500, it is anyone’s guess how many will decide to cut their losses. On the opposite side of this potential scenario, BTC’s lower price combined with increased crypto exposure is likely to create a new buying pressure, preventing further price drop.

This is indeed happening, as we see 36.3k BTC outflow per month, meaning people are buying the dip and accumulating alongside miners.

Image credit: Glassnode.com

Altogether, this creates a lack of liquidity that has the potential to once again push the price of Bitcoin upward. Whatever happens, we’ll have to wait and see.

Originally Posted on July 21, 2021 – Bitcoin’s On-Chain Analysis Still Has Bullish Indicators

Disclosure: Tim Fries has no positions in any of the stocks mentioned, and has no plans to initiate any positions within the 72 hours following the publishing of this article. This article expresses the opinions of Tim Fries. Tokenist Media LLC has no position in any of the stocks mentioned, and does not plan to initiate any positions within 72 hours of the publishing of this article. Please consult our website policy for more information.

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