Bitcoin

Weekly Price Action

• After increasing to $59k levels, prices suddenly dropped by 8% after news broke out of the new Omicron Covid variant
• Prices stabilized and found support levels at $53.3k
• Price surged by 6% after news was released suggesting the new variant wasn't as severe as intially thought
• Prices have since experienced volatility, ranging between $56k-58.8k

Technical Analysis

Prices tested the green support zone with wave x, before bouncing back to form wave Y in the last week. News of the Omicron variant dropped prices again, however the support levels established by the green zone held as wave V hovered just above the $53.3k level. Prices have picked up since and are expected to bounce out of the support zone with wave (3) upwards.

On-Chain Fundamentals

Short-Term Holder Realised Price finds support at $53k level

This metric suggests that current support levels for Bitcoin are at $53.3k which is consistent with the level defined above with technical analysis.

As a reminder, short-term holders (STHs) are defined as those investors that have held their coins for less than 155 days. The 'STH Realised Price' metric defines the average cost of acquisition of Bitcoin by short-term holders.

The STH Realised Price tends to act as:

• A support level for prices during bullruns

• A resistance level for prices during bear markets

This is because investors tend to add to their positions during bull market dips and to cut their positions when they breakeven on their position during bear markets.

Price has succesfully tested STH realised price on two occassions as indicated in blue, which has proven to be a reliable support level since September.

It will be important to see if the market can hold current support levels of $53.3k moving forward, which could potentially pave the way for higher prices.

Short-Term Holder Supply in Profit / Loss

The market is currently testing the conviction of STHs as prices are trading near the support level or cost-basis defined by the metric above.

The last time we experienced such a market correction was in September. Therefore it is worthwile comparing current market structure with September's to determine the likelihood of a continued correction or a price rebound.

The STH market is currently in a healthier position relatively to the September crash. This is because the share of supply held in profit by STHs has increased by 60%, from 5.78% to 9.20% (total supply of Bitcoin) since September.

STHs are less likely to sell in panic as prices near support levels as a larger share of their supply is in profit, relatively to September. Market conditions are therefore healthier from a STH standpoint.

Long-Term Holder Supply in Profit/Loss

The total supply of coins held by LTHs has increased significantly by 13.6% since April. This confirms the wider accumulation that has taken place in the market in the past months. This paints a bullish macro outlook as an increasing amount of coins are being accumulated for the long-term.

There is also a similar dynamic to the one observed with STHs, playing out with long-term holders. The supply in profit held by LTHs has increased from 72.3% to 75.8% since September. A larger share of coins held by LTHs is in profit during this correction than in September.

The overall supply of profit held by both STH and LTH has increased since the September correction, suggesting that market conditions are healthier. This is because, investors are more profitable now than they were in September, and are therefore are less likely to sell their Bitcoins as prices correct.

There is certainly still a risk that significant sell pressure is exerted from the market, however this would less likely be caused by the correction in price.

LTH SOPR

The majority of the supply of Bitcoin is currently held off-exchange. As such, current prices are primarily driven by the coins available on exchange which are mostly held by short-term swing traders, as this article suggests.

Price are prone to signficant sell pressure however if a signficant amount of bitcoins held-off exchange are suddenly sold off. That is why it is crucial to monitor the likelihood of such a sell-off from occurring with current market structure.

The LTH SOPR enables us to assess such a likelihood as it assesses the profits realised by LTHs, the investors that control the majority of the supply of Bitcoin, that is currently stored off-exchange

We can observe a signficant downtrend since the May 2021 correction (blue arrow), and a continued downtrend in recent weeks on a more granular basis (black arrow).

A declining amount of profits have been realised since May as well as since October by LTHs. This is constructive as it suggests that LTHs are continuing to hold their Bitcoins, which is significant as they control the majority of the supply of Bitcoin currently.

This is extremely supportive of the current bullrun as prices can continue to go higher without being deterred by a large wave of LTHs realising their profits.

Derivatives Market are active

'Bitcoin Futures Open Interest' is approaching an all-time high as can be seen on the graph below. This represents a signficant risk of a flush out, mainly of excessively leveraged positions and a further price drop in the short-term. It will be important to monitor these levels of open interest moving forward.

Bitcoin Volatility Index (DVOL)

Monitoring the volatility in the Bitcoin market is important to assess the risk of sudden price movements which could potentially cause a leverage flush in the market.

We can observe a decrease in the volatility of Bitcoin in the last week. This is constructive as it lessens the risk of a potential leverage flush, in light of the high open interest observed above.

Whale Activity

The number of addresses holding more than 10k Bitcoins has significantly increased (black arrow) since November. This level has consolidated within the range outlined in green.

This is constructive for prices as it signals that an increasing amount of Bitcoins are being held by wealthy investors, which suggests that they hold high conviction for higher prices in the long-term.

Conclusion

• Support levels of $53k established through Technical Analysis and STH Realised Price
• Supply of both STH and LTH in profit has increased since the last September correction, suggesting healthier market conditions for price to resume uptrend
• Futures Open Interest is almost at an all-time high, creating a risk of flush out in the short-term, however declining volatility minimizes this risk
• Whales have increased their holdings of Bitcoin since November, signalling high conviction in Bitcoin by wealthy investors