The Assets

Market Intelligence 15

Romain Braud -
  • BTC prices have dropped by 22% in the last week due to the escalation of the Ukraine-Russia conflict
  • Investors continue to accumulate and hold Bitcoin despite the price drop
  • Losses were realised by short-term traders who have grown highly uncertain of near-term price aciton
  • The development of the conflict will determine whether the $33k level reached at the end of January truly was BTC's macro bottom
  • BTC's correlation to equities reaches an all-time high and will persist as long as uncertainty looms in the macro environment

Weekly Price Action

  • Bitcoin price has reached a monthly low of $34.6k after a week of heightened macro uncertainty
  • Price opened at $44.5k and dropped by 22% and is currently trading at $35.2k
  • We broke below the key support level of $40k and can expect prices to test the $32k level

Price Structure

  • Price broke below the key support level of $40k last week
  • The next support level is estimated to be in the $28k-$30k range

Assessing sell-side pressure

  • The market suffered from significant sell pressure in the last week which sent prices down to monthly lows
  • This pressure was primarily caused by the increased uncertainty in the market, in light of the escalation of the Ukraine-Russia conflict and the impending rate hikes by the Federal Reserve
  • We'll assess which investors drove price action and as well as the extent of the sell pressure

Exchange Net Postion Change

  • This metric illustrates the 30d change of Bitcoin supply held on exchange wallets
  • Extended periods of net increase in supply (green) is indicative of increased potential sell pressure, as coins are moved onto exchanges to be sold
  • On the flip side, periods of net decrease in supply (red) signal the market's willingness to hold for the long-term by storing their Bitcoin off-exchange
  • After a week of increasing net outflows, there was a decrease observed this past week as many investors moved their coins onto exchanges to sell
  • There is however still a regime of net outflows which exhibits an underlying demand to accumulate and hold Bitcoin for the long-term by the wider-market despite the drop in price

Who sold their Bitcoin ?

STH SOPR

  • Short-Term Holders (STHs) are investors who have held their Bitcoin for less than a 155 days
  • STH spent output profit ratio (SOPR) is a metric that measures the average realised profit or loss by STHs
  • Values above 1.0 indicate net profit realised and values under 1.0 indicate net losses realised
  • After a week of net profitability, the metric trended below 1.0 as STHs incurred losses this past week due to the significant drop in prices

LTH SOPR

  • Long-term holder (LTHs) are investors who have held their coins for more than 155 days
  • LTH SOPR is a metric that measures the average realised profit or loss by LTHs
  • LTHs continued to realise moderate profits as the metric remained in the range it has been trending in since price reached its all-time high in November
  • This suggests that the selling pressure came from STHs who sold their Bitcoin amidst the macro uncertainty and realised the majority of the losses in the market

Risk-off Behaviour in Derivatives Markets

Futures Open Interest

  • This metric illustrates the total amount of funds allocated in open futures contracts for Bitcoin
  • The 15% drop in price was met with a 14% drop in Futures Open Interest
  • Derivatives traders exhibited a risk-off behaviour by closing their positions given the macro uncertainties
  • This removal of liquidity has reduced implied volatility to 61.5%, a low level relatively to the yearly average

Perpetual Futures Funding Rates

  • Funding rates are the fees paid between traders to peg the futures price to the spot price
  • Positive (green) funding rates indicate a net long bias by traders as they are willing to fund short traders
  • Negative (red) funding rates indicate a net short bias by traders as they are willing to fund long traders
  • This past week has seen mixed sentiment as funding rates fluctuated between positive and negative
  • There is therefore no clear directionality that can be inferred from funding rates as traders have adopted a risk-off behaviour given the macro uncertainty

Where is the bottom ?

Price has been in a downtrend since reaching an all-time high (ATH) in November 2021 and has dropped by approximately 50%. Price isn't far from reaching the $29k low established in July 2021 after the May 2021 crash.

Since the downtrend began in November of 2021, price has failed to establish a bottom on numerous occasions including last week as prices had recovered from $33k to $45k before dropping back to $34k.

Our technical analysis suggests that $28k is the next support level in play. We can turn to 'Macro Trend Indicators' to assess the likelihood of price either reaching this support level or having already set a bottom.

Mayer Multiple

  • The Mayer Multiple (MM) is a ratio between price and the 200d moving average
  • Values above 1.0 indicate that price is above its 200d moving average and vice versa when values are under 1.0
  • The metric has reliably signaled macro tops / bottoms as it takes into account the 200d moving average, which is an indicator often used to determine long-term trends
  • The metric returned its lowest value at the end of January 2022 at 0.71 since March 2020 and July 2021
  • The metric has recovered swiftly since and has climbed back up to 0.90
  • As such, a macro bottom may have been set at $33k and the price recovery may be underway
  • This thesis will be invalidated if the MM crosses below 0.71 again

Correlation to Equities

  • Bitcoin's correlation to the S&P 500 has reached an all-time high
  • The primary reason for this is due to the uncertainty in the macro environment as well as the lack of idiosyncratic flows to Bitcoin
  • As such, Bitcoin traders are adopting a risk-off behaviour by limiting their speculation and deriving signals from movements in the equity markets
  • This correlation is likely to persist as long as there is uncertainty in the macro environment as well as a lack of Bitcoin-specific developments

All eyes on Ukraine-Russia

  • BTC price action will continue to be driven by STH traders as LTHs have held firmly onto their positions
  • These STH traders are highly sensitive to price changes and are currently deriving most of their signals from the equity markets given the macro uncertainty and lack of idiosyncratic flows
  • Traders in the equity markets are pricing in the expected impact of the Ukraine-Russia conflict
  • BTC's short-term price movement is therefore highly contingent on how the conflict evolves

Summary

  • Bitcoin has sold-off by 22% as uncertainty has mounted with the Ukraine-Russia conflict
  • The next support level is $28k-$30k as the key $40k level has been broken
  • Investors are accumulating Bitcoin and holding for the long-term as net outflows remain despite the sell-off
  • This sell pressure came from STHs as they cut their positions to limit their losses
  • Macro indicator suggests that price recovery is underway as $33k could be a macro bottom
  • BTC is highly correlated with equity markets due to the macro uncertainty and the lack of idiosyncratic flows