Market Intelligence 16

• Bitcoin has gained 15% in the last week and has erased all losses incurred by the invasion of Ukraine
• Investors continue to accumulate Bitcoin at low prices and hold for the long-term
• Derivatives traders are uncertain of near-term price action
• Macro cycle suggests Bitcoin is in the early accumulation phase which has historically preceded extended bull-runs

Weekly Price Action

• BTC has experienced a positive week as it posting a gain of +15%

• The largest cryptocurrency posted its largest single day gain (+12.8%) in more than a year on Feb 28th

• Bitcoin has now erased all the losses incurred two weeks ago by the escalation of the Ukraine-Russia conflict

• Price is currently facing the key resistance level of $43k-$45k

Increasing Resilience in the Bitcoin Market

• This metric describes the net profit / loss of all Bitcoins moved on any given day
• Bitcoin's price has been in a downtrend since reaching an all-time high in November
• During this downtrend, there has been a reshuffling of Bitcoin supply from top buyers / price sensitive investors to high conviction / long-term holders
• Interstingly, the more price has declined, the less sensitive investors have become to price
• Below is visualization of the major events that caused the largest losses since Bitcoin reached an all-time high

• The invasion of Ukraine, a major macro event, only caused a slight loss in the market relatively to previous sell-off events
• This highlights how resilient the market has become
• This confirms that Bitcoin's investor base has gradually shifted to higher-conviction investors
• These investors accumulate Bitcoin at low prices and hold for the long-term
• This paints a bullish picture for Bitcoin in the long run as a growing base of price insensitive investors will provide Bitcoin the platform to resume its uptrend in price

Indecision in Derivatives Markets

Open Interest

• Open interest is defined as the number of open positions (long or short) currently on a derivatives exchange's BTC/USD trading pairs

• We observed a significant decrease in open interest in the week prior to Feb. 24th as the conflict in Ukraine pushed investors to de-risk and close their derivatives positions

• In contrast, traders have regained confidence in the last week as there was a 15% spike in new contracts opened

Funding Rates

• Funding rates enable the pegging of perpetual futures prices to the spot rate
• If funding is above 1.0 (green) than there is a net long bias in the market and vice versa if funding is under 1.0 (red)
• There is currently no clear directional bias in the derivatives markets as funding rates have fluctuated from positive to negative in the last week
• Despite the increase in open interest, derivatives traders are still undecided on near-term price action which can be explained by the uncertainty tha remains in the macro environment

Early Accumulation Phase ?

• Previous bull runs in the Bitcoin market have all preceded large periods of accumulation of Bitcoin by high-conviction investors
• More precisely, the accumulation tightens the supply of Bitcoin which pushes its prices higher
• As prices trend higher, investors start realizing profits by distributing their Bitcoin
• This then ultimately leads to a price peak and a subsequent crash in price
• We can look at the 'Realized Cap - UTXO Age Bands (%)' metric to help us visualize where Bitcoin currently stands within the aforementioned Bitcoin cycle

Realized Cap - UTXO Age Bands (%)*

• This metric describes the percentage of Bitcoin supply that has been held for more than 6 months
• Currently, 52% of the supply of Bitcoin has been held for more than 6 months
• This confirms the widespread accumulation of Bitcoin since the July 2021 bottom
• According to the metric, Bitcoin is currently in the early stages of its accumulation phase
• This is positive as these periods have historically preceded large bull-runs
• If the current accumulating trend continues, Bitcoin prices stand to climb higher

Each colored band represents the ratio of the Realized Cap of all Bitcoins in existence that were last moved within the denoted time period*

Summary

• Bitcoin prices have rebounded back to levels prior to the invasion of Ukraine
• Investors are becoming more insensitive to large declines in price
• Indecision still looms in derivatives markets over near-term price action
• The accumulation cycle suggests that Bitcoin is in the early accumulation phase, which has historically preceded bull-runs

The uncertainty in the macro environment has made near-term price action very volatile in the Bitcoin market. This volatility will persist as long as the factors leading to this uncertainty remain.

Having said that, a constructive undertone has developed in the Bitcoin market since November of last year. High-conviction investors have accumulated at low prices and stored their Bitcoins for the long-term. This trend has historically been bullish as it ultimately leads to a supply-squeeze and new all-time highs.

It is clear that day-to-day price action is primarily driven by macro-events and the subsequent reaction of price sensitive investors. Given the negative nature of the macro environment in recent months, the price of Bitcoin has significantly declined.

It is however important to keep in mind that investors with high conviction have heavily accumulated Bitcoin during this period which is very constructive for Bitcoin's long-term price action.

The near-term seems cloudy but the long-term remains bright for Bitcoin !