The Chop Before Dawn
Dear subscribers,
Welcome to Bitcoin Onchain, Offchain, and Beyond.
In the last forecast, I pointed out the futures market selling pressure was exhausted and we expected a short-term bounce to the 44k level before further retail demand kicking in. BTC ended up making the short-term rally to 43k before dropping to the current level.
Below is a summary for market conditions on April 27th 2022 (current price $39.2k):
Long term/Cycle:
Similar to a week ago, whales have continued their accumulation. The institutional selling pressure on the futures market has been at its all-time low since mid 2019. I think most layer1 coins and BTC are at juicy long-term accumulation levels.
Short term:
Unfortunately, same as last week, the bulk of retail demand has not been back. While I think the remaining crypto trading community (intra-day, intra-week traders which include lots of institutional traders) still have enough gunpowder to always push the BTC price +/- 20%, I think the bulk of retail demand is necessary for more than 20% growth. After-all, it’s a zero-sum game. I’m not saying stay on the sideline and do nothing before such demand kicks in. Instead, I’m saying have realistic targets in the meantime. Two important short-term signals happened this week – sign of retail capitulation and institutional futures bullish interest. If no surprises come out of the May FOMC meeting next week, I expect a bullish May ahead (again currently, bullish = 20% growth, not 100% growth). Volatility tends to pick up before the FOMC meetings, so do be cautious of chop actions this week. Personally, I would either stay out of the market until the May FOMC meeting settles or wait for BTC to retest and hold the 40k level.
Cheers,
Phi
Whale Accumulating Continued
Exchange supply shock has increased significantly since January this year (blue line above). First proposed by Willy Woo, such metric measures the ratio of available BTC supply for sell compared to total BTC supply. The higher the ratio, the fewer amount of BTC is available to sell on the market and decreasing supply potentially leads to price increase.
Similarly, mega whale activities continued its uptrend since late February. The green line in the chart above is the total number of whale addresses holding more than 1k BTC. Despite recent price drop from 46k, the number of mega whale addresses continued to increase, indicating whale accumulation at the current price level.
Early Signs of Institutional Futures Demand
The chart above is the CME BTC futures spread (between the current & the next contract in front). In a bull market, the spread is positive, while in a bear market, the spread is negative. When the spread is high, there’s an incentive for the basis trade arbitrage (short futures, long spot; which at its peak yields 15%+ annual ROI) until the arbitrage opportunity exhausts.
The spread has been at its all time low since mid 2019, which indicates there’s currently not much incentive for institutions to drive down BTC price from the futures market. Furthermore, indicated from the zoomed-in chart above, peaks in the futures spread had led to mid-term BTC price rallies. These all point to a bullish May ahead.
Retail Capitulating with Demand Yet to Return
The largest amount of retail capitulation since February was seen in this past week. This happens when retail traders panic and deposit their BTCs to exchanges to sell for cash. While not signaling an uptrend, such capitulation is a sign of local bottom forming.
The bulk of retail demand has not yet returned. Compared to last week, stablecoin reserve on spot exchanges future declined from a 45% drop to a 53% drop since February, which significantly outran the drop in BTC reserves. This is interesting as magnitudes of stablecoin inflows/outflows continued to pick up with transaction counts of inflows/outflows stay steady. All indicate the crypto market is currently driven by whale activities rather than retail activities.
Macro Uncertainty Ahead
The next FOMC meeting (May 3-4th) is now around the corner. I think most of the bearish expectations are priced in already, and the meeting will likely lead to a relief rally in the short-term. We generally observe increased speculation and volatility when the FOMC meeting’s close, so do expect some chop actions in the following week.
Free Indicator Links:
Onchain Whale Demand:
https://www.tradingview.com/script/9Fhu9LGQ-BTC-Transaction-On-Chain-Volume-Basic/
Altcoin vs. BTC Season:
https://www.tradingview.com/script/95QlU7Uk-Altcoin-vs-BTC-Season/
Auto MACD Divergences:
https://www.tradingview.com/script/NvtunxPO-MACD-w-Divergences/
Auto RSI Divergences:
https://www.tradingview.com/script/CuB4Dgs0-RSI-w-MAs-Divergence/
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