Relief Rally
Dear subscribers,
Welcome to Bitcoin Onchain, Offchain, and Beyond.
In the last update (BTC price: $23.2k), I pointed out that bitcoin’s short-term sentiment had finally turned bullish, and the selling pressure before FOMC could lead to some good accumulation levels. Since then, BTC corrected to 20.8k before the July FOMC, and soon rallied afterwards.
Below is a summary for market conditions on August 4th 2022 (BTC current price: $22.8k):
Long term:
BTC will continue making all-time highs, but not this year.
While lots of bullish signs point to a rosy August ahead, the mid to long-term trend remain bearish, at least for this year. Liquidity issues continue and long-term holders are still selling in losses. Quantitative tightening will increase in September. Real GDP has printed negative for two quarters in a row. And google trend for “recession” is soaring. Despite the inflation-hedge narrative, bitcoin remains a risk-on asset with rising correlation between crypto and traditional financial markets.
Short term:
Bullish
On-chain short-term sentiment has now switched to a bullish trend. Institutional traders on both spot and the futures market have now also turned bullish. Key technical futures indicator is now oversold on the daily timeframe. With a longer than normal FOMC meeting gap window, a relief rally is underway for August.
Best of luck,
Vicky
P.S. If you find the analysis helpful, consider buying me a coffee at 0x646071ED932DCd0019e1EB625947bbbc6a3AF332 (ETH/BSC/Matic/Optimism).
Signs of Institutional Bulls
After trading at discounts since early May (BTC $40k), institutional spot traders on Coinbase are finally trading at premiums compared to retail spot traders. On the futures market, both asset managers and leveraged funds have increased their net positions on CME in the last week of July. Furthermore, all of the trader categories on CME are now net long, which is a rare occurrence. While the increase in open interest on CME has not caught up with that on Binance, the existing institutional participants have changed from a bearish bias to a bullish one. Similar change in institutional sentiment could also be observed from the crypto fund flows. According to CoinShares’ research, July has seen the strongest inflow from institutional investors in 2022.
July represents the strongest set of monthly inflows so far this year totaling US$474m, almost correcting all of the June outflows which totaled US$481m.
— CoinShares Digital Asset Fund Flows Weekly
On-chain Activities Picked Up
The indicator above tracks the percentage change in active addresses relative to the percentage change in BTC price. The more active users on the underlying network, the higher BTC’s utility value is, and vice versa. Generally, when BTC’s price rises quicker than the rise in active users, the market is in bullish sentiment. Since mid July, the number of unique addresses that were active in the network has been on a healthy uptrend, supporting a potential August relief rally.
The Battle between Long-term and Short-term Holders
Long-term holders continue to take the bearish stance while short-term holders have now switched to the bullish side. So question becomes, who’s going to be right? I think it’s important to note that more than 90% of daily spent outputs come from shorter term holders. Furthermore, long-term holder SOPR has been hovering in the 0.5-0.85 range. In other words, the mid to long-term holders who choose to sell right now are deep in loss. Once price gets closer to mid to long-term holders’ break-even price (long-term holder SOPR above 0.95), more long-term holders will likely click the sell button. Before then, however, I think the short-term holder sentiment will dominate market trends. Below is a similar situation in 2018 when long-term and short-term holders took different sides of the market.
Open Interest Money Flow Index Oversold
Using CME open interest, the open interest money flow index (composed by Noldo) is now extremely oversold on the daily timeframe. With the futures market now contributing to 80-90% of BTC’s trading volume, this index has been extremely useful in the current cycle.
Gloomy Macro Outlook Continues
Similar to the analysis in prior forecasts, the macro conditions couldn’t be any worse. The Fed will likely continue the tightening until something breaks so that they couldn’t tighten anymore. For bitcoin, despite the risk-off narratives, it continues to perform as a risk-on asset with a rising percentage of traditional market participants in the space.
The good news is FOMC does not meet in August and the next FOMC is in late September. This gives the market some breathing room for the short-term. As mentioned in prior sections, both institutional and retail bullish sentiments have picked up and short-term on-chain indicators are finally bullish. These, along with a longer than normal FOMC meeting gap window, give a high chance of bullish August ahead.
Free On-chain/Fundamental Analysis Indicators
Onchain Whale Demand:
https://www.tradingview.com/script/9Fhu9LGQ-BTC-Transaction-On-Chain-Volume-Basic/
Active Address Momentum:
https://www.tradingview.com/script/KI8h2N33-BTC-Active-Address-Momentum-On-chain/
Active Address Trend:
https://www.tradingview.com/script/Czkfui2v-BTC-Active-Address-Trend-On-chain/
SOPR Signal:
https://www.tradingview.com/script/nzuHp5az-SOPR-Signal/
Institutional Trader(Coinbase) Premium Indicator:
https://www.tradingview.com/script/jMnKn8Er-BTC-Coinbase-Premium-Trend/
Altcoin vs. BTC Season:
https://www.tradingview.com/script/95QlU7Uk-Altcoin-vs-BTC-Season/
Free Technical Analysis Indicators
Auto MACD Divergences:
https://www.tradingview.com/script/NvtunxPO-MACD-w-Divergences/
Auto RSI Divergences:
https://www.tradingview.com/script/CuB4Dgs0-RSI-w-MAs-Divergences/
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