Large Move to Come
Dear subscribers,
Welcome to Bitcoin Onchain, Offchain, and Beyond.
In the last forecast (BTC price: $21.3k), I pointed out that on-chain short-term sentiment had switched back to the bearish trend and short-term bullish sentiment from institutional traders were disappearing. Since then, bitcoin dropped to below 19k, and has had an uneventful September. Below is a summary for market conditions on October 14th 2022 (BTC current price: $19.6k):
Mid/Long term:
BTC will continue making all-time highs, but not this year.
Not much has changed compared to prior forecasts. Liquidity issues continue and long-term holders are still selling in losses. With the U.S. Dollar Index at all time high, the rising opportunity costs lower the chance of entering a cyclical bull market. Furthermore, bitcoin has retested the 17-18k support from June many times now. Without signs of strength, the more times this level gets tested, the more likely it’s going to break.
Short term:
Bearish
On-chain short-term sentiment remains in the bearish trend, and the recent derivative market movements suggest retail traders are overly bullish compared to institutional traders. With estimated leverage ratio at all time high, bitcoin likely will face a large move soon, and the risk-reward does not look good for the bulls.
Best of luck,
Vicky
P.S. If you find the analysis helpful, consider buying me a coffee at 0x646071ED932DCd0019e1EB625947bbbc6a3AF332 (ETH/BSC/Matic/Optimism).
Retails Derivative Traders Overly Bullish
Open interest on Binance (yellow line above) has increased significantly since mid June, while open interest on CME (blue line above) has stagnated. An over-heating retail derivative market along with a weakening institutional derivative market often leads to price declines for bitcoin.
Annualized daily basis (rate between BTC futures and spot price) of the nearest quarterly contract on Binance has reached the 2% resistance level and has started to decline. However, such bullishness in futures is not present in CME contracts.
The chart above is a comparison of the open interest for coin-backed vs. stablecoin-backed BTC perpetual contracts on Binance. While activity level for stablecoin-backed BTC perpetuals has picked up, the activity for coin-backed futures has continued its downtrend this year. With coin-backed futures targeting longer-term clients, the constant decline in the share of coin-backed futures on Binance indicates a lack of long-term holder demand in the current market.
Institutional Traders and Investors Bearish
CME futures spread (rate between BTC current and next futures contract in front) has turned significantly negative in the past month. This is a good indication for institution’s bias in the short-term. Different from mid June when the CME futures spread was significantly positive, institutions are now much more bearish on bitcoin’s short-term outlook despite similar price levels.
On the spot market end, there hasn’t been notable institutional accumulations. The chart above is the number of addresses with balance more than 1k BTC. Increases in this category had been present in all prior cycle bottoms. However, such institutional demand has not returned and unfortunately signifies more winter to come for crypto.
Short-term On-chain Sentiment Still Bearish
The indicator above is the short-term holder SOPR (above 1 – bullish: on-chain participants selling in profits; below 1 – bearish: on-chain participants selling in losses). And the red and blue lines on price are the average purchase prices for those who bought in the past week and the past month (excluding past week) respectively.
Short-term on-chain participants continue to sell in losses. With price now also testing the on-chain resistance level of 19.6k, I think more than normal selling pressure is ahead of us in the coming week.
A Large Move to Come
The chart above shows the estimated leverage ratio (open interest / BTC exchange reserves) and its oscillator for easier interpretations. Contributed by recent rise in retail derivative activities, the estimated leverage ratio surged to its all time high. Such peak indicates an overly-heated derivative market, and often leads to large liquidations which drive significant moves in price.
The potential rise in volatility could also be observed from the increasing share of strangle and straddle (options strategies that allow an investor to benefit from significant moves in the underlying asset) entered by Paradigm, one of the largest OTC providers for crypto derivatives. With a lack of institutional demand and overheating retail activities, I think the odds are in favor of the bears.
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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