Hope all is well and you had a great weekend. It’s been another choppy weekend with Bitcoin hitting lows of just over $42,000. I want to preface this by first saying recent price action, or Elon tweets, haven’t changed anything in the broader on-chain structure for this cycle. Still consolidating. I like to think this way:
1) Are the broader on-chain (bull market structure) metrics over-heated? No.
2) Ok, then let’s zoom in from our macro top indicators (MVRV-Z Score, Market cap-Thermocap, R-HODL Waves, Reserve Risk, etc.) to our micro bottom indicators. (SOPR on different time frames, funding rates, RSI reset/bullish divergences, etc.) Are they saying oversold? Yes.
3) All of our micro bottom indicators are screaming oversold, so BTFD!
Let’s dive into some weekend developments:
Elon Tweet Madness
As many know, it can’t be denied Elon has been having a short-term effect on price. I love this tweet from Willy Woo: “Elon, a single opinion, talking up and down the market tells me how niche and small crypto is (2% of the world is tiny).” So true.
Price seemed to find a local bottom early this morning when Elon tweeted out that Tesla still has not sold their Bitcoin. This liquidated just over $1M of futures contracts and seems to have jumpstarted this relief rally we’re currently in.
Elon tweeting “Indeed” in response to an account tweeting that Tesla would dump their Bitcoin holdings seemed to be correlated with the price drop yesterday beginning around 2:50 PM EST. Exchanges saw a big influx of transfers inbound right after. Transfers onto exchanges signal selling most of the time.
Nothing crazy in the age of coins being sold, although we did have an increase yesterday in two cohorts yesterday:
There was a spike in 6m-12m old coins being spent.
Also, the 1m-3m old cohort had an increase in spending.
Funding rates still haven’t gone negative in aggregate, although they did briefly on FTX, Kraken, and Okex. This is something to keep in mind. Funding rates have gone negative and marked the local bottom of every correction over the last few months. They don’t necessarily have to go negative, but if they do, I’m going to get greedy when others are fearful.
Another thing to keep a close eye on is SOPR. As mentioned in previous letters, SOPR measures profit-taking from market participants. The likelihood that sustained market participants will keep selling at a loss in a bull market is unlikely. We are now oversold based on this metric and are seeing the deepest reset of the entire bull run by far.
In 2017, the only correction that seems comparable is the September correction.
I don’t think I’ve included any technical analysis before and only on-chain. For clarity, I will not be drawing any trend lines or shapes/patterns. I know it works for some, but it seems a bit subjective in my humble opinion. I do look at and will be incorporating things into the newsletter like MACD, RSI, and moving averages.
Looking at the weekly RSI, we are approaching a key trendline that served as support and market a reversal for the two largest corrections of the 2017 bull run.
One other technical indicator I’m keeping an eye on is the 21-week moving average. This moving average, along with the 128DMA, has served as bull market support in previous cycles. Last week’s candle closed sitting right on the average, so if history reports I’d be eyeing a reversal in the next week.
Not much else to say. Will bring up some broader metrics and how they’re all pointing to consolidation in Friday’s letter on Pomp’s channel.
In conclusion, every short term indicator is screaming buy buy buy. Broader bull run structure still intact. Bitcoin is not dead, have a great week guys. Looking forward to touching base later this week, all the best. Cheers!