The Wolf Den #427 - Bitcoin Is In A Class Of Its Own
Hidden Bullish On-Chain Signals - IntoTheBlock
In this report, we bring to you the latest in on-chain cryptocurrency analysis. We look at the blockchain directly and analyze balances, transactions, and the overall activity of market participants. This gives us a unique insight into the future of the market.
This section is written in conjunction with IntoTheBlock (ITB). ITB is an intelligence company that leverages machine learning and advanced statistics to extract intelligent signals tailored to crypto-assets. IntoTheBlock tackles one of the hardest problems in crypto: to provide investors with a view of a crypto asset that goes beyond price and volume data.
The Wolf Den research team uses IntoTheBlock to dig deeper and get the most important insights about the crypto market.
Hidden Bullish On-Chain Signals
2022 has been a rough year for crypto so far, with major price drops and now scandals taking place. Zooming out, however, we can extract on-chain signals potentially indicating bullish divergence.
Talking about the supply shock, tracking exchanges on-chain flows is one of the best ways to assess the liquidity available for Bitcoin. The Net Flows indicator highlights trends of traders sending money in and out of exchanges. Recall that Net Flows are positive when more funds are entering than leaving exchanges. Therefore, we observe that positive Net Flows tend to coincide with periods following large increases in price or confirmation of down-trends.
As of Feb 2 using IntoTheBlock’s Exchanges On-chain Flows
By analyzing the drawdowns experienced during May-July of last year and the current, the exchanges netflows paint a different picture.
Between May and June of 2021, there were significant inflows of Bitcoin into exchanges, coinciding with the sell-off that happened during that period. Approximately 127k BTC were deposited.
While during May and this time, Bitcoin experienced a retrace of at least 50% in the price, we spotted that just in the month of January of this year, the outflows have increased considerably.
The outflows of 77k BTC trend suggests that less Bitcoin is available to buy at exchanges, as users tend to move these assets to cold storage or yield generating strategies.
As less Bitcoin is available to be bought at exchanges, it’s also worth mentioning how much of the current circulating supply is not being moved.
The Unspent Transaction Outputs Age indicator measures the volume of transactions being created and classifies these by time frames. By doing so, the UTXO Age Indicator segments the number of tokens (e.g. the number of BTC in the case of Bitcoin) according to the time it has been since they last moved from one address to another.
As of Feb 2 using UTXO indicators
Coins maturing - By analzying the UTXO Age indicator, we can spot a trend of how people are selling less in fear and holding their assets for a longer period.
Unlike the May crash, the percentage of BTC circulating supply that hasn’t been moved for at least 12 months is approaching 60%
Since May, the percentage of Bitcoin that was held between 6-12 months has increased from 8% to 17%.
This trend, combined with the outflows from exchanges, suggests that % of Bitcoin that is liquid and available to buy has decreased considerably and continues to decrease.
Bitcoin Thoughts And Analysis
WEEKLY CHART
I believe that trading divergences on the weekly chart and above is nearly impossible. They can be useful macro signals, but the timing them is difficult. That said, we had a lot of chatter about the massive bearish divergence on the weekly and monthly charts.
Now we have confirmed hidden bullish divergence on the weekly, potentially also forming on the monthly. This confirmed on the weekly when RSI made the definitive elbow up at the close.
This effectively cancels the bear div.
DAILY CHART
Little has changed since yesterday. Price is still well under the first key resistance around $39,600 that I have been talking about. It's a crime to get too bullish at resistance!
For the moment, price is stuck at the centerline of the Bollinger Bands, a key resistance for traders using this indicator.
TD Sequential is potentially printing a green 9, a sell signal. You can see the red buy 9 at the bottom. I consider TD to be a weak indicator, but it was one that many people watch for confluence, so I always share these moments. This 9 is not confirmed.
Bottom line: Bitcoin has had a somewhat weak recovery so far, rising on decreasing volume. Price is now at resistance, so we need to see a real push on increasing volume to start feeling bullish.
Altcoin Charts
EGLD/USDT
This is currently AT RESISTANCE, so there is nothing to do yet. I have set an alarm on the descending line, which is where I would start to consider buying more Elrond, which is already one of my biggest holdings. Resistance and support are shown as horizontals, which you can use for traders instead of the descending line if that is your system. For me, a break of the descending line would be a signal that the downtrend is likely over.
LINK/USD
LINK is trying to flip a key level back to support at $16.72. If successful, this looks like a likely bottom. Key levels are marked, but this is more of a buy the dip for the longer term situation, if you think the market is ready to reverse.
Michael Saylor Finally Bought The Dip
It has become a meme that every time Michael Saylor buys Bitcoin, the market unexpectedly hits a short-term top. This is wildly untrue, especially knowing that the announcement comes after the purchase.
It looks like he may have finally broken the spell. MicroStrategy has just acquired more Bitcoin, this time in the midst of a serious dip. 660 Bitcoins were purchased at an approximate price of $37,865, bringing his total to $3.78B for an average price of $30,200 each. This $25M purchase (and all the others) goes to show that attempting to time the market is and always will be a fool's errand. Not even the largest holders can time the market well. If you believe, just keep buying. It’s that simple.
Innovation Is On Sale
The innovation investor remains unfazed about the widespread selloff in tech stocks.
Cathie Woods from ARK Investments recently went on a shopping spree. Known for her bravery when times are uncertain, Woods has become known as the “queen of retail” for her incredible foresight on what’s coming next. Let’s look at what she recently purchased.
“More than 2 million shares for her $12 billion flagship ARK Innovation ETF.”
“2.58 million shares of the stock trading app Robinhood.”
“55,000 shares—worth nearly $50 million—of Tesla.”
Here is what she had to say about the market’s recent correction: “innovation is on sale. We use volatility to our advantage. We concentrate towards our highest conviction names and that tends to work very well as we go through these corrections.” Whatever Cathie Woods is doing is definitely worth considering. She is considered the queen for a reason.
My Recommended Platforms And Tools
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On-chain and fundamental analysis, research, predictions and indicators, all in one place. Highly recommend.
The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.