Bitcoin Monthly Outlook

 Introduction  

This post is going to analyse the BTC price and attempt to predict the movement using On-Chain data and Technical Analysis. So enjoy.................. In the previous week, the Bitcoin market opened up to the significant news of Elon Musk's firm Tesla, purchasing $1.5 Billion worth of BTC as part of the companies balance sheet strategy. Immediately following the news, BTC/USD printed the largest daily candle in history, up a staggering $7,162 (+18.45% on the day). The market has lovingly named this the 'Elon Candle' [1]. He has indeed sent massive shock waves into the cryptosphere, and as a consequence we have seen a strong resurgence of retail interest in the space, increasing from an average of 2-3M of daily active users to 4-5M beginning of February.

The market held onto these gains, and has since rallied to new ATH of $49,485 after tagging an intra-day low of $43,909 along the way.  There is no doubt, 2021 continues to shape up as a very exciting year for Bitcoin.

The famous Elon Candle:

Understanding the state of the Bitcoin blockchain with respect to the price at which BTC is being valued by the market is indispensable for any investor in this asset. In fact, Bitcoin on–chain data has been used in conjunction with off–chain market data in order to create metrics and indicators that help investors gain fundamental insights into the current state of the market, understand investor sentiment, or model the value of Bitcoin. A good indicator for understanding this is  NUPL, for more information about the NUPL indicator see [2] 

Below we can see the GlassNode famous NUPL chart:

 
Net Unrealized Profit/Loss is the difference between Relative Unrealized Profit and Relative Unrealized Loss. Above we can see that BTC chart is about to hit Euphoria, which is an indicator for a BTC correction signal. 

BTC Reserves 

The balance of BTC held in exchange wallets has now been in a remarkable downtrend for over 12 months. The all time high for exchange balances occurred on 11-Feb-2020 (3.016M BTC) after which a total of 666.8k BTC have been withdrawn. This represents a 22% draw-down in exchange held coins leaving just over 2.346M BTC on exchanges [1].

Below we can see the BTC reserve drop from all exchanges from CryptoQuant:

Note: Above we can see the the BTC reserve only held on exchanges. Which shows that, even if the BTC performs a correction, in the long run, it looks like it is going to go up. And the HODLers are going to be the most benefited.

Below we can see the BTC reserve drop from all exchanges from CryptoQuant with the change:

Note From above we can see that from 1st of March 2020 we have a 23% reduction of the BTC reserves in all exchanges.

Below we can see the a multiple asset reserve drop from all exchanges from GlassNode:

Note: Above we can see the the percent supply held on exchange addresses for multiple assets, including the most popular cryptos. This tells us that there is going to be a shortage, not only on BTC, but in other assets too, such as ETH and LTC.

Roughly 635,000 BTC have exited exchanges since early 2020. It's predominately going to three areas:

1. The Prince of Pump Grayscale
2. Corporations/Institutions
3. DeFi

Below we can see the allocation of the GrayScale from GlassNode:

Note: The above diagram shows the amount of BTC holdings of the GrayScale Bitcoin Trust (GBTC).

Below we can see the market cap of the DeFi from DeFi Pulse: 

Note: The chart is for the 90 days. Some estimates claim that the DeFi market is going to hit 3b by the end of the year.

Exchanges Net Flow Volume 

It seems that the majority of the exchange net flow is mostly negative, so for now we are good.

Below we can see that net flow of all exchanges: 

The above chart show the difference of in volume flowing into exchanges and out of exchanges, i.e. the net flow of coins into/out of exchanges. 

BTC TA Insights 

BTC seems to build strong support lines, over the time at 29K and some minor support on 44k, below we can see a 1 day BTC chart from Tradingview:

Above we can see that BTC keeps printing accenting triangular shapes and both indicators (RSI and MACD with Fibonacci configuration) display at least short term upturned. A although 40% correction looks like a bad dream, still not impossible.

Again BTC seems to have a strong support line at 29K, in the 1 week BTC chart from Tradingview:

Here we can see that BTC keeps printing weekly accenting triangular shapes and both indicators (RSI and MACD with Fibonacci configuration) display at least short term upturned. 

What BTC Price Is Going To Do

So is this the top for bitcoin or just the beginning? To understand that lets take a step back and analyze the BTC bull cycle as a whole. The macro bull cycle starts with a reduction in on-exchange supply, which leads to a supply squeeze, as already demonstrated previously. Also new retail investors have entered the space of crypto and especially BTC as explained in the introduction. This can be proven also by the social media volume generated since early January 2021 (see below diagram).  

Below we can see the Social Volume chart from Lunar Crush. Lunar Crush is a community page with members interested in crypto space. Social Volume is a Lunar Crush metric that demonstrates social mentions (in this chart for BTC) for over a year:

Note: Above we can see an obvious increase of the volume of the retail investors interested. 

This can also be confirmed from the continuous increase in the total number of new market participants in the last couple of weeks.

Below we can see the GlassNode chart for new entities:

There are two major types of investors the retail investors and the institutional investors. In the long run the BTC price is determined only by the institutional investors, but in the short term, retail investors can affect the price. We also know that there are two sub categories the long term holders and the short term holders.

Below we can see the total supply held by short-term holders from GlassNode:

Below we can see the total supply in profit held by short-term Holders (30d Moving Median) from GlassNode:

Below we can see the total supply in profit held by long-term holders (30d Moving Median) from GlassNode:

The BTC at least until March is going to move upwards, the winners are the long term holders. The retail will push the price up for a short term period, but in the long run the financial institutions will prevail. The good news is that there are multiple institutions that use BTC as SoV and therefore this means that this in combination with the supply shortage will push the BTC price upwards to 65k easily by end of March. A 10% correction and an annoying retesting should be expected. 

The only thing that we should be concerned is two things:

• BTC is now a 1T asset and the need for regulatory requirement is mandatory. The question is how are the regulatory requirements are going to affect the BTC price.
• Tether (USDT) is under investigation, a potential ban of tether is going to create a monetarily sell pressure,that is definitely going to cause a price drop. BTC will recover, but short term holders and weak hands are going to sell.         

References: 

• glassnode.com [1]
• medium [2]
• https://bitcoinuncharted.substack.com/p/uncharted-3?r=do1bc&utm_campaign=post&utm_medium=web&utm_source=copy [3]

Data-Driven Approach To Cryptocurrency Speculation The Ultimate Methodology

Introduction 

A Data-Driven Approach To Cryptocurrency Speculation is the only way to success.

How do Bitcoin markets behave? What are the causes of the sudden spikes and dips in cryptocurrency values?  Are the markets for different Altcoins, such as Litecoin and Ripple, inseparably linked or largely independent?  How can we predict what will happen next?

Articles on cryptocurrencies, such as Bitcoin and Ethereum, are rife with speculation these days, with hundreds of self-proclaimed experts advocating for the trends that they expect to emerge.  What is lacking from many of these analyses is a strong data analysis foundation to backup the claims. Also fundamental analysis plays a crucial role for long term HODLERS. 

Fundamental Analysis

Before investing on a coin you have to do your research first, you have to know what are you investing on. This translates to analyzing the following elements:

• The team reputation (e.g. team average age group)
• The team skill set composition (e.g. skill set balance, in marketing and engineering)
• The team skill set ratio (e.g. 70% engineers and 20% social community creation)
• The product white paper (e.g. well written whitepaper, reviewed by lawyer)
• HQ Location (e.g. London or Netherlands with stable legal framework etc.)
• Company partnerships (e.g. associates with other companies in the field )
• Social community  size (e.g. 30.000 users in telegram channel)
• Technology Use Case:
• Payment
• Insurance
• Oracle
• Clean Energy
• Shopping
• Tokenomics (e.g. inflation, coin max supply, market-cap etc.)
• Code audit from the product:
• Security code audit from an independent 3rd Party (e.g. Review for security bugs etc.)
• Manual Audit (e.g. Review for code quality etc.)
• Github Repo code review (e.g. update frequency etc.)

Note: A sample analysis can be seen in this link Matic .

Tools For Fundamental Analysis

For fundamental analysis,we can you the following websites to get all the required information:

• Coingecko - From this tool we can get information
• Lunarcrush - From this tool we can get information about the coin and social sentiment 
• OpenZeppelin - From this tool we can get information about the security audits

On top of the mentioned tools you can use also other tools. The mentioned tools cover 90% of my research.

Building Portfolio & Understanding Movement  

Usually by correlating different assets you can conclude how movement evolves and make the right bets. Below I have my latest correlation analysis, with pair from Poloniex public API. The test collects data from 2019-01-01 until today (2021-07-02), enjoy the Kendall correlation:

  This is for the same period the Spearman correlation:

 

  This is for the same period the Pearson correlation:

Note: For more information on correlations and how to use them please see my previous posts here and here.

From here we can see the following interesting correlations:

• ETH has 0.74 to 0.96 correlation with BTC, which this translates to BTC is leading the way and ETH is following.
• LINK has 0.74 to 0.9 correlation with ETH, which this translates to ETH leading the way and LINK following.
• UNI has 0.76 to 0.88 correlation with COMP, which this translates to COMP is leading the way and UNI is following.
• SNX has 0.66 to 0.9 correlation with BTC, which this translates to BTC is leading the way and SNX is following.

On Chain Data And Technical Analysis 

On chain data analysis is always mandatory and these are the metrics I am using to assess my short and long term movements:

• Exchange Inflows/Outflows for swing trading from CryptoQuant and GlassNode
• Coin reserves on BTC and ETH for long term investment and swing trades from CryptoQuant and GlassNode
• NUPL indicator from GlassNode
• Stable coin reserves on all main exchanges from CryptoQuant and GlassNode
• Coin charts from Tradingview (for short term) and the following indicators:
• RSI with fibonacci values
• MACD with fibonacci values
• Moving Average, Weighted Moving Average for 21,34 and 13 days
• Buy and Sell walls from Tradinglight for short term movements

Bull and Bear Cycle Periods 

As we can understand in all assets there is a Bull cycle that alternates with a Bear cycle. Now between the Bear and Bull cycle there are mini Bear cycles were BTC consolidates (aka. Moves sideways) or retests the resistance lines. That time period is usually the best to switch your cash to the Altcoin market, and the market movement can be recorded. 

The diagram below shows which market (BTC or Alts) dominates based on market cap: 

 

When the graph hist 70% towards the BTC market, we switch to BTC, when it goes below 65% we switch to Alts and so on. 

Technical Analysis 

Technical Analysis works because the markets are largely based on human psychology. Swings follow numbers, but the behaviors are predictable to a certain extent. That certain extent has to do with the fact that human psychology is a natural factor, and most natural factors seem to mysteriously follow the golden rule, or Fibonacci numbers and proportions. The theory goes that if you tell a bunch of people that bad news is coming, a certain portion of them will act early or prepare in one way, a certain portion of them will wait and see, a certain portion of them will sit tight and power through [1].

Below we can see the most common patterns for TA, in order to identify future price movement:

Social Media Sentiment

Lunar crush is a very good site to get the overall social sentiment on most of the cryptos:

Summary/Last Words

A summary the blog post about the methodology:

• Step1: Fundamental analysis for long term is mandatory
• Step2: Crypto coin correlation can give us a good understanding about price movement
• Step3: On Chain data analysis is a must to get valuable insights  
• Step4: Technical Analysis is a complementary tool
• Step5: Social sentiment can help you predict movement and new coins

Stay safe do not drive fast......

References:

• reddit [1]

 

ETH Price Evolution

 Introduction 

This blog post is going to make an assessment on the Ethereum  price and attempt to predict how the ETH is going to perform the next three months, and when to exit. Since mid October 2020 there has been an insane accumulation of Bitcoin from Whales and since ETH has a 93% correlation with BTC, we can safely assume that ETH is going to go to the moon too. It does worth mentioning also that ETH the last year has outperformed BTC and it seems to have a certain type of "price decoupling".  Which translates to an ETH movement that is going to ignore the indecisiveness of BTC and move to an ATH. 

This is the BTC/ETH ratio daily chart created using Tradingview [7]:

Ethereum's out-performance looks set to endure also in the near term, as the BTC/ETH ratio breaks to its lowest levels since August of 2018. That being said, both cryptocurrencies seem poised to move higher in the coming weeks, as bullish technical setups take shape on multiple time-frames. 

Article key points:

• ETH EIP-1559 burning mechanism
• ETH as a DeFi reserve
• ETH trend
• ETH price suppression

ETH Reserve 

Based on coin-telegraph [1], analysts predict ETH may soon hit a new all-time high after ETH reserves on centralized exchanges fell by 27% in two days. The acceleration of ETH being taken off exchanges was highlighted by Nuggets News [2] Alex Saunders, who noted a 10% drop in Ether reserves on centralized platforms on Jan.14 — from 11 million to 10 million over 24 hours. “Exchanges will run out of ETH in 10 days at current rate,” he predicted.

This can also been seen on the Cryptoquant charts [3]:

In the chart above we see a rapid drop on Jan 23 and the then slower movements to further down. This is a strong indicator of a Storage of Value (SoV) asset. Long term HODLERs are going to benefit from just holding ETH.

ETH The Reserve Of DeFi

As far as blockchain is concerned, investors believe that ETH has a value storage function [4]. Below we can see the total ETH 2.0 value staked so far.

This can also been seen on the Cryptoquant charts [3]:

ETH is the mother of DeFi and the equivalent of derivatives in the traditional market. Simplistically speaking without ETH there is no DeFi. If we compare DeFi with the current traditional derivatives market, we can see the future of ETH price.

But what is a derivative?

A derivative is a financial security with a value that is reliant upon or derived from, an underlying asset or group of assets—a benchmark. The derivative itself is a contract between two or more parties, and the derivative derives its price from fluctuations in the underlying asset. [8]

Why ETH is a derivative?

ETH allows the cooperation of multiple different contracts (e.g. through smart contract interfacing). By assuming that a smart contract emulates the behavior of a single asset e.g., gold or silver etc. We can safely deduce that on ETH we can build/emulate derivatives, simply by combining smart contracts e.g. two smart contracts that emulate gold and silver etc. 

This is particularly easy with the following three properties:

• Chain interoperability e.g. cross chain data exchanges
• Chain oracles e.g. see Chain-link technology 
• Web 2.0 connectivity e.g., see API3 technology

The current derivative market is, in a word, gigantic—often estimated at over $1 quadrillion on the high end. Largely because there are numerous derivatives in existence, available on virtually every possible type of investment asset, including equities, commodities, bonds, and currency. Some market analysts even place the size of the market at more than 10 times that of the total world gross domestic product (GDP). However, other researchers challenge these estimates, arguing the size of the derivatives market is vastly overstated [9]. For a visualization of the market caps in different assets see [6].

Is there any downside in derivatives?

In the traditional market, derivatives are difficult to value because they are based on the price of another asset. The risks for OTC derivatives include counter-party risks that are difficult to predict or value as well. Most derivatives are also sensitive to changes in the amount of time to expiration, the cost of holding the underlying asset, and interest rates. These variables make it difficult to perfectly match the value of a derivative with the underlying asset [8].

Why are we concerned about the derivatives behavior in traditional markets?

Because with derivatives someone can create financial bubbles. The real cause of the 2008 financial crisis was the proliferation of unregulated derivatives during that time. A good example of a derivative that caused the financial crisis is a mortgage-backed security [10]. ETH derivatives, depending the regulatory framework that is going to be created (it is assumed that the regulatory framework is going to be created in the near future) might become dangerous on the distant future.  

Is this something I should be concerned?

No, 1st it is too early and 2nd this is related mostly to layer 2 technologies, that seat on top of ETH e.g. Matic Network. 

ETH Is Burning

The EIP-1559 standard aims to reduce gas costs on the Ethereum network, and is expected to be released in the summer of 2021 [11]. EIP-1559 is a transaction pricing mechanism that includes fixed-per-block network fee that is burned and dynamically expands/contracts block sizes to deal with transient congestion [12]. ETH1.0 historically priced transaction fees using a simple auction mechanism, where users send transactions with bids ("gasprices") and miners choose transactions with the highest bids, and transactions that get included pay the bid that they specify. A mechanism similar to the one BTC is using. Simplistically speaking ETH is becoming deflationary..............

The transition to Ethereum 2.0’s staking mechanism is set to reduce the inflation rate of ETH to 0.5%-2.0%, putting it in the same company as BTC and gold in terms of supply inflation. 

ETH Is On An Uptrend

Trend is your friend, follow the trend and enjoy the ride. ETH hit ATH today (03/02/2021) and the shapes created by the price chart show that the same trend is going to continue.

This can also been seen on the Tradingview charts (daily chart):

ETH Is Suppressed By Whales

For visualizing the buy and sell walls from the Whales, we are going to use Tradinglight. Tradinglight is a heat-map visualization tool, that loads Tradingview, using live data, indicator scripting, support for all major crypto exchanges. When using TradingLite heat-map, we can quickly grasp which price levels are trusted by the market.

Tradinglight charts (6hrs chart in Bitfinix):

From the diagram above we can see from the Bifinix order book that, there are multiple sell walls on 800 to 1200 dollars. Which means that there is a strong desire to suppress the ETH price and buy the deeps. On the top there is a sell wall on 1500 dollars.

Below we can see from cryptometer that ETH is heavily suppressed by the big bad Whales:

 Note: The amount used to suppress ETH since Dec 2020 increased by 70%.  

Conclusion 

ETH is going to outperform BTC and hit at least 2000 dollars the next 2 weeks to 4 weeks. After ATH is achieved I am expecting a parabolic move similar to the one BTC went through. I would not be surprised if we could see a 5000 dollar price in 3 months from now.  

References 

• cointelegraph [1]
• NuggetsNews/videos [2]
• Cryptoquant [3]
• tokeninsight.medium.com [4]
• decrypt.co [5]
• visualcapitalist [6]
• dailyfx [7]
• investopedia [8]
• investopedia [9]
• thebalance [10]
• hebergementwebs [11]
• github [12]