Long-term > 60 days, Sentiment: Bullish - The long-term outlook for BTC is excellent, with leading indicators signaling strong growth ahead. However, with pricing consolidating in the mid-60s, the market may not top out until early next year.
Mid-term > 14 days < 60, Sentiment: Bullish - The coming one to two months look promising with a potential for a double peak bull run similar to 2013. All indicators point to strength in the mid-term with the potential for explosive growth.
Short-term < 14 days, Sentiment: Bullish with Caution - Bitcoin’s current price structure is supported by the significant open interest growth, starting around September month-end. However, the high open interest increases the possibility for short-term volatility, mainly if sharp drops in open interest were to emerge.
Long - 100,000+
Mid - 70,000+
Short - $58,000 - 70,000
Long-term (LT) > 60 days, Sentiment: Bullish $100,000+
Realized HODL Ratio (RHODL) is a valuable indicator that can identify an overheated market from a macro perspective with high accuracy. In other words, RHODL helps track when retail FOMO (Fear Of Missing Out) is at its’ highest and when new money is pouring into BTC markets.
Predicting Market Tops
RHODL can also help us visualize the global bitcoin cycles over time to show us where we might be in a particular market.
When the RHODL Ratio goes above 30,000, we can infer that the market is heating up, and dynamic growth is possible in the short and mid-term. However, once RHODL reaches the mid-40,000s (as it did in 2013 and 2017), the long-term picture quickly becomes bearish.
In mid-November 2013, RHODL broke 45,000 and hit an ATH with a value of $1054. Four months later, the price dropped down to $353 and extended into a bear market that lasted nearly two more years.
Notably, the RHODL did not signal a market top in early 2013. Therefore, we can assume that RHODL has greater accuracy than other models like Reserved Risk and MVRV for spotting market tops. Both Reserved Risk and MVRV provided false top signals at that exact point in 2013.
A similar pattern can be observed during the 2017 bull cycle. RHODL again broke above 30,000 and continued to climb past the 45,000 mark. On 13 December 2017, bitcoin was again at a new ATH at $16,525. Just as in 2013, four months later, the price of BTC had sagged to $6,629 and continued to fall over the next 18 months.
The current RHODL picture is positive. With the price consolidating at much higher ranges, demand seems strong even at the $60,000+ price point. RHODL Ratio currently is at 12,000 and in an upward trend. If we compare the value to the starts of other bull runs in 2013 and 2017, the top of this market cycle could be months away.
Net Unrealized Profit and Loss (NUPL) tells us how much of the BTC supply is currently in unrealized profit. This week the market has just broken the 60% threshold, which confirms the current bullish sentiment. In 2017, when NUPL passed 60%, the price surged over 230 days by over 1’000%. Last year, NUPL hit 60% on 19 November 2020, and the price of BTC rose 227% to reach $64,000.
With this perspective, the current signal is to buy and hold bitcoin. RHODL and NUPL have been highly effective at giving us a sense of where we are in a particular market cycle. Using these models to clarify our perspective gives us an overwhelmingly bullish long-term outlook going into 2022. The main question is how much growth we will see as bitcoin matures and adoption spreads.
Mid-term (MT) > 14 days < 60, Sentiment: Bullish $70,000+
The Spent Output Profit Ratio (SOPR) is useful for understanding the overall market sentiment regarding profits and losses in the mid-term timeframe. There are three key ideas to understand when reading this model.
When SOPR is greater than one (>1), coins are transacting at a profit.
When SOPR is less than (<1), coins are trading at a loss.
“SOPR reset” (SOPR=1) can signal the start or end of a mid-term cycle.
SOPR is useful for looking at specific periods, in which it oscillates above and below the value of one. When SOPR hits one, it is referred to as a “SOPR reset”. During the last year, there have been seven (7) key SOPR resets. In bull markets, each reset has corresponded with a bounce in prices and higher profitability. During bear markets, SOPR mainly stays below one with less profitability as coins are spent at a net loss.
In late September 2020, SOPR reset and then went on a 150-day run that extended well past its next reset on 27 February 2021. Since then in 2021, SOPR resets have corresponded with upward and stable price action in the 30-60 day range. The only exception to this was during the mini bear market between May and August this year. During that time, SOPR was consistently below one, confirming an overall bearish sentiment in the market.
This week we can safely assume that we are in a bull market. The biggest argument that may arise is whether we are at the beginning or middle of a bull market cycle. First, we should note that SOPR reset last week on October 27th. Since then, SOPR has bounced, trending upward 6% this week. This is a very bullish signal as coins coming into the market are being quickly sold at a profit into strength.
Short-term (ST) < 14 days, Sentiment: Bullish with Caution $58,000 - 70,000
Futures trading products such as those available on exchanges and notably on CME (Chicago Merchantile Exchange, the largest for BTC futures) do not trade actual bitcoin. Regardless of this fact, bitcoin futures trading can indirectly impact the long and short-term spot price of bitcoin. These types of products give sophisticated private and institutional investors access to bitcoin markets without dealing with BTC custody.
BTC derivatives also have short-term effects on price. Given that traditional asset managers dwarf the holdings of crypto-focused investors, increased demand from traditional hedge funds can lead to higher prices in bull markets and lower in bear markets. Large funds are also controlled by relatively few people, giving them an edge in the smaller crypto markets due to exponentially larger pockets. This edge can lead to price manipulation. A study last year by the investment company Wilshire Phoenix reported that “CME Bitcoin Futures contribute more to price discovery than its related spot markets.” Understanding the influence that futures have on bitcoin pricing is essential and something worthy of further review.
BTC Exchange Arbitrage
Bitcoin prices can vary from one exchange to the next for several reasons. A professional trader might buy BTC at one exchange for a lower price and then sell it at a higher price on a different exchange. This activity is called arbitrage.
If someone were to purchase a large number of futures contracts on CME, bitcoin’s price on CME futures would rise quickly. This purchase will not directly change bitcoin’s spot price, but savvy hedge funds would then go and buy spot BTC and sell the future at the same time as an arbitrage opportunity, driving up the spot price along with it.
The metric above captures the total funds (USD Value) allocated in open futures contracts across Binance, FTX, CME, BitMex, Bybit, OKEx, etc. Over the past week, the overall contract value held in the exchanges has been relatively high, reaching over $24 billion USD in total.
The total amount of funds that are currently allocated to futures contracts peaked last week at the same time BTC reached new ATHs.
It is notable to mention that open interest levels this year are 6x greater than it was last year at the same time and are likely supporting the higher price point.
With this in mind, if open interest continues at these levels over the next two weeks, we will probably see the price remain relatively stable. In contrast, a sharp decline in open interest has signaled an unwinding of positions that have resulted in price volatility.
Along with knowing the amounts at stake in the futures markets, it is also important to inspect the funding quality provided to back those contracts. Futures contracts can be paid for with cash or other cryptocurrencies. However, futures contracts funded with crypto are riskier since downward price movement affects the contracts and the underlying assets used to pay for those contracts.
Currently, we can observe that futures open interest financed with crypto assets is on the decline. A more significant number of futures contracts are being funded with cash, making them more solvent and of higher quality. Cash-backed futures in the short term signal high confidence in pricing and greater participation from professional investors. These quality factors combined with a heavy volume of contracts in the near term translate into an overall bullish short-term sentiment.
This week bitcoin continues to thrive as it builds momentum and consolidates around the $60,000 level. From a short-term perspective, we can expect pricing to remain in an upward trend as long as open interest remains high and long-term holders continue to accumulate coins. If the elevated open interest levels fail to be supported by short-term catalysts over the coming weeks, or a sudden drop in open interest was to emerge, a 10-20% decrease in price may follow.
From the mid and long-term time perspectives, the sentiment across the board is bullish. Bitcoin remains a strong buy with the top of this bull market on the distant horizon.
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