Long-term > 60 days, Sentiment: Bullish - Smart money players such as long-term holders (LTH) and miners gradually start to sell coins in the middle of a bull run as they expect the price of BTC to increase. Their behavior has been confirmed on-chain now for over a week and is expected to continue over the coming months. This is typical for mid-bull market behavior.
Mid-term > 14 days < 60, Sentiment: Bullish - The current market structure resembles closely the one of Q4 2020. Last year at around this time both long-term holders (LTH) and short-term holders (STH) were significantly in profit, which was followed by a strong price appreciation into the new year. On-chain data suggests a similar trajectory going forward.
Short-term < 14 days, Sentiment: Bullish with Caution - The price of BTC usually drops a few times 20-40% during a bull market. This is healthy and flushes the excessive leverage out of the system in preparation for the next leg up. After the 15-20% correction of the last week, we expect the price to stabilize before heading for new all-time highs (ATH).
BTC Price Expectations:
Long - $100,000+
Mid - $70,000+
Short - $55,000-$70,000
Long-term > 60 days - Sentiment: Bullish $100,000
The long-term outlook for Bitcoin remains bullish this week with little change from the previous week. The BTC price is trading sideways and now has closed in the $60,000 range for the longest period in history. Smart money, which includes experienced traders, miners, and long-term holders have reached the peak of their respective accumulation phases and have begun slowly selling coins into the market. Typically, this switch from accumulation to distribution behavior happens in the middle of bull markets as smart money expects price appreciation. Based on past distribution patterns, the current bull market may still have 4-6 months left extending into Q2 2022.
LTH and Miners are Selling
Glassnode defines Long-Term Holders as accounts that are holding Bitcoin for more than 155 days, which is about five months. Glassnode data shows that Bitcoin held longer than 155 days has a significantly lower probability of being spent than Bitcoin held for less than 155 days. To put things in perspective, five months ago was mid-June and the price of Bitcoin was in the $35,000 range.
Accumulation of Bitcoin by LTH started in April 2021 and has been constant for the past seven months. Zooming into the past week, we can see that a fairly low number of coins are starting to leave LTH wallets and flow into short-term holder’s (STH) wallets. The above chart shows a clear change of behavior with momentum shifting into distribution.
Miners have followed suit and are also beginning to sell Bitcoin. Miners have slightly different supply dynamics however than other smart money players as they are generating Bitcoin on a daily basis from mining activities. In the past, miners would sell periodically to cover fiat expenses such as hardware upgrades. Today, sophisticated miners can borrow against their Bitcoin holdings to cover routine expenses. While it is obvious that fewer Bitcoin in circulation can lead to greater price appreciation, miners who do borrow against their own BTC holdings are likely doing so with an expectation that the price of Bitcoin will rise. We can see in the chart above that Miner Net Position Change data confirms that miners are selling, and reinforces our mid-cycle bull market assumption.
Using multiple Key Performance Indicators (KPI)
On-chain data provides us a unique opportunity to use ensembles of charts to help test the assumptions we are making about the volume of BTC going from LTH to STH. Exploring the volume of coins moving is important, but being able to enhance that data with value and time is where it truly becomes interesting.
As such, we should always test our market development hypothesis with more than one Key Performance Indicator (KPI) to add perspective on gaps that other KPIs might not address.
Tracking Old Coins with the Metric “Coin Days Destroyed”
Knowing how long ago a Bitcoin, or part of a Bitcoin, was purchased is an important data point. It is important at the very least in regards to when it was sold.
We should not forget that a year ago, the price of Bitcoin was in the $10,000 - 15,000 range. With entities classified as smart money, whales, and LTHs, largely consisting of those who did begin to accumulate BTC more than a year ago, we should measure their economic activity in a way that gives more weight to the coins that they sell.
Coin Days Destroyed (CDD) can accomplish this weighting and adds two key variables to our analysis: time and value. Time is measured as the number of days between when someone purchased BTC and when they sold it. The second variable is the value or the amount of BTC in the transaction. CDD is simply the number of days times the amount of Bitcoin in the transaction.
When you buy Bitcoin and hold it in a wallet, a unique transaction record is created and added to the blockchain. This transaction record is referred to as a UTXO. Consider a UTXO like a single piece of paper money like a 50 Euro note. Think of a Bitcoin UTXO as a unique digital bill that has a “minted” date, and a value, just like the paper note. The only difference other than it being digital is that when a Bitcoin is spent, it is essentially destroyed and a new bill is created with the exact change if any remains.
Coin Days Destroyed (CDD) combines value and time.
Transaction #1: A UTXO for 2 BTC stored for 100-days has accumulated 200 coin days.
Transaction #2: A UTXO for 0.5 BTC stored for 100-days has accumulated 50 coin days.
Transaction #3: A UTXO for 10 BTC stored for 6-hours (0.25-days) has accumulated 2.5 coin days.
We can clearly see a trend last year that falls in line with the bullish narrative. Last year we can see old coins being sold into strength with a direct correlation to price growth. This period extended until the second quarter of 2021. Today, we see a similar trend, however with considerably fewer CDDs. This suggests that LTHs continue to HODL some of their coins, but have started changing their behavior to distributing Bitcoin back into the market.
Mid-term > 14 < 60 days - Sentiment: Bullish $70,000
Focusing out past the next two weeks through the new year, on-chain data continues to provide insight into supply and demand dynamics. Dormant coins become revived as the bull market runs and investors rush to capture short and long-term gains. We can see that there will always be days where corrections will happen for a variety of reasons. However, the mid-term outlook looks extremely bullish with the expectation that heavy demand begins to absorb the steadily increasing inflow of coins from LTH, whales, and others.
As we track the transfer of coins from LTH to STH, we can visualise when both LTH and STH are entirely in profit. The above chart showing LTH/STH supply in profit and loss shows us exactly when and where it happens in regards to the price of BTC.
Last year in November we can see times (in the circled areas of the chart) when the entire supply of BTC is in profit. During these times we see LTH selling their supply to STH holders, and corresponding price appreciation.
Over the next 60 days, the expectation is that the market behaves similarly to how it did at nearly the same point in time last year. We are now seeing LTH distributing coins, gradually, back into STH positions and this will likely continue into Q2 of next year.
Spent Output Profit Ratio for the Mid-term
Using Adjusted Spent Output Profit Ratio (aSOPR) in the chart above gives a simple metric that we can use to infer the market’s sentiment and the behavior of the people in it. When aSOPR is > 1, then investors are in profit when they spend or sell their BTC, otherwise, below 1, they are executing transactions at a loss.
Something to note when looking at the past bullish cycles is the aSOPR has been greater than 1 and in an uptrend during most of the past bull runs. Currently, aSOPR is trending sideways above the value of 1 which denotes BTC transacting at a profit and that we are currently in a bull market. When we see aSOPR dip below 1, caution should be exercised as this denotes a change in market sentiment.
Mid-term pricing looks strong during this bull cycle with both long and short-term holders in profits. The expectation is that price will increase over the next 60-day term.
Short-term < 14 days, Sentiment: Bullish with Caution $60-70,000
From a short-term perspective, volatility is ever-present with 10, 20 or even 40% corrections at various stages of the bull market. We have seen such a correction playing out over the course of the last two weeks.
Futures Long Liquidations - More Weak Hands
Bitcoin has reached an alltime high (ATH) before hovering in the $60,000 price range for over a month. Despite the high prices, we have seen some downward price movement immediately followed by liquidations at exchanges. This suggests large amounts of leverage in the system as investors extend their positions as price rises.
When the price of BTC falls, investors who have taken long positions with leverage may quickly sell their Bitcoin to protect against losses or the exchanges may automatically liquidate their leveraged holdings to limit losses. This triggers more downward price movement and further liquidations.
There were some notable spikes in liquidations earlier in September and some that played out over the last week. Time will tell if there will be a cascading effect with more liquidations in the short term or not. We have a tenancy to believe price will start to stabilize before moving to new ATH.
Funding at exchanges that serve mainly retail investors remains quite low, a signal that retail investors have yet to start to heavily invest in BTC through leverage this cycle. Retail activity tends to pick up later in bull market cycles towards the absolute tops in price as they start to become euphoric at peak prices. That said, the short-term outlook remains somewhat unclear as pricing moves sideways in the high $50,000, low $60,000 range for the moment. The general sentiment is overall bullish in the short term, but caution should be exercised as further liquidations may materialize.
Bitcoin has hit historic highs in recent weeks with on-chain data supporting a stable and healthy market structure. With the price of Bitcoin remaining in the high $50,000 to low 60,000 levels, the expectation of price appreciation in the short, mid, and long-term time frames remains bullish until at least the end of Q1 2022.
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