Welcome to The Bitcoin Forecast #31.
Coming off a deleveraging event last week, BTC moved violently downwards. At its peak it was a $10k move from highs to lows inside of a day. I had expected a v-shaped recovery, however this did not happen, instead price moved sideways. I’m issuing this update to give insight into what the fundamentals are doing which have been quite active despite the price not moving.
Top level summary for 11th Sep 2021 (current price $45.6k):
> Macro & mid-macro: The network is coming into a macro region of capital influx, further supporting the view of re-accumulation and a strong rally late this year and into 2022.
> Short term: Short term and long term investors, including whales, are now in strong accumulation, taking this opportunity to buy during this pull-back. Meanwhile we are in a volatility squeeze environment. Fundamentals are forming a bullish divergence to price action and as such, it points to this price pull back being a bear trap (that’s to say price moving to trick people into a bearish expectation while price snaps back suddenly bullish). We experienced a similar environment in July when price collapsed to $28k before a strong rally above $50k.
> Price action expectation: I’m awaiting a price squeeze back into the $50k+ range once accumulation has completed, I expect this to happen this coming week.
> Price action conviction: Medium (downrated due to correlations to equity markets which has been weak recently and could pull BTC down with it should the SP500 break long term support.).
All the best until the next letter.
DON’T GET REKT!
Please do not trade on this forecast assuming perfect accuracy. All forecasts are probabilistic
with roughly 80% historical reliability for short time frame forecasts. Short time frames are subject to unpredictable events and the randomness of markets, please use appropriate risk management.
Longer range forecasts are more reliable as it takes time for fundamentals to play out.
Investors continue buying
While price in the last 3 days has been trapped sideways without rebounding. Investors across the board continue to buy.
Both long term and short term investors have put in strong buying in the last 48 hours as seen in the Supply Shock chart below.
In particular investors who I’ve dubbed “Rick Astley” continue to reach relative peaks of buying (see chart below). “Rick Astley” is the genre of investors I’ve nicknamed to denote those with very little history of selling. These investors have a low probability of selling their coins in the immediate future.
The picture gets even stronger by looking at the net flows at the exchanges which are in a consistent pattern of investor buying and withdrawing to cold storage.
Finally I’ll add this chart into the mix which tracks the rate of buying and selling of whales. These are investors holding 1000 BTC or more. They are consistently adding to their inventory.
Price stability data suggests a bear trap
Given the demand and supply data is strongly bullish, the downside side is limited. The sell-down to date came from leverage in the system unwinding, this was from speculators, not from fundamental investor selling. Rather investors are strongly accumulating, and it’s investors who control the long term price.
Now if I couple this information with the price stability data which shows a significant move is pending, my view on this market is that this region of pull back is a bear trap and the large scale move is to the upside. We saw this exact price action play out at the last $30k bottom.
Macro: returning to capital influx
While traditional markets are familiar with the Market Cap metric which is one way to value the network, Bitcoin has a much more precise and useful Realised Cap, which tracks how much capital has been stored in the network. We can do this as we know the time and therefore price that current investors that hold BTC made their purchases.
It’s a simple step to track the change in Realised Cap to derive the change in capital stored inside of the BTC network. In the chart below I’ve done exactly this and then run it through some transformations to generate an oscillator view over a larger timeframe.
In the coming weeks, if the buying trend continues, we will once again enter a green zone which historically are zones where the market stays consistently bullish. This view is consistent with our long range demand and supply analysis (see #forecast 028) which shows BTC entering a peak re-accumulation phase and setting up for a strong bullish run late this year and well into 2022.
Ethereum’s fundamental demand and supply has not been climbing as much compared to Bitcoin. That said, it’s in a general region of historical strength.
Below I’ve plotted ETH’s dominance against the total crypto market. Under technical analysis it’s in a very well defined consolidation forming an ascending triangle. This price action is typically bullish.
My expectation is for ETH to continue to consolidate further before a final breakout to explore all-time-highs. I suspect it has been oversold and the next short term move is bullish, both against USD and BTC.
Alt-markets are now in a strong bullish trend as seen on the Bitcoin Dominance chart. With BTC forced to consolidate after its deleveraging this gives alt-coins the right environment to continue their gain in value vs BTC.