Dear subscribers,
Welcome to The Bitcoin Forecast #50: WAR TIME
The last two weeks BTC has continued trading with tight correlation to equities, which in itself has been very choppy as markets factored in the increasing tensions between Russia and Ukraine.
War has broken out, and that’s been the biggest impact on BTC price. With a fast 10% drop at its outbreak and a recovery thereafter, led by equities. Price tracked market uncertainty. During unusual times like these, both technical and on-chain signals don’t tell us much about future price action, at least not in the short time frames.
Bitcoin is what I call the world’s first “risk-on safe haven”. A juxtaposition of it being “risk-on”, like a tech stock, a new technology gaining fast growth and adoption, while also having the properties of being a safe haven. Its safe haven properties include being a sovereign self-custody asset that can be taken with you in times of war or stays operational in times of a banking collapse. During the outbreak of war, we saw BTC drop due to it’s risk-on properties, we now await the first real test of how the market perceives BTC as a safe haven.
Top level summary for 26th Feb 2022 (current price $39.2k):
> War time sell-off: The initial sell-off from the invasion of Ukraine looks to have been completed with BTC bouncing and retracing its 10% loss very quickly. Markets tend to be resilient to war, apart from the initial sell-off.
> Structural summary: Overall demand and supply has not yet reversed. Sell pressure continues to dominate. Hodlers are selling alongside futures contracts, while short term traders (on perpetual futures markets) bought which reflects the rally we have seen. The ongoing long term sell-off sits at a time when BTC is at an extreme level of oversold compared to on-chain and exchange data fundamentals. We are in a region where reversals happen, but as yet I’m waiting for demand to come back into the market.
> Price action expectation: Bearish sideways price action for coming weeks. I keep my eyes tuned for demand arriving.
All the best.
-W


IMPORTANT: The Bitcoin Forecast will be coming to an end

This letter, number #50, marks 1 year and 4 months of The Bitcoin Forecast. In this time it has grown into the most popular paid market intelligence newsletter for Bitcoin.

I initially launched it as a one year experiment, with the idea to help retail investors navigate the 2021 bull market. This was something many of my followers had asked for. This letter, and my work in the industry, has always been for retail investors. Bitcoin’s core value is decentralisation and this letter was here to close the gap of information asymmetry between institutions and everyday people.

The reception was beyond my expectation with revenue growing into multi-millions. We nearly topped 10,000 paid subscribers, enough that Substack added BTC payments to its platform which I am very grateful for.

A law of life is that everything changes, and I believe now is the time to begin sunsetting this letter, my reasons are below:

The maturing of the Bitcoin market means it’s increasingly difficult to reliably forecast future price action, this was always going to happen, and I think it’s at a point where the value proposition of this letter is now much less than when it started. I will always value the integrity of my work over revenue.

Bandwidth: I will be launching new projects this year, and I would prefer to do a few things well rather than to dilute my efforts doing too many things badly. Much of what I’m working on will serve retail investors in a broader way than this newsletter can achieve.

This coming week we will no longer be taking on new subscriptions and renewals will end. I will continue to write letters for the coming months, consider this a 3-month notice that this letter will be sunsetted.

As for the road ahead, comments are open. Many have suggested other ways to continue the community. Regardless, thank you for being part of this journey.

Analysis Breakdown

War time market dynamics

Historically, equity markets typically sell-off at the lead up to war, and also during the opening event if the war was not expected. After war initiates markets rebound, and in the modern age, markets are usually resilient during war times. In fact market volatility reduces.


BTC saw an immediate 10% sell-off at the start of the Russian invasion into Ukraine, this was at a time when BTC was structurally bullish from price action as well from buying demand in short time frames via futures data. So I do think it took the market by surprise.

Demand and supply has not yet reversed its bearish trend

Taking a look at our longer range demand and supply we can see:
on-chain hodlers have been selling down the last 4 days, despite some phases of accumulating, hodlers have been divesting since early January
calendar futures (pros and institutions) continue to sell
perpetual futures (retail and shorter timeframe speculators) rebounded a little reflecting the last 2 days of recovery


Though the price action looks hopeful with a higher low being put down, the overall demand and supply suggests we are not ready for a reversal. I really want to see the calendar futures demand pick up as a key sign of a bullish reversal.


How far until the bottom?

Regarding the topic of calendar futures needing to reverse, this chart below tracks the demand and supply in an oscillator view as it goes from bullishness to bearishness.
We can see we are near its lower range, a zone where bottoms are typically put in..


Here’s a new chart I’ve been researching for more clues for a bottom. It looks at the BTC price relative to the actual price long term investors (who moved coins into cold storage) paid for their coins.
In this view, the $33.0k bottom we saw on 24th Jan, put in what looks like a bottom signature. The market price being 2 standard deviations below the normal range.
Finally here’s our chart of on-chain hodler demand vs price. Again price is in an extreme oversold level that is synonymous with bottoms.
My overall picture is market price, relative to quantitative investor fundamentals, is in a region where reversals form, however demand has not yet returned to the market. In my opinion it continues to be a waiting game for demand to arrive.