The whale dump or Macro top

Dear subscribers,
Welcome to the May 18 report.
In the last analysis, the market was recovering from deleveraging in April on derivative markets. It was expected that a bullish continuation, based on investor fundamentals recovering. Shortly thereafter, the Elon Musk factor instilling some fear into the market by announcing Tesla will no longer accept BTC as payments, citing Bitcoin’s fossil fuel energy use.

This sparked a huge debate and counter arguments. Markets instantly went into free fall, this time powered by large volumes of selling from what looks like newcomer whale holders.


I personally saw the drop based on chart fundamental. Topping formation with ascending wedge at the 1.618 macro fib extension which also turned out to be a Head and Shoulders pattern with supporting daily and weekly bearish divergence with the RSI.
Clearly a combination for favoring a dump or selloff.


Top level summary for 18th May 2021 (current price $44.0k):

> Medium term:
 There’s been a tidal wave of coins that’s been dumped into exchanges to be sold; this trend has not yet reversed. It’s UNLIKELY we will see a sharp recovery under this lens, there’s simply been too much selling.
> Short term: On-chain “buy the dip” signals are very close to signalling. Profit taking is near completion, we also have a technical window for a bounce (from the study of chart patterns). We would need to see an unprecedented amount of buying from new long term investors to turn the medium term picture around. So likely, it’ll be a relief rally if we get one.
> Long term macro: The long range macro indicators remain healthy, we’re not at a macro market top, valuation is well within fundamentals, investor volumes look good, new users coming into the network remain strong and most telling, we are free from mania patterns seen at macro market tops.
> Overall: It’s strange times, like snow in the middle of summer. The medium term on-chain structure is bearish right in the middle of the main bull run. This may take months to recover from. We’ll need to await more data to see how the structure develops for a recovery. The coins that have been dumped will take time to be re-accumulated.

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Important Notice
> Having run this letter for 7 months now, I think this letter’s cadence is ill-suited for the market. HODLers do not need frequent updates, while shorter term speculators need more frequent updates to bias their trades (a faster cadence is possible with text-only updates). I’ll open up the  comments section to discuss the possible format / product changes to this letter.
> I will be on Paternity Leave in late May, once this goes into effect billing will be paused on your subscription until such time as this letter resumes. You will not be billed for any down time, for example if my leave is 3 weeks, your subscription expiry and billing date will credited with 3 weeks.

Analysis Breakdown

A tidal wave of coins moved into exchanges
We have seen a tidal wave of coins moving into exchanges to be sold, this trend is still climbing. Keen observers will notice the inflows were in recovery nearly crossing bullish when the current second and larger wave hit after the Elon Tweet.
BTC inventory at exchanges is now climbing at a steep rate.

Whales are selling


Since the tweet, large holders of BTC, the whales, who hold over 1000 BTC have been selling. Unlike previously this selling down by whales has not been met by the next cohort down, the dolphins and sharks who hold 100 – 1000 BTC

Coins changing hands are young


Dormancy tracks the average age of coins being moved (assumed sold) on the network per day. Note in this case “age” refers to how long coins have been latent in wallets before they moved, older coins implies the seller has more market experience.

To refine our picture of who is selling, dormancy sheds some light on the matter by demonstrating the coins being sold carried very little age.
I think its probable that high net worth or even speculative institutional holders, who have recently come into Bitcoin from traditional markets, having enjoyed fast gains in this bull market are now taking profit while it’s on the table, while catalyzed by Elon Musk FUD.

Profit taking nears completion


Digging into the profit taking picture with the SOPR chart (on the weekly moving average chart) we can see it has almost reset. In plain English, this means the coins moving between investors are now carrying nearly no profit; profit taking is nearly complete.
For SOPR to keep dropping, the market will need to be willing to sell at a loss, given the amount of coins being dumped onto the market this is a possibility. I’d add this is hardly ever seen when a bull market is in full swing.

Strong hands turning weak

Chart Link

Throughout the last 6 months coins have moved consistently to strong holders, that’s to say holders that have had very little history of selling. This trend has quickly reversed. Coins are now moving to weak hands; or rather holders who were previously strong have started selling thus becoming weak hands. Rick Astley has left the party.

Price is below the floor model


During this sell down, price broke below the floor model. This model uses capital inflows into the network to calculate the floor price, it works during the main phase of a bull run when sufficient inflows of capital can create a floor supported by investors.
Through this lens we’ve entered a bear phase of the market. I’ve only seen price drop below the floor at the start of a bear market, both in 2014 and 2018.

A shorter term rally is open


> Short term technical analysis shows a trend exhaustion window, starting today.
> Short term exchange flows are mildly bullish.
> Short term profit taking (SOPR on the daily chart) has completely reset.
> Dormancy is near a bottom region.
> Price has dipped significantly below fundamental valuation estimated by NVT Price.

Put together there is an opening for a relief rally in the short term. If it happens, it’s unlikely to be a full V-shaped recovery, more of a relief rally. The selling is now very strong; the medium term picture is bearish and this will need time to turn around.


Long range macro remains healthy


NVT Ratio works like a “PE Ratio” for Bitcoin. It compares the valuation of the network to the investment volume happening inside of it. Low values are bullish as this infers low valuation for a high amount of underlying investor activity,

Very broad range macro indicators like NVT Ratio is very healthy, there are no signs of a typical macro market top

The growth of users on the Bitcoin network has not fallen away especially in the last week of bearish price action. Smaller retail buyers are still coming in, buying this dip, and “stacking their sats” at an unperturbed rate.
The market right now is in the process of shaking off some large demand and supply imbalances.

This BTC chart is post report and goes to validate if this report conclusion was accurate. Note the vertical line, is based on the date of this report

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