#forecast 015 : Buying the dip

Dear subscribers,Welcome to The Bitcoin Forecast #015.

My  last letter called for a bullish breakout to explore new all-time-highs under strong buying momentum. Unfortunately this did not play out. Barely 48hrs after my forecast, in an unpredictable event, a faulty high magnitude bearish alert was sent to 28,300 traders. Subsequently leverage traders sold down $3b of derivative positions which dumped the price below all-time-high support. The last two weeks has seen quarterly rebalancing by hedge funds putting further bearish pressure on BTC.

Top level summary for 26th March 2021 (current price $53.2k):

As price dropped under the sell pressure of hedge fund rebalancing, last week Bitcoin saw significant “buying the dip” by new long term investors. Coins have been moving to strong holders (without history of selling) at a rate unseen so far in this macro cycle.

Short term: Capital flow into the network is now accelerating, we are very close to a bottom reversal. If it hasn’t happened already, we are only days away. I’m expecting 2-3 weeks of bullish price action where BTC climbs towards the prior all-time-high resistance of $61k.

Long term: Large holders of Bitcoin are still in accumulation mode, under this lens, we’ve not yet passed the halfway point in the main bull run.

All the best, till next time.

Analysis Breakdown

Derivatives unwinding

Shortly after Forecast 014 was released, an  erroneous trading alert was sent out to 28,300 traders warning of $1b of BTC sent into Gemini Exchange to dump the market. This alert did not make sense as Gemini does not have sufficient liquidity to absorb $1b of selling.

It was later determined BlockFi (a provider of BTC collateralised loans) moved coins into Gemini’s custody service, ultimately a bullish transaction. The alert coincided with an immediate $3b sell-off on futures long positions, sending Bitcoin price plummeting.

We can see the cost of long positions plummeting as traders unwound their longs in the chart below.

Ultimately the route on price liquidated traders to the tune of $481m by the time unwinding had completed.

Interestingly this has been the second time bad data from the same source threw the market, both times marking all-time-high price tops. This event was not predictable using on-chain data.

Sell pressure from end of quarter hedge fund rebalancing

While buying momentum was halted in the initial deleveraging, the last 2 weeks has seen the fingerprint of hedge funds rebalancing for their end of quarter. That’s to say there’s been a large sell down of whale controlled coins that carry very little age, so we can make a judgement call these new whales are hedge funds who gained exposure to BTC last year.

After a strong quarter generating 5x gains since Q4 2020, it makes sense that funds rebalance before their quarterly reports, many have mandates for risk diversification.

This sell pressure has been met by buying from dolphin and sharks (holders of 100 – 1000 BTC). Thus the cohort of large BTC holders 100-10,000 BTC show a net accumulation of coins. Institutions and high-net-worth individuals continue to accumulate.

Strong buyers have been buying this dip

While the sell-off has pushed price lower, the last week has seen significant BTC flowing out of spot exchanges. Investors are buying this dip.

I joke that it’s Rick Astley buying, as coins are once again moving to holders with a very strong history of accumulating bitcoins without letting them go or deserting them.

Red bars in the chart below tracks coins moving to Mr Astley, the buyer who never sells.

The two charts put together; BTC is undergoing the strongest dip buying of 2021, by what looks like institutional and high-net-worth participants.

Are we at the bottom?

BTC price presently sits at 14% above a floor price of $44.7k, modelled from capital flows entering the network. Price is now far from being overheated presenting decent room towards the upside.

We’re now in a rare situation were the rate of capital entering the network is climbing while price is dropping. This is what I would expect in an on-chain bottom signal, we are very close to a bottom (if it hasn’t already formed already)

Macro update through the lens of large holders

I’ll round out this letter with another lens into where we are in the macro cycle, this time using coins held by large holders with more than 100BTC under their control.

Typically this cohort begins to slowly sell down their holdings starting in the middle the main bull run. In past cycles 5x-10x growth was still on the table when they started scaling out of the market. Presently this cohort is still in accumulation.

While this cycle is quite different from previous due to institutional buying represented in this group, with the strength of the accumulation it’s fair to say we have much of the year left before we see a bull market top