The sentiments around Bitcoin [BTC] are currently euphoric as the digital investment asset broke above significant resistance levels. In the previous analysis, we looked at the supply characteristics and technical outlook of the graph. The break above the long-term descending triangle at the backdrop of bullish Gold and Silver is presenting a massively bullish opportunity for Bitcoin. In this piece, we will look at the on-chain developments, derivatives market, and exchange deposits along with a simple trading plan.
On-Chain
The price has risen up too fast and the on-chain view comes with warnings. The MVRV (Market Value/Realized Value) ratio is currently at critical resistance levels. A break-out of current levels could initiate at least one more upswing in price. Moreover, consolidation above the horizontal like could initiate a bull run similar to 2017.
The NVT signal from leading on-chain analyst, Willy Woo, is also nearing its highs. This indicator has been useful in marking tops in Bitcoin prices. Hence, there is a high likelihood of a correction wave coming soon. The percentage of correction or the time period of consolidation will set the stage for another run.
The on-chain charts indicate that we are nearing the local top in the short term. Nevertheless, there is still room for one more positive surge, and continuation above would be led by a violent bull run.
Derivatives Market
The break-out in the price saw new highs in the trading volume of BTC futures (perpetual swaps, and other periodic contracts). The trading volume and funding rate has been significantly high ever since, reaching bullish levels similar to the start of the year.
The Open Interest on the derivatives market is at an All-Time High; significantly greater than the OI during halving or the sell-off due to COVID-19 crash.
The options market volume and OI (open interest) are at a new ATH as well. The monthly closing of monthly options is due later today. Moreover, it will coincide with the CME futures expiry as well. The traders seem to have rolled over their contracts to the next month due to a lack of volatility in price.
The exercise of options at expiration on Deribit stands to cause swings in the price. According to their analysis, looks like the large OI is indicative of shorts that possibly now won’t cover the leveraged longs. Hence, it leaves frustrated longs above 11k a popular upside play with a hedge. However, this can flip due to whale action looking to benefit from the long-side liquidity.
Exchange Flows
The exchange balances and the outflow of miners from mining pools suggest that retail is bullish. As the uncertainty around price increases, traders tend to move their assets to exchange in preparation of a sell-off, or have already begun selling. The drop in the balances since April this year has also been indicative of deposit displacement and development of self-custody.
There is also the setting of the massive USDT supply issued in the markets over the last few months. Be it sell-off due to bearish pressure, massive QE programs or increase in its utility for transfers the stablecoins are competing with asset flow to exchanges. Ki Young Ju, the founder of data analytics firm, Crypto Quant, tweeted,
whales are sending Bitcoins to exchanges. #Stablecoin whales are sending stablecoins to exchanges as well. This week will be a battle between Stablecoin and Bitcoin exchange inflows. These inflows indicate potential buy/sell pressures.
As long as the outflow from exchanges of crypto assets remain greater than the inflow, the balance will remain tilted towards the bulls.
Volume Breakout
The recent surge in Bitcoin price seems to be riding on massive volumes, indicated by the Chaikin Money Flow and Klinger Oscillator indicators. Moreover, the fractal from 2019 reveals that it could just be the beginning of a new parabolic phase in Bitcoin.
A positive break-out after consolidation for weeks post a massive crash is reminiscent of the early April break-out from $4,200. An interpolation of the same parabolic angles sees the price battling resistance at ATH ($20,000) before the end of the year. The link to the analysis can be found here.
The CMF ratio (in green) is also positively inclined, however, moving in the overbought region. Hence, in reference to last year’s bull run, we can expect continuation after consolidation.
Trading Plan
There are a million way and rules to a curve or a trendline. Moreover, traders adjust the levels and angles according to their convenience. The analysis suggesting the beginning of the parabolic run seems valid. However, the price has surged far too strong and a strong pullback can be expected in the near future. The bull-run in 2019 can provide assistance with that as well.
The 4-Hour chart of Bitcoin reveals that the price had possibly broken the parabolic trend at $9,500. Nevertheless, the price went to make new highs towards $14,000. This was following a brief period of consolidation after breaking support.
The two lines draw out the bullish and bearish scenario in the price in blue and red lines respectively. The break-out above the current parallel range is critical for both bulls and bears.
Currently, we are seeing invalidation from the parabolic trend on shorter time frames. A breakout above $11,355 could see a continuation of the bullish run towards $16,000. Leading trader, Tyler D. Coates, seems also to agree with the sentiments from a different perspective,
For my money $BTC is currently doing that sidestep before another leg. Similar to the fractal following the breakout of the triangle (around $550). Many indicators will be showing overbought conditions but this is prime short squeeze territory for a honey badger in heat.
The more mainstream investment assets like gold and the stock market bullish as well. Gold is currently trading at an All-Time High value, and the SPX index is trading above the pre-coronavirus crash levels heading towards ATH levels. As the risk and investments are moving away from FIAT currencies due to inflationary fears, Bitcoin stands to outshine as an uncorrelated Store of Value (SoV).
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