Bitcoin jumped off a cliff: Is the Bull Market Over?

Let's take a look at on-chain metrics & charts to see what's going on

Dear Investors,

Yesterday was a wild ride. Bitcoin after it’s lows ~ $29,300 went up 80% in 47 days. If you’ve been in this market, you know what happened next isn’t something new. Bitcoin dropped 19% in less than 4 hours.

I’ll be covering on-chain metrics to see what’s going on, and I got a good friend who is an analyst and chess master, Bayaan Hollis, to share some of his technical analysis.

One of the main things I mentioned in the newsletter I published on August 24th, said the following:

Therefore, I expect Bitcoin to pull back to its 21 Day EMA, and if it holds while the MFI is still green, I believe we’ll break past $50,000.

If we break and the price closes below the 21 Day EMA, we will have to visit a Bearish scenario for Bitcoin.

I plan on taking this on a case-by-case basis, and I’ll be closely looking at how Bitcoin reacts to that 21 Day EMA.

What’s Next?

Is smart money dumping? Are we entering a bear market? Let’s look at on-chain metrics and see what’s going on.

Futures Liquidations

First, let’s talk about the amount of people who are leverage trading. Moments like this make me realize why regulators block leveraged products from being accessible to retail investors.

Folks, if you’re not a professional trader you shouldn’t touch leverage with a 20 foot stick.

Top & Bottom Formula

The T&BF is still in a bullish state, although Bitcoin dropped 20%, remember we’re still up over 50% since the last local bottom.

What I will be closely looking at is to see how the T&BF moves. If it curves down and the dark blue line crosses the light blue, I will turn bearish.

As you know, the T&BF is strictly helpful to identify local tops or bottoms. Anything can happen in-between!

SOPR

SOPR crossed below 1 (the black line), indicating that coins sold that day are being sold at a loss. So it essentially checks how profitable the market is as a whole, and right now, we’re in a state of loss.

Long Term Holder vs Short Term Holder Unrealized Profit or Loss

Comparing the unrealized profit or loss for LTH vs. STH, we see that LTH (smart money) is much deeper in profits than STH (dumb money).

Dormancy

Low levels of Dormancy happen when coins that were recently bought are being sold. So, it looks like people who have been buying on the pump have sold their Bitcoin (mostly at a loss).

Older coins held by smart money are not part of the circulation, they’re continuing to hold.

This is the classic situation where retail panics and sells their coins at a loss.

What caused the dump

A couple of reasons come to mind.

  1. Over Leveraged Futures in the market

  2. The news of El-Salvador buying BTC and making it legal tender (Buy the rumour, sell the news)

  3. SEC bullying Coinbase* (source)

* Although the news of Coinbase broke out after the drop, wouldn’t surprise me if some sneaky insider trading happened. (Not saying it did, don’t sue me pls)

At the end of the day, there is no one standalone reason, and I’m not one to trade or invest based on news. I follow on-chain for macro and TA for micro. So the reasons I shared as to why Bitcoin dumped is just me speculating for fun.

Summary

  • I will continue watch the TB&F to see if we’ll continue the upwards direction or if we’ll have a bearish cross

  • Market is currently in a state of loss

  • LTH are in deeper state of unrealized profits vs short term holders

  • Older coins are still being held. Coins sold during the dump were held by people who recently bought Bitcoin

What do I expect to happen?

My T&BF is my bread and butter, I’m not bearish until I see the bearish cross happen, so I’m still bullish but very cautious. I personally believe September will be a boring month and we’ll probably be in some sort of accumulation phase and pop off in Q4.

September is historically a boring month for Bitcoin, history might be repeating itself.

Bullish and Bearish Scenario (Written by Bayaan Hollis)

The first chart shows how BTC has been moving in accord with the Nominal Model of Hurst Cycles. According to this chart, we have likely seen a top in the market at $53,000 and will more than likely fall for the sequential 3-4 weeks to put in a major bottom between the first and second week of October before moving upwards again for the remainder of the year.

The second chart, shows a simplified view of the Elliot Wave and fibonacci analysis of BTC since it's mid-July low of approximately $29,000. We have moved off and have just completed the initial 5 waves of the impulse that should take us back to the highs of $65,000 and beyond. This 20%+ selloff COULD theoretically be the bottom given that it has retraced the minimum required 38.2%; however, the cryptocurrency market usually does not finish correcting in 1 day from a 2 month long explosion. There is likely more to this correction, which should take us to approximately $38,000-$41,000 before finding a launchpad to ATH's.

The blue path shows the extremely unlikely scenario if we have bottomed at the 38.2% retracement level, and the red path shows the more likely scenario , which is also congruent with the cycle analysis shown in the first chart.


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Not financial . This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Do your own research.