Crypto Market In Turmoil: What's Next For Bitcoin?

An in-depth on-chain review looking at both Bullish & Bearish case

Dear Investors,

Bitcoin is currently down 12.88% since the writing of this newsletter. The drop can be said to have happened because of the general global market sentiment and Bitcoin’s historical performance during the month of September.

In this newsletter, I will be providing a bullish and bearish case for Bitcoin. As an investor, it is always important to be informed of both cases to help mitigate risk.

On-Chain Review

  1. Top & Bottom Formula

As always, we will be starting with my beloved Top & Bottom Formula. A metric I created to help me find local tops and local bottoms

The above chart shows that the crossing between the 2 blue lines usually signifies a local top or bottom.

The dark blue crossing below the light blue is a potential local top. The dark blue crossing above the light blue is a possible local bottom.

We are currently in what I call an orange zone. Nothing is confirmed. Although it looks like the dark blue will cross below the light blue, I would not call this a local top until it has crossed and a few days have passed.

There have been instances where it looks like a cross is about to happen, but it doesn’t. The T&BF continues to either go up or sideways.

With that in mind, I can not call a local top until the cross has happened and confirmed.

Based on the T&BF, I’m still cautiously bullish.

  1. Exchange Net Position Change

Looking at the net position change of all exchanges, we can see that more Bitcoin is leaving exchanges than coming in.

This is bullish because it shows us that people are not depositing their Bitcoin to sell but are withdrawing their Bitcoin on exchanges to hold in cold storage. This further decreases the liquid supply of Bitcoin.

  1. HODL Waves

Let’s take a look at the holding behavior of Bitcoin Investors.

For clarity purposes, we’re only going to be tracking coins younger than 1-year-old.

We see that the darker colors are slowly decreasing, showing us that Bitcoin holders are generally holding their Bitcoin and not selling.

This supports what we saw with the Exchange New Position Change. Bitcoin’s liquid supply is decreasing as more investors are holding on to their Bitcoin.

  1. aSOPR

The last metric I want to share with you is aSOPR (adjusted Spent Output Profit Ratio). This metric calculates the profitability of the market as a whole.

Bitcoin holders are currently in a state of loss (denoted by aSOPR being below 1). This is not ideal as retail traders/investors tend to sell during times of unprofitability, which can lead to price further declining.

I believe that if the Exchange Net Position Change continues to go further down into the red, aSOPR will go back above 1, bringing the market back into a state of profitability.

  1. Leviticus Indicator (Technical Analysis)

When it comes to Technical Analysis, I like to keep it simple, especially since I don’t day trade.

Let’s look at these two timeframes: the daily and the 4 hour.

One of the things I want to bring to your attention is the Money Flow Index (MFI). Notice how price falls every time the thick green wave starts to thin out and cross below the 0 line and turn red.

Vice versa, when the thick red wave starts to thin out and cross above the 0 line and turn green, the price increases.

Currently, the MFI is still in the green on the daily timeframe.

It looks like it might continue to drop and test the 0 line and bounce continuing in the green or cross below it.

When we look at the 4 hour we see that the MFI is starting to peak red.

I am not bearish yet because marked by the blue box, you can see that MFI peaked red but ended up crossing back up. Usually, when this happens, the market is in a state of chop (price bouncing between a range).

I’ll be carefully monitoring the MFI in the next few days. Will it be a complete cross below, or will it flip back green?

My guess is it will flip back green. I’m not bearish until I see the T&BF do a bearish cross.

Summary

- Bullish Case

  1. T&BF has not crossed.

  2. More coins are leaving exchanges signifying people are taking their Bitcoin from exchanges to cold storage.

  3. Hodl Waves show us that short term holders are starting to hold their Bitcoin for much longer.

- Bearish Case

  1. T&BF has curved down, looking like it may cross.

  2. aSOPR shows that Bitcoin holders are in a state of loss. Retail investors tend to panic sell during these times, creating more sell-side pressure.

  3. MFI on Leviticus starting to peak red.

Conclusion

I will continue to monitor the market and see what the T&BF does. My bias leans towards to bullish side but I will not ignore the potential bearish case we have on the table.

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Not financial advice. 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.