- Crypto has moved bearish for the past 3 months due to high inflation and Fed rate hike concerns.
- After bottoming at $33k, escalating tension between Russia, America, and Ukraine wrecked Bitcoin’s relief rally.
- Most short-term momentum traders have now left the Bitcoin market.
- Bitcoin is dependent on demand from long-term investors to stay above $33 – $35k.
In last week’s onchain analysis report, we made the case that March’s upcoming rate hike was priced in. Like many other analysts, we underestimated the likelihood that Russia would truly invade Ukraine. This assumption was wrong, and Bitcoin has since experienced another >15% dump.
Small / Increasing Demand
After bottoming at $33k on January 27th, a small horde of buyers stepped in to drive Bitcoin back up to $45k. Now, given the amount of coins currently held at a loss, sell-side pressure can lead Bitcoin back to the 33k – $35k demand area.
One of the best ways to view Bitcoin’s onchain demand is through the Short / Long-Term Realized Value (SLRV) ratio. This ratio compares the value of coins aged (<24 hours) vs (6 months – 1 year) in accordance to the Bitcoin price at which they were last moved.
- When SLRV increases, this indicates an increase in demand for Bitcoin, as the value held in young coins is increasing.
- When SLRV decreases, this means demand for Bitcoin has decreased, and either the value of long-term coins has increased or the value of short term coins has decreased.
From Jan 14th to Feb 1st 2022, the SLRV ratio rose from 0.0619 to 0.0748. While this increase managed to push Bitcoin back to $45k, Putin has since wrecked the bullish momentum.
The SLRV ratio shows that demand for Bitcoin is increasing, albeit very slowly. At the time of writing, the SLRV ratio is 0.0764. Going forward, the question to ask is whether Bitcoin’s small and gradually increasing demand can absorb heavy momentum from trend sellers.
Long-Term Supply All-Time High
Despite an over 40% bleed over the past few months, onchain analysis shows that Bitcoin’s long-term holders aren’t scared. Rather, these convicted investors are steadily accumulating.
Yesterday, analyst Willy Wu tweeted that the long-term supply of Bitcoin (coins aged >6 months) reached a record high. Onchain analysis shows long-term investors have been accumulating Bitcoin since May 2021, however, their steady buy pressure has not been enough to absorb the recent sell-off.
Net Unrealized Profit / Loss Distribution
Bitcoin’s supply distribution is currently top-heavy, which means a large percentage of Bitcoin’s supply is holding at a loss. These unprofitable holders are likely to sell and push Bitcoin back down to below $35k levels. In a perfect scenario, we would like to see coins redistribute, as unprofitable Bitcoin holders sell to a supply of more convicted investors.
The Net Unrealized Profit / Loss (NUPL) ratio is 0.40, which is near where Bitcoin hovered for most of 2020. Judging from the past 5 years, the NUPL ratio is telling us that Bitcoin is slightly oversold.
Futures Perpetual Funding Rate
The Bitcoin futures perpetual funding rate allows analysts to determine where the market’s leverage funding is coming from (either longs or shorts).
With a positive funding rate, most of the leverage is coming from long positions. With a negative funding rate, leverage comes from shorts.
Data from Bitcoin’s futures market shows the shift to bearish sentiment after Putin’s speech yesterday.
While we are in a bearish trend, there is thankfully minimal risk for a de-leveraging cascade (such as what occurred in July ’21). We know this, because the amount of futures open interest that is crypto-margined is still trending downwards.
Summary
There was not enough demand present to absorb Bitcoin’s sell-side pressure after Putin’s speech. A significantly large portion of Bitcoin’s supply is currently holding at a loss, and the question to ask is whether these holders are willing to sell at such low prices.
While there are numerous macro headwinds (geopolitical, inflation, and Fed tightening) it is likely that Bitcoin’s ‘deep bullishness‘ will prevent an extended bear market. In the short term, however, expect 33k – 35k to be Bitcoin’s “discount / demand” zone.
