Geopolitical Tension Leads To Increase In Bitcoin Onchain Entities
Report Date: March 2022
- Federal Reserve Chairman Jerome Powell is willing to push the economy into a recession to get inflation under control.
- The CPI inflation report on March 10th will be a critical data point in determining the extent to which the Fed hikes rates.
- Bitcoin’s onchain supply dynamics look strong, however a lack of buyers in a risk-off market have caused the asset to underperform.
In last week’s onchain analysis, we identified the mid-low $30ks as Bitcoin’s critical demand zone.
This week’s analysis identifies Bitcoin’s onchain activity, geopolitical headwinds / tailwinds, and overall market structure through the following metrics:
- short liquidations
- short to long-term realized value ratio
- exchange net flow
- futures perpetual funding rate
- long-term HODL waves
- whale / accumulation addresses
Macro Backdrop
There is evidence the Russian invasion and high US dollar inflation will continue for the foreseeable future. The likelihood of a global recession is increasing by the day, and it is still unclear how this will affect the crypto market. With global financial markets currently messy, investors cannot agree on a common Bitcoin narrative. While some see Bitcoin as a safe-haven asset, others see Bitcoin as too risky and too volatile to participate. This has lead Bitcoin to move erratically for the last two months.
Headwinds
- SWIFT sanctions, a collapsing ruble, and +110 million Russians and +44 million Ukrainians have a need for censorship resistant valuable assets.
- Weaponization of the dollar has caused investors to regard cryptocurrencies as more valuable now that they see currencies can and will collapse due to irresponsible decisions by leaders.
- Bitcoin has a valuable opportunity to decouple from other risk-on assets in the equities market.
Tailwinds
- Putin has directly threatened nukes and increased the intensity of Russia’s ground warfare.
- Federal Reserve officials remain decisively hawkish.
- Rising commodity prices along with above trend money supply growth should continue to create high inflation for quite some time.
The hot equities market along with Bitcoin’s decreasing supply have lead to ‘squeezy’ and volatile price movements for Bitcoin over the past few weeks. On Monday, Bitcoin had its largest daily candle in percentage terms in over a year. While many analysts suggested this movement was a result of a ‘short-squeeze’, we now know this price explosion came from FOMO-driven spot buyers.
Short To Long-Term Realized Value Ratio
Bitcoin’s short-to-long term realized value ratio further shows a drastic increase in onchain activity occured this week. The SLRV ratio measures the supply of 24 hour (short term) Bitcoin vs the supply of 6m – 1y (long-term) Bitcoin. From Saturday Feb 26th to Thursday March 3rd, the SLRV ratio rose approximately 175%. This increase in short term Bitcoin indicates a swarm of new entities entered the Bitcoin market.
Exchange flows are relatively even – not overly bullish or bearish. In the chart below, we can see a small volume of Bitcoin was sent to exchanges during the early week rally, however it was not enough significantly to move the market.
Lastly, by looking at Bitcoin’s futures perpetual funding rate, we can still see a bullish bias present in the Bitcoin market. Unfortunately, these bulls have gotten wrecked for the past 3 months. Additionally of note, any time the futures perpetual funding rate has reached near -0.75%, this overly bearish sentiment repeatedly has lead to brief Bitcoin rallies.
Long-Term
Bitcoin’s long-term supply dynamics remain healthy. Observable in the chart below, long-term holders are not fearful of war or inflation.
The supply of Bitcoin aged over 6 months (categorized as ‘long-term holders’) continues to increase. The slight dip within the past two weeks is a result of the $3.6 Billion Bitfinex hack.
Additionally related to the supply of long-term holders is the amount of accumulation addresses. These addresses have at least 2 incoming non-dust transfers and have never spent funds. For the past week, many speculators have viewed this chart as indicative of Russian oligarchs purchasing Bitcoin.
As long-term holders continue to drain Bitcoin’s supply, this puts increased pressure on Bitcoin’s available liquidity. Eventually, when demand does come back to the crypto market, Bitcoin’s compressed liquidity should lead to significant upward price movement.
Summary
With Fed interest rates, inflation numbers, and war pressures looming, March should continue to be a highly volatile month for crypto. This week, Bitcoin has shown early attempts to reclaim momentum, however it has not yet broken its downtrend.
To conclude:
- Geopolitical tension lead to a surge in onchain activity at the beginning of the week, however Thursday exposed some of the cracks in Bitcoin’s foundation.
- Convicted investors remain buying Bitcoin.
- The low-mid $30ks remain Bitcoin’s value / high demand zone.
