Bitcoin Market Analysis (December 6th — December 12th)
1. The Bitcoin market continued to fluctuate last week, with the exchange’s deposit and withdrawal very active overall. The exchange’s BTC net withdrawal across the week was more than 30,000, and the overall reserve balance was close to 2.4 million. The BTC reserve balance was at a three-year low.
2. The market’s bargaining chips continue to decline sharply. Whether it is from illiquid supply, exchange withdrawals, exchange net position changes, or the willingness of the miners to sell, all factors indicate that the market is facing a more severe crisis of bargaining chip supply. This kind of supply crisis will in the future prompt prices to rebalance supply and demand via price rises.
3. The proportion of active chips over the last 6 months has fallen below 25%, indicating that short-term investor activity has dropped significantly. This situation usually indicates a bottom.
4. The market has an obvious UTXO distribution between $47,000-$48,000 — which shows that the market is changing hands very strongly in this position. The increase in valuation attractiveness has led to a considerable change of hands at this price, and the counterparty sellers mainly come from Short Term Holders (STH SOPR below 1).
5. The RSI indicator has now reached the vicinity of the downward pressure level formed since October 20th. If it breaks through the downward pressure level, it indicates that the volatility and correction seen since the end of October may be coming to an end.
6. Given that the fundamentals remain healthy, this report considers the observed pullback to be a healthy market adjustment that has not changed the long-term trend of Bitcoin for the better. This pullback also provides a rare opportunity for layout, and after the pullback is over we can continue to be optimistic about the market. At the same time, this report believes that the current indicators are still on the low side of normal, and have not yet reached their most frenzied stage. Therefore, the time cycle of the current bull market is extending, and the market is expected to return to the upward trend in the first half of 2022.
I. BTC Fundamental Analysis:
Last week, the exchange’s BTC reserve balance continued to maintain a net outflow trend of about 30,000 Bitcoin across the week, and the remaining amount of BTC on the exchange was about 2.4 million.
Chart 1: Last week, the BTC reserve balance of centralized exchanges showed a downward trend, with a net withdrawal of more than 30,000 Bitcoin in the single week.
On December 9, there was a peak of 23,200 net Bitcoin withdrawals in a single day. This is the peak single-day net Bitcoin withdrawal over the past 12 months.Only twice during this period have there been withdrawals of more than 23,000 Bitcoin, occurring at the end of July and August respectively. After these levels of withdrawal, Bitcoin ushered in a significant increase. This peak was also reached before the beginning of the bull market in October last year, and the rise of Bitcoin in the following months reached 600%+.
Chart 2: The largest single-day peak of withdrawals occurred on the exchange last week: 23,200, and the exchange continued to flow out Bitcoins
Looking at the last 30 days of net exchange position movements, the 30-day cumulative net position continued to expand into the negative range, with a value of -47,000. Exchange net position movements have been in net outflows since mid-to-late July (see chart 3 red data), with net inflows of intermediate positions lasting only a few days. This trend reflects the major trend in tradable chips in the market, and is the core of bullish Bitcoin fundamentals.
Chart 3: Exchange net position changes continue to expand in negative territory, reflecting the broader trend of stronger buying demand.
On the other hand, it is also clear that the market is facing a chip supply crisis.
Illiquid supply is the amount of Bitcoin that are not in a liquid state. It is a measure of the number of Bitcoin that have never flowed out or have flowed out in small amounts after flowing into certain addresses. These characteristics can reflect the willingness of investors in the market to hold Bitcoin.
Chart 4 shows the difference between the market decline and the “519” — seen on May 19th.
Around the time of the “519”, Illiquid supply had decreased by 199,000 Bitcoin (i.e., the market’s selling pressure increased by 199,000 Bitcoin). However, this time around the illiquid supply increased by 92,000 Bitcoin and reached a new high.
This shows that on this occasion the market is turning back around, and smart funds continue to collect chips. The supply of chips on the market has dropped significantly today compared to around May 19 (“519”).
Illiquid supply shock ratio is illiquid supply/liquid supply. If this indicator goes up, it means that the numerator will increase, the denominator will decrease, and the supply crisis will become more pronounced.
Chart 4: Illiquid supply increased 92,000 Bitcoin against the trend in this decline. The market is optimistic about the future market, and smart funds continue to pick up chips.
Chart 5: Illiquid supply shock ratio hits record high as market faces more severe chip supply crisis
In this callback, the main group of closing out their positions comes from short-term speculators. Short Term Holder SOPR reflects the rate of return for short-term investors to sell Bitcoin. If the STH SOPR is lower than 1, it indicates that this group is closing out their positions and selling at a loss.
Chart 6: STH SOPR is lower than 1, reflecting that short-term speculators’ profit rate from selling Bitcoin has entered a loss zone.
In addition to the low selling pressure on the exchanges, we see that miners also have very little selling pressure. From the fluctuation trend of the balance held by miners, it can be observed that the number of Bitcoin held by the miner group has hit a new high since February this year. This shows that the miners’ willingness to hold Bitcoin is still strong, and they are in no rush to sell. At the same time, computing power reached a record high over the weekend, demonstrating that miners are still willing to invest into mining. This also reflects their optimism about the industry and long-term currency prices.
Chart 7: The miner’s wallet balance is close to 1.82 million, a new high record since February this year.
Chart 8: The average computing power of BTC’s entire network hit a record high, and the enthusiasm of miners to enter the mining market is still high.
Ⅱ. Afternoon Outlook
Paper Hands Ratio is an indicator of short-term investor activity, derived by dividing the last six months of active chips by the total market supply.
When the indicator reaches above 50%, it indicates that half of the market’s chips have been actively traded for less than six months, and short-term investors are rushing into the market. If the indicator is below 25%, it suggests that short-term investors’ willingness to participate has decreased — which is often a feature of the market bottom, or the beginning of a bull market. The indicator is currently at 24.7%, which is a strong bullish signal for a bull market.
Chart 9: Paper Hands Ratio fell below 25%, which is a typical bullish signal.
From the point of view of the market’s chip distribution, a clear UTXO distribution area is formed around $47–48,000. This is an indication of the recent constant price fluctuations at this location. If the price does not effectively fall below this area, it indicates a strong valuation attraction at this price point. With strong on-chain chips changing hands here, the supporting effect becomes more obvious. In addition, there is also a very thick UTXO distribution near $56,000 to $57,000, which may constitute an important resistance in the near term.
Chart 10: The distribution of Bitcoin’s chips on the chain, with strong support around US$47–48K.
The RSI indicator has reached the vicinity of the downward pressure level formed since October 20th. If it breaks through the downward pressure level, it indicates that the volatility and correction since the end of October may end.
Chart 11: RSI is near the falling pressure level, which is expected to end the recent two-month downward trend
Given that the fundamentals remain healthy, this report considers this pullback to be a healthy market adjustment that has not changed the long-term trend of Bitcoin for the better. This pullback also provides a rare opportunity for layout, and after the pullback is over, we continue to be optimistic about the market. At the same time, this report believes that the current indicators are still on the low side of normal and have not yet reached their most frenzied stage. Therefore, the time cycle of the current bull market is extending, and the market is expected to return to an upward trend in the first half of 2022.