1. The market declined sharply last week, but the exchange’s deposits and withdrawals were relatively stable, and there was no obvious abnormal peak. Last week, the exchange had a net withdrawal of more than 9,000 BTC, with a reserve balance of approximately 2.436 million. The BTC reserve balance on the exchange fluctuated at a low level.
2. The main reason for the market decline comes from the market’s rhetoric about the Federal Reserve’s arguments on liquidity tightening and the spreading of Omicron, which will have a fatal blow to the global economy. The panic is reflected at the risk asset level, and the high leverage of the cryptocurrency market is superimposed on the chain. Short-term rapid downfall of the market caused by stepping on liquidation.
3. Long Term Holder Supply remains stable, CDD has not risen at a low level, and the proportion of SVAB indicators greater than 6 months is extremely low. No long-term holders and big-players have seen dumping chips.
4. In the rapid decline on December 4, the main force of the sell-off came from investors who held BTC for less than one month. The rapid market collapse caused the exchange’s leverage ratio to drop rapidly, the sentiment of long perpetual contracts quickly cooled, and the funding rate turned negative. Under this circumstance, the number of short and short sellers has risen sharply, and the market value of those who doubt whether the bull market is over has reached 0.5 (NUPL indicator). The short-term market is extremely panic, and there are signs of oversold.
5. Looking at the MVRV (Market Value to Fair Value) indicator, the MVRV indicator has once again moved down to a position of 2.0, meaning that the current market value is only about one times more expensive than the fair value. Looking at historical trading conditions, it is common for market capitalization to significantly outperform fair value by several times or more, in the context of continued expansion in demand and continued deterioration in macroeconomic fundamentals. This pricing cannot be considered too expensive given the premise that the tight supply dynamics of Bitcoin have not changed.
6. Given that fundamentals remain healthy: long-term Bitcoin holders did not dump their chips in the sell-off, short-term speculative counterparties were cleared, the market bearish sentiment is very strong, and exchange’s BTC reserve balance is at three-year lows. This report views this pullback as a one-time massive market liquidation of highly leveraged investors, and does not change the long-term positive trend for Bitcoin. This pullback also provides a rare opportunity to lay out the market and continue to be bullish on the future after the pullback is over.
7. 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 bull market is expected to be extended to 2022, and the market is expected to return to the upward track in the first half of 2022.
For details, please read the body of this report:
I. BTC Fundamental Analysis:
The market experienced a tragic decline in the last 7 days, but the net flow of the exchange did not occur very obviously abnormal. Especially during the sharp market decline on December 4, the exchange net deposit & withdrawal was relatively stable. Last week, the centralized exchange’s Bitcoin had a net withdrawal of more than 9,000, showing a trend of first inflow in the first half of the week and net outflow in the second half of the week.
Chart 1: Last week, the BTC reserve balance of centralized exchanges remained low and fluctuated, with a net withdrawal of more than 9,000 in a single week.
Chart 2: Exchange net-flow remained stable during the December 4 market crash, with no significant anomalies
The main reason for the market decline comes from the market’s rhetoric from the Federal Reserve’s arguments on liquidity tightening and the spreading of Omicron, which will have a fatal blow to the global economy. The panic is reflected at the risk asset level, and the high leverage of the cryptocurrency market is superimposed on the chain.
When the market returns to calm, by analyzing the data on the chain, we believe that the fundamentals of Bitcoin remain healthy and the general trend shows an unchanged upward trend.
The reasons are as follows.
Long-term Bitcoin holders did not sell Bitcoin significantly during the Dec. 4 crash, and their positions remained stable. The CDD indicator is also at a recent low level and has not seen a significant rise (Note: CDD = Destroyed UTXO holding Time * Destroyed UTXO Quantity. If long-term holders and funding accounts show signs of significant selling, the CDD indicator will go higher, being at a low level indicates that this group has not transferred their Bitcoins).
In addition, from the SVAB (Spent Volume Age Bands) indicator, during the sharp drop on December 4, the proportion of holding Bitcoin more than 6 months remained at a low level. It shows that the main force of selling on that day did not come from holders of more than 6 months, on the contrary, the proportion within 1 month accounted for 98.6%.
(Note: Spent Volume Age Bands refers to the division of the total amount of Bitcoins sold on the day according to the holding time).
Chart 3: Bitcoin Long Term Holder Supply remained stable and did not sell significantly
Chart 4: CDD is still at a low level during the plunge, indicating that long-term Bitcoin holders or large funds are not selling off Bitcoin
Chart 5: SVAB reflects that the main seller on December 4 came from short-term holders who held BTC for less than one month, and this group surrendered sharply on that day.
After the recent rapid downsell, the short-term speculative mania in the market has quickly cooled down. The futures positions in the exchange, the rate of perpetual contract funding, and the leverage ratio of lending on the exchange have dropped rapidly, and the speculative in the market has returned to a healthy environment.
Chart 6: The rapid increase in short-term liquidation has led to a rapid decline in the size of open positions on the exchange.
Chart 7: The BTC perpetual contract funding rate entered the negative rate range for the first time in the past two months. Speculative atmosphere is cooling down rapidly, market sentiment is extremely pessimistic.
Chart 8: Exchange’s BTC leverage ratio quickly cooled to the lowest point since May and September
After this in-depth callback, the percentage of Bitcoin in circulation (Percent Supply in Profit) fell back to 75.96%. That is, there are 4.54 million Bitcoins in the market at a loss. This value is equivalent to the level when the market started to rise on July 24, when the price was about 34,000 US dollars. This time, the number of buying-long has also decreased significantly, and the ratio of long&short on the Binance Exchange has fallen sharply by more than 50%. It shows that the pulling pressure in the future will be lighter (the long power will close the position in the market rise and become a potential opponent).
Chart 9: Percent Supply in Profit fell back to the level of the rising point since July
Chart 10: The ratio of long&short in futures on Binance Exchange has dropped sharply, and the number of buying-long in the market has dropped significantly, clearing the opponents for further market rises in the future.
In terms of market sentiment, the NUPL indicator (unrealized profit and loss ratio) fell below 0.5 for the first time in 2 months. The market sentiment corresponding to this area is the “doubt-anxiety” stage, indicating that the market sentiment has entered the stage of doubting whether the bull market is over, the panic and greed index has fallen into the extreme fear value, and the signs of short-term oversold are very obvious.
Chart 11: NUPL fell below 0.5
Chart 12: The 0.25–0.5 zone is the “doubt-anxiety” zone, indicating that half of the market is already wavering in its beliefs.
Chart 13: FGI Panic Greed Index falls into extreme fear zone, with clear signs of short-term oversold
Afternoon Outlook
Looking at the MVRV (Market Value to Fair Value) indicator, the MVRV indicator has once again moved down to a position of 2.0, meaning that the current market value is only about one times more expensive than the fair value. Looking at historical trading conditions, it is common for market capitalization to significantly outperform fair value by several times or more, in the context of continued expansion in demand and continued deterioration in macroeconomic fundamentals. This pricing cannot be considered too expensive given the premise that the tight supply dynamics of Bitcoin have not changed.
Although MVRV is declining, the fair value (Realized Cap) is reaching a new high, indicating that the long-term momentum is still positive. It also shows that the process of this round of bull market is relatively slow, and the cycle is prolonged. It can even be considered that the willingness of large funds in the market to create low-absorption is stronger.
Chart 14: MVRV falls into 2.0, indicating that the market capitalization is only twice as expensive as the fair value and the fundamentals are still well rooted for this pricing to be normal.
Chart 15: Market capitalization (realized market cap) corresponding to the changeover price on the bitcoin chain reflects the continued record high fair value of chip transfers and positive long-term momentum.
Chart 16: MRV Z-Score Entering above 10 is usually the peak of a bull market and the current pricing is not unreasonable nor is it entering its most frenetic phase.
Given that fundamentals remain healthy: long-term Bitcoin holders did not dump their chips in the sell-off, short-term speculative counterparties were cleared, the market bearish sentiment is very strong, and exchange’s BTC reserve balance is at three-year lows. This report views this pullback as a one-time massive market liquidation of highly leveraged investors, and does not change the long-term positive trend for Bitcoin. This pullback also provides a rare opportunity to lay out the market and continue to be bullish on the future after the pullback is over. 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 bull market is expected to be extended to 2022, and the market is expected to return to the upward track in the first half of 2022.
