Bitcoin Market Analysis (February 21st — February 28th)
1. Due to the strong fundamentals, Bitcoin experienced a V-shaped reversal on the day Russia announced war against Ukraine, turning from a 7% drop to a 3% gain on the day of the war. The risk of a geopolitical crisis is not exposed in one day, but rather the market digests it after about 2 weeks or more, so the start of the war was a release of this expected risk.
2. There have been several global large-scale or local wars in the last 80 years, when the war occurs, the market always suffers a scare, but usually constitutes a good time to buy.
3. According to the current trend, on the day of the war between Russia and Ukraine last week, Bitcoin fell as low as $34K, which is higher than the previous low of $32K, and pulled back quickly on the same day, and there is still a higher probability of a “W” bottom.
4. Although the market is experiencing significant impact from external macro events such as the geopolitical crisis, Bitcoin selling pressure on the exchanges has not increased significantly as a result.
5. The Percent of Supply Last Active 1+ Years Ago is near an all-time high, with this value currently at about 61.7% (all-time high 63.4% in September 2020). Historically, when this ratio exceeds 60%, the subsequent quarters have spawned multiples and even tens of times the market.
6. The dry powder ratio on-exchange market continues to move higher and the money on exchange is still increasing.
7. This report believes that external macro events are dominating short-term prices, but from the perspective of fundamentals, smart funds are still actively deploying. Therefore, we can think that the current callback is more likely to shake the position and wash the market, and the possibility of bottoming at this position is increasing, so we should not be pessimistic.
Ⅰ. External macro environment
The situation in Russia and Ukraine worsened last week, and Bitcoin saw some declines as a result. Due to the strong fundamentals, Bitcoin experienced a V-shaped reversal on the day Russia announced war against Ukraine, turning from a 7% drop to a 3% gain on the day of the war. The risk of a geopolitical crisis is not exposed in one day, but rather the market digests it after about 2 weeks or more, so the start of the war was a release of this expected risk.
Historically, there have been several global wars, large scale or localized, over the last 80 years. When a war occurs, the market always suffers a scare, but it usually constitutes a good time to buy. There is often a relatively low position around the time of the war and the market experiences varying degrees of gains for several months afterwards.
Chart 1: War often creates a good opportunity for the capital market to buy at a low price.
Chart 2: The relationship between various geopolitical crises and the S&P 500 in the past 80 years. There are usually different degrees of rise in the months following the occurrence of geopolitical crises.
Ⅱ. Short-Term Market Trend Analysis
In last week’s weekly report, it proposed two possibilities for the staged market, indicating that the previous low ($32K) could not be stepped back to form the right shoulder; the other situation was that it did not fall below the previous low or quickly recovered after falling below it, forming a standard “W” base.
According to the current trend, on the day of the Russian-Ukrainian war last week, Bitcoin fell to a minimum of $34K, which was higher than the previous low of $32K, and quickly pulled back on the same day. There is still a high probability of getting out of the “W” bottom.
Chart 3: A situation where the price is very close to the previous low but does not break below or quickly recovers after breaking, which is expected to form a “W” bottom.
The current technical trend, formed at $69,000 descending trend line supremacy, indicating that the current pressure line turned into a support line effective. 3-day level RSI continues to move up, the market strength index began to move higher. MACD refused to dead cross, bullish sentiment is more obvious. Bollinger band opening narrowed, and the volume also showed signs of release, the current position of this bottoming possibility increased greatly.
Chart 4: The support constituted by the descending trend line is not broken, the 3-day level MACD has no dead cross, the trading volume is released, the probability of rising after short-term shocks is higher.
III. BTC on-chain data analysis
Short-term Bitcoin of exchange deposit pressure increased last week due to the geopolitical crisis, resulting in a slowdown in the trend of net Bitcoin withdrawals from exchanges. While the market is experiencing panic from external macro events such as the Fed’s monetary policy tightening and the geopolitical crisis, Bitcoin selling pressure in exchanges has not increased significantly as a result, and exchange Bitcoin balances continue to remain at their low levels since 2018.
As of the date of this report, the centralized exchange Bitcoin balance was approximately 2.556 million, and the exchange BTC balance as a percentage of circulating supply was 13.46%.
Chart 5: Despite the ongoing impact of external macro events such as the situation in Ukraine, the share of BTC balances on exchanges has never increased significantly.
The Percent of Bitcoins Supply Last Active 1+ Years Ago is near an all-time high, with this value currently standing at about 61.7% (all-time high 63.4% in September 2020). Historically, when this percentage exceeds 60%, the subsequent quarters have spawned multiples, if not tens, of the market. During the rally, the Percent of Supply Last Active 1+ Years Ago gradually declines until it increases again after the market tops.
This phenomenon indicates an extremely strong willingness of HODLers to hold at the current price level, indirectly indicating that current prices are still not expensive.
Chart 6: The Percent of Supply Last Active 1+ Year Ago exceeded 60%.
The dry powder ratio in exchanges continues to move higher as the funds on-exchange is still increasing. This indicator is the ratio of the stablecoin number on the exchange to the market capitalization of Bitcoin. If the indicator is higher, it means that the buying power of the floor on the exchange is growing, i.e. the same amount of stablecoin can buy more Bitcoins or more stablecoin are coming to the exchange.
Chart 7: On-exchange purchasing power continues to grow now, surpassing the level of the July 20, 2021 low.
STH supply has fallen by more than 2 million since the same period last year, and its current holdings are slightly over 3 million. This position size has historically been close to bottoming out, which further reflects that the selling pressure of short-term holders is coming to an end. In addition, the Bitcoin holding trend of short-term holders and the price usually have a positive fluctuation relationship, that is, the price of STH increases, and the opposite is true when the price falls. At present, STH supply has shown signs of bottoming, and there is a further upward trend, and prices are expected to follow in the same direction.
Chart 8: STH supply has bottomed out and gradually moved higher.
From the perspective of the relationship between the two markets, the current premium rate of BTC perpetual contracts has entered a deep negative range, and lasted for more than 2 months, which is longer than the callback in the summer of 2021. Judging from the market fluctuation rules in the last two years, the depth and time span of the premium rate in the negative range have a significant impact on the price rise in the market.
Chart 9: The BTC perpetual contract basis remains in the negative range for a time span of more than 2 months.
Ⅳ. Afternoon Outlook
Recently, the market has been pricing in the Fed’s rate hike and balance sheet reduction caused by inflation in the United States, as well as the worst-case scenario of the situation in Ukraine. Although the current market price has repeated, the decline has been much weaker than that in January, and it is in various situations. Under the negative pressure, prices are still higher than the lowest point in January, indicating that the market is immune to various risk events.
In terms of technical trend, the 3-day level broke through the descending trend line, which now constitutes an effective support. The 3-day RSI indicator continued to rise, MACD refused the dead cross, and there was heavy volume at the bottom. The opening of the 3-day Bollinger Band continued to narrow, and it was in the window of change.
The fundamentals on the chain show that the exchange Bitcoin balance ratio remains low, the selling pressure on STH is nearing an end, and there is enough funds in the market.
This report believes that we should not be overly pessimistic at this time, and after a short-term shock correction, we are expected to continue to maintain an upward trend.