Market Analysis of Bitcoin

Weekly Report, November 15–21

Following a substantial market retraction, it is natural to worry for the future of Bitcoin’s price. However, it only takes a glance to some of the key indicators to calm the nerves — Bitcoin is going nowhere and its support levels are strong.

Despite the price correction, Bitcoin is continuing its flow out of centralized exchanges. Only 2,435,000 BTC are still circulating as 15,400 units were withdrawn last week, which is another all-time-low.

Liquidity is a key parameter in understanding the recent price developments. Illiquid supply refers to tokens that have never been transacted. In the past 30 days, Bitcoin’s liquid supply decreased while illiquid supply leaped in an equally dramatic fashion (check Graph 3). This indicates that the decreasing market supply trend was not negatively influenced by the recent price correction. The demand for Bitcoin is only accelerating.

Graph 3: 30 Day Liquid Supply Change

We have to remember that supply shortages and price rallies do not necessarily occur simultaneously — the latter usually takes place first. When this event coincides with prices reaching critical levels, supply fails to catch up with demand and the price goes through a readjustment. Therefore, time is needed for the supply shortage to be reflected in the price charts. If the current trend persists, we might be seeing a very long bull period.

Graph 4: Illiquid and liquid supply ratio comparison

Another valuable measure is the short-term-holder spent out profit ratio (SOPR). An SOPR decreasing to 1 during a bull period means that investors are holding their tokens in expectation for a further increase in price, causing a token supply decrease. The relieved selling pressure means that the bull period has been prolonged. Therefore, a SOPR of 1 or less are usually indicate a good time to enter the market. Due to the speed of the short-term holders’ transactions, a SOPR below 1 reflects that the whales have conducted a successful coin dump and made substantial profits.

SOPR is currently below 1, and taking into account other assesments made in this report, every indicator points to the recent adjustment as a very successful token dump by the whale holders. An immediate price decrease is unlikely — the holders must first consolidate their gains.

Let’s analyze the on-chain short-term-holder realized price (STH Realized Price). During a bull market, correspondence between the market price and realized price means the holders have completed the coin dump and taken profits, returning the realized price to support levels.

When the losses reach the STH Realized Price during a bear market, that price will serve as a main sell point. It so happens that currently the price is close to returning to the realized price levels, indicating that medium to long-term support levels have been reached. Through long and short-term realized price indicators, we can measure the STH-LTH Cost Basis Ratio. When this ratio reaches high positions (STH realized price overtakes the LTH realized price), we are officially in a market frenzy. Currently, the ratio is low, meaning the bull market is likely to continue for some time.

Despite the current price hovering above September levels, we have already reached the Fear position on the Fear and Greed Index (FGI). All liquid BTC profits have retracted to 83%, comparable to the numbers it reached during the last year’s bull market.

Graph 8; Fear and Greed Index

The BTC perpetual futures funding rates have dropped in between a healthy 0.005%-0.01% interval. During the April frenzy, the rates were the highest in history at 0.1%-0.2%. The fact that they have not even reached a single decimal point reflects a stable futures market.

Graph 10: BTC Perpetual Futures Funding Rates

Short-term market fluctuations are hard to catch, and with every new prediction made, their success rate decreases. Therefore, we believe the best strategy is to look at the overall market trend — which is still on a stable upward course. A trader with a positive mindset will not panic at each retraction, and the short-term price adjustments are simply great opportunities to invest and reap profits later.

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