Market Analysis of Bitcoin

Weekly Report, November 8–14

Graph 1: Amount of BTC on centralized exchanges

Looking back at Bitcoin price development during the previous week, various indicators suggest that the market is adjusting: short-term traders are getting eliminated by volatile market shocks. That’s good news for HODLers— BTC has high potential for a bullish run.

In the past week, centralized exchanges stored a total of 2.43 million BTC, which is the lowest number since 2018 and is part of a continuing a downward trend, accelerated by the cryptocurrency reaching its new ATH.

The exchange net transfer volume (a 30-day average value) is still on a constantly expanding negative trend. It seems that a strong market demand for Bitcoin withdrawals persists to this day.

Graph 2: Daily exchange net circulation is still on a negative trend (red and green lines indicate withdrawals and deposits respectively)
Graph 3: Exchange net position

As the amount of BTC on exchanges decreases with large amounts being withdrawn frequently, the illiquid supply of Bitcoin has reached 14.45 million, creating a supply shock effect.

Graph 4: Illiquid BTC supply

The increasing amount of BTC outside of exchanges has caused a supply-demand imbalance. Ever since the big BTC dump on March 12 of last year, the non-exchange supply shock ratio has been fluctuating together with the market price in an increasingly connected manner. The current non-exchange supply shock ratio indicator has risen to a historic high of 6.7, with the BTC held outside of centralized exchanges amounting to 6.7 times the number of coins held within them. Combined with a decreased supply, this is bound to be good news for the price in the future.

MVRV Z-Score is a relative valuation indicator that measures the value of Bitcoin. It refers to the deviation between the market value of Bitcoin and its fair value, divided by the standard deviation of the market value. Its calculation formula is (market value-realized value)/stdDev (market value). The principle is to reflect that the market value is higher than the (realized value) accounts for the level of market value dispersion. Range being very high (usually higher than 7) indicates a market under a frenzy. On the contrary, a score of 0 or lower signifies a market downturn. At present, the indicator is between 3–3.5, and the valuation is normal, but it has not reached the frenzy range.

Graph 5: MVRZ-Score

This indicator is related to two variables, one is market value, and the other is realized value. Realized value is usually expressed by realized cap. This is because the realized market value reflects the actual price that investors are willing to use when exchanging currencies. This chain price can is a better reflection of the purchase and sale than the price in the secondary market.

Graph 6: Illiquid BTC supply

At present, the realized market value has hit a record high, indicating either a rise in on-chain transaction costs or high expectations for the future from investors. The increase in realized market value directly correlates to the MVRV Z-Score increase.

Graph 7: Supply-shock ratio outside of exchanges

The RHODL ratio measures the the transaction trends among long and short term investors. It calculates the short-term (1 week) Realized HODL Waves against long-term (1–2 years) Realized HODL waves. A high number indicates a higher the short-term realized value. In simple terms, it means short-term holding is more prevalent.

Graph 8: RHODL ratio

The ratio crossing into the red area indicates a high market frenzy and likely an incoming drop. Currently, the ratio is in a stable position down the middle.

Looking at the Relative Profit Taking ratio, it crossing the 30-point threshold would indicate a market frenzy as well. Currently the ratio is floating around the 10-point mark.

Graph 9: Relative Profit Taking

Final Thoughts

Graph 10: BTC is likely preparing for a bull run

In more technical terms, the Bitcoin RSI and K-Line shapes have reached a breaking point. The graphs described above only reiterate our belief that Bitcoin’s current market condition is quite healthy and that short-term adjustments are just a prerequisite for long-term price growth. Therefore, patience is key.