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When will the bitcoin price return to growth? Figuring it out with online indicators

Cryptocurrencies are unique in that they offer an analysis that is not possible with traditional financial instruments. Publicly available blockchain data reveals much about the activity, sentiment and motivations of market participants, identifying patterns and predicting the most likely price movement scenarios.

We has compiled and analysed the most interesting and relevant blockchain indicators to find out what to expect from the bitcoin price in the short and medium term.

  • Many onchain metrics are giving positive signals, indicating a likely resumption of a bitcoin rally.
  • Large investors are actively accumulating bitcoins in their wallets. Balances on centralised exchanges are declining.
  • Some indicators indicate that the bottom of the market cycle is still a long way off, so a drop below $30,000 should not be ruled out.

Positive signals

Bitcoin wallets. In early July, bitcoin holders with balances between 100 BTC and 10,000 BTC increased their positions by 60,000 BTC to 9.12 million BTC.

According to Santiment analysts’ observations, this is the largest jump in bitcoin accumulation by large holders in 2021. The activity of the big players served as one of the main drivers of the rally, which began in October 2020 and pushed the bitcoin price to record highs in April 2021.

CoinDesk researcher Omkar Godboul found a sharp increase in supply at addresses between 1,000 BTC and 10,000 BTC in early July. The total reached 4.216 million BTC, the highest value since May.

Data: CoinDesk, Glassnode.

As can be seen in the chart, before this “whale balances” were growing in tandem with the price. The trend has continued since last spring. On February 8, the figure reached its highest point of 4.542 million BTC. A sharp drop in balances followed, halting the price rally.

“In the months that followed, the whales became sellers, dispelling the bullish trend. And by early May, their bitcoin holdings had fallen 8% to 4.17 million BTC,”

Godbole shared his observations.

According to the expert, the latest surge in the balance sheets of major players may indicate that the market has reached the bottom.

Similar patterns have been detected by onchain analyst William Clemente III. The Bitcoin Liquid Supply Ratio indicator he created shows a bullish divergence.

The Decentrader blog states the following:

“The persistence of the trend could mean market participants realise that bitcoin is undervalued at current prices.”

Along with the activation of whales, the decline in the balance sheets of centralised exchanges can be seen as a positive signal.

Data: Glassnode.

The chart above clearly shows an increase from the second decade of April to mid-May. After that, the development slowed down and at the end of June it started to decrease. At the beginning of July, the indicator fell back to mid-May.

The significant decline in stock exchange balances is a sign of reduced potential future selling pressure as well as a desire on the part of market participants to hold funds in non-custodial wallets for the long term. Some investors may convert digital gold into a tokenised counterpart to earn interest income in DeFi applications or to issue stable-coins through platforms like Maker.

The speculative activity of short-term investors inherent in an overheated market is declining. This is evidenced by the dynamics of the HODL waves.

Data: Glassnode.

In the above chart the red bars show the percentage of supply that has been on the move relatively recently – from one day to 90-180 days.

Historically, the percentage of “young” coin supply has peaked amid market cycle peaks. For example, in December 2017, more than 32% of bitcoin’s total supply was active for 90 days before the price reached marks near $20,000. By August 2018, this figure had fallen to 15%.

Since the first quarter of this year, there has been a similar decline in short-term investor supply, although not as steep. Going forward, it is advisable to observe the supply dynamics of long-term investors, represented by the green lines at the top of the chart. These ranges tend to widen as we approach the bottom of the market cycle.

Miners’ capitulation. On July 3, bitcoin’s mining complexity fell by a record 27.94%.

The difficulty figure correlates with the hash rate. In May, the leading cryptocurrency’s processing capacity collapsed by 20% due to power outages in China’s Sichuan province. In June, the hash rate continued to decline amid a crackdown on the crypto industry in China, which has caused miners to flee the country en masse.

Analyst Willie Wu called what is happening “a political version of the surrender of miners”.

“Historically, the capitulation of miners is a good indicator of the bottom of the market,” the researcher stressed.

Based on the NVT Price indicator, the fundamentally sound price of bitcoin is near the $48,000 mark. Consequently, the first cryptocurrency at the time of writing (7.07.2021) is undervalued by the market.

Data: Woobull Charts.

The popular Stock-to-Flow (S2F) model also suggests that the correction is over. Analyst Michael van de Poppe pointed out that in S2F the “undervaluation” of bitcoin has reached its highest in a decade.

He did not rule out the “crowd” ignoring this and waiting for a decline to $20,000.

Puell Multiple. This indicator was proposed in 2019 by cryptopoiesis researcher. “The Bitcoin Market Cycle Barometer is the ratio of the daily volume of BTC issued in dollar terms to the same figure, but already smoothed by a 365-day moving average. Like many other such indicators, it allows you to determine whether the first cryptocurrency is overbought or oversold.

“Puell Multiple is a historically reliable data science indicator, indicating a significant change in the psychology of miners,” says the Rekt Capital blog.

The chart below shows that the indicator values have reached the green range, signifying that bitcoin is oversold.

Data: LookIntoBitcoin, Rekt Capital.

“It should be stressed that simply reaching this area does not mean that bitcoin has necessarily bottomed. It is simply a sign that BTC is undervalued,” explained the author of the article.

Blue blocks highlight the moments when the indicator has already dipped into the green zone, but the price has not yet reached the bottom. The red block marks the bitcoin price falling below the $4,000 mark in March 2020.

“This is the only time in history that BTC bottomed when the Puell Multiple indicator first visited the green zone,” the Rekt Capital blog said.

The indicator then re-visited the oversold range (yellow block), marking a price consolidation and subsequent recovery.

We can conclude that usually the first reaching of the green zone does not coincide with the bottom of the bitcoin price. A re-visit by the indicator of the specified range can serve as a signal confirming the lower extremum of the market cycle. After that, do not wait for a V-shaped reversal of the price – a period of consolidation precedes the recovery.

On the next chart, the blue trend line connects the lower values of the Puell Multiple indicator, each of which is slightly higher than the previous one. Since the red line has not even touched the blue line yet, let alone retested it, the bottom of the bitcoin price has not yet been reached. Notably, the correction was not preceded by an overbought zone highlighted in red.

Data: LookIntoBitcoin, Rekt Capital.

In this context, it will be interesting to observe whether the $29,000-$39,000 range survives the achievement of the Puell Multiple trend line. If so, according to the author of the Rekt Capital blog, this will serve to confirm “bitcoin’s price stability”.

Neutral signals

The MVRV Z-Score values are approaching the 1 mark, at which bitcoin is neither overvalued nor undervalued by the market.

The dynamics of the MVRV Z-Score, smoothed by the 7-day moving average.

The overbought zone, according to the MVRV Z-Score, was reached at the end of February this year. However, it is still a long way away from the optimum deep oversold zone for buyers as in March 2020.

The Market Capitalization to Realized Capitalization (MVRV, Market Capitalization to Realized Ratio) metric, was developed by researchers Murad Makhmudov and David Pewell. They first tried the tool in 2018 to identify over- and undervalued assets.

Cryptanalyst Awe & Wonder has improved MVRV by adapting the indicator for more robust trading decisions. The modified version of the tool is called MVRV Z-Score.

The next noteworthy indicator is Reserve Risk.

“It is used to gauge long-term holders’ confidence in the price of a native coin at a particular point in time. When confidence is high and the price is low, the risk-return ratio (Reserve Risk indicator is low) becomes attractive. When confidence is low and the price is high, the ratio is unattractive (Reserve Risk at high levels)”

says the description of the instrument on the Glassnode portal.

In the chart below you can see that the Reserve Risk has not yet reached the optimal green zone for investors.

Data: Glassnode.

SOPR. This indicator can be used to determine the periods when many asset holders take profits or sell digital gold at a loss. During these periods bullish and bearish sentiments prevail respectively.

The indicator is the ratio between the bitcoin price at the time of the UTXO spend and the market value of the latter at the time of its creation. It is essentially the ratio of the selling price to the buying price.

The chart below shows the dynamics of the aSOPR indicator, ignoring exits with a lifecycle of less than an hour. Since the metric is rather volatile, its values are smoothed by the 7-day moving average.

Data: Glassnode.

The aSOPR values have been below 1 since mid-May, indicating a prevailing panic mood among investors, multiple loss taking and oversold bitcoin.

A similar situation occurred in March 2020, when the price was well below the $10,000 mark. However, the current aSOPR is not yet that low – so far it is just a sign of bearish sentiment, as well as the cryptocurrency’s likely undervaluation. More signals are needed to confirm the bottom of the market cycle.

The 2-Year MA Multiplier is also at neutral levels – its values are above the green line, which represents the two-year moving average. The indicator was developed by LookIntoBitcoin portal creator and Decentrader analyst Philip Swift.

Data: LookIntoBitcoin.

In the chart above, the optimum periods for long-term buying of digital gold are highlighted in green. These are:

  • October 2011 to January 2012;
  • January 2015 – November 2015;
  • November 2018 – May 2019;
  • March 2020.

This year the indicator has not crossed the extreme overbought red line as it did in December 2017. Thus, the deep correction of 2021 was not preceded by the peak of the market’s bullish cycle.

Nor does the Realized HODL Ratio indicate a market bottom. This metric is based on HODL waves.

Data: Glassnode.

This indicator was also created by Philip Swift. The last time it signalled a deep oversold market was back in May 2019.

Similar signals are given by Market Cap to Thermocap. This indicator is calculated by dividing the market capitalisation of bitcoin by the all-time generated revenue of miners (Thermocap).

Data: Glassnode.

Historically, high Market Cap to Thermocap values signal that bitcoin is at the top of the market cycle. Conversely, low values of the indicator indicate a relatively favorable buying period.

The last time Market Cap to Thermocap dipped into the green zone was in March 2020 and before that in early 2019.

Similarly at neutral levels is the Relative Unrealised Profit/Loss indicator, based on ratios between market cap and realised capitalisation.

Data: LookIntoBitcoin.

The indicator’s red line is in the Optimism/Denial zone and has not even reached the Hope/Fear range yet, let alone the Capitulation range. The latter was relevant at the turn of 2018-2019 and in March 2020.

Negative and ambivalent signals

In June, trading volume on cryptocurrency exchanges fell by about half, down 52%. The figure reached a five-month low of $1.2 trillion.

Data: CryptoCompare.

On the one hand, the decline in exchange turnover is a clear sign that the speculative hype is fading. On the other hand, it may indicate that the market has bottomed out. During this period small market participants are demotivated, while large players, on the contrary, accumulate positions, being convinced that current prices are fundamentally low.

Another such dual signal is low, and sometimes even negative, funding rates for leveraged margin trading.

In the chart below you can see that the period of ultra-low and negative rates has been going on since the second half of May.

Data: NYDIG, Arcane Research.

“Short position holders are still trading the perpetual swap markets with a high degree of confidence,” commented Arcane Research analysts. – Open interest in the futures market has also remained consistently near the $11.5bn mark, which presumably indicates a reduced appetite amongst market participants.”

There is some positive in this seemingly clearly bearish signal. According to Decentrader experts, such a protracted rate situation is fraught with short-squeeze. However, it should not be forgotten that a short-squeeze often turns out to be a continuation of a decline due to a predominance of supply over demand, while the fundamentals remain unchanged.

CEO Kai Young Joo tweeted in June that the bear market was “confirmed as whales send their bitcoins to the exchanges” and this is fraught with selling pressure.

“Stop trading, be patient and wait for the next volatility,” Ju advised.
Talking to Decrypt, he noted that the market is historically bearish when inflows of “whale funds” prevail. However, he did not rule out that what is happening to the price is a prolonged series of corrections.

Analyst Alex Krueger agreed with Ju’s view. He stressed that the market is “definitely bearish”.

“The only positive thing on the horizon is that everyone is extremely bearish,” he said.

Krueger added that “it could be worse” and that there is no single definition of a bear market.

What does the market analysis say?

The chart below shows that since the third decade of May, the price has been squeezed in a sideways pattern between the $29,000-$31,000 range and marks around $41,000.

TradingView’s BTC/USDT daily chart.

A positive factor could be the rising values of the RSI indicator. In May, it indicated a deep oversold market, falling below the 30 mark for the first time since March 2020.

On the other hand, the above range represents a rectangle trend continuation pattern. Hence, the probability of a continuation of the decline after the flat is high.

Consequently, the probability of a continuation of the fall after the flat is high.

Trader @filbfilb sees what is happening as an accumulation phase according to Wyckoff, preceding the uptrend.

The attached chart shows that before the breakdown of the upper boundary of the range should be followed by its retest and update of the local minimum – the bear trap Spring.


Many indicators give positive signals, some give neutral signals. The few negative signals may not be indicative of a bear market, but rather of an oversold bitcoin, driven mainly by the actions of short-term investors.

Opinions of renowned market analysts also differ dramatically – everyone interprets the situation in their own way. For some of them what’s going on in the market is a temporary correction and a great opportunity to get cheaper, for others it’s an obvious trend reversal and a new bearish market cycle.

The main market drivers remain long-term investors, who are building up their positions. The accumulation in whale addresses comes on the back of renewed activity by institutional investors, who have ramped up investments in cryptocurrencies for the first time in a long time. These are positive signals, foreshadowing a likely uptrend.

Be that as it may, the degree of uncertainty is high. This means investors better proceed with caution, not ruling out the possibility of a $30,000 level failure and a move to the peak of the past bull cycle at $20,000.

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