The key on chain metrics to track include the single most important metric in my opinion which is the Bitcoin MVRV Ratio. The goal of this metric is to help determine the actual value Bitcoin could have in the minds of it's holders based on the price average they paid for it. This average price is constantly going up and is already over $20,000. The realized value is basically the best indicator I know of to determine the value Bitcoin has in the minds of holders based upon the subjective theory of value. Other value tracking metrics based on network transactions are less effective in practice so far.
MVRV Z-Score
The MVRV Z-Score gives us a ratio. This ratio lets us know when the realized value and market value diverge. When the market value is far above the realized value we can expect some profit taking to occur. This profit taking is what results in the corrections Bitcoin typically sees. Currently Bitcoin is correcting right before tax time just as it did in March 2020. To learn more about the MVRV-Z.
The Good News - Bitcoin is still bullish
According to the metrics giving the realized price of Bitcoin we can estimate a price floor. The current realized price is over $21,000. The correction brings the current market price closer to the current realized price. This makes Bitcoin more attractive to buy the closer it gets to the realized price and less attractive to sell under the assumption that the majority of sellers will not want to sell for less than they paid for. Of course Bitcoin in a bear market can sell anyway but from what I can see so far we have a healthy correction.
More concerning than the Bitcoin price is the total crypto market cap which fell off a cliff losing over 500 billion dollars. This could be people selling to capture profit. This could be panic sellers. This could be due to taxes. In my opinion this metric is more important than Bitcoin because it gives a snapshot of the overall direction of crypto. The good news is that money can flow back in much faster than in 2017 bear market and this means if it is a correction even 50 or 60% it can recover in a matter of weeks.
Conclusion
The conclusion so far is I expect we will get a bounce and that Bitcoin will range trade within $30,000 to $40,000 for the next few weeks. Nothing in the data indicates that the bull market is over. In fact this correction may extend the bull market because people who wanted or needed to take profits are doing so.
That IS a good metric that I didn't know was a metric.
There was a big piece of the recent bull run that was discovery-fueled and unsustainable parabolic growth. While great for profit taking, it definitely had to correct.
If BTC is to make its run toward 80k and 100k like to many folks are calling for, it definitely had to recharge, shake out the bears, give the next wave of investors a good entry point and cool off from the white hot FOMO.
I LOVE sideways action and 30-40k is a nice little 20% scalping channel if you are right.
Big thanks to @frankbacon for rehiving this as I would have surely missed it! Well met.
Excellent Analysis! TY for engaging!
@dana-edwards has for years Been great at explaining nuances that go uncharted by the masses... And the pickleman is no slouch ✌❤😎🥓
Most people think sideways action is bad but you have to understand the psychology of the market. Bitcoin is here to stay and is being shoveled into retirement accounts. In fact, the smarter retail investors are dollar cost averaging with the goal to use their salaries to increase their percent of Bitcoin within their portfolio. The speculators who are trying to get rich are not buying Bitcoin as much because Bitcoin even if it goes to $100,000 from here is not going to make people rich in the way alts can. So you can get a tracking of retail interest by looking at the decline of Bitcoin dominance and when that is going down it indicates retail interest is picking up in correlation typically.
Institutional interest hasn't stopped either. If institutions have decided to allocate between 1 and 5% of their portfolio it is going to take months to do that. If prices get cheaper they can just get a better cost basis. My guess is what happened here is China/environmental concern FUD, tax season, over leverage by speculators. I have not seen any dramatic changes in the fundamentals or in the macro market with regard to inflation.
So this means money has to go somewhere. If everyone is going to cash out where would it be going? My guess is people cash out to pay taxes or pay bills. Taxes make the most sense because if you traded you had a lot of capital gains. I expect a lot of buying to take place in the 30 to 40k range. I think 25 to 30k is absolute bottom which we are unlikely to hit. I think 30 to 40k range trade is what we are likely to see for another week or two as money flows back in. I think in a month from now Bitcoin will be in the 40 to 50k range again.
This gives institutions and retail a month to buy in at decent prices. And if we are lucky we might get a whole summer of sideways movement and alt season in the 40 to 50k range.
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great article! as always...
HIVE!Regards