Bitcoin – Consolidation Under All-Time-Highs
Summary: We are working on closing a seventh monthly green candle. To illustrate how crazy that is, we have to go back 11 years to find the next highest number of green candles – 6 of them in 2013.
So whats the bottom line, why is the market indecisive? We are observing a range of resistance along all-time highs (ATH), which is to be expected after “only up” for 6 months. This is healthy, and in this writer’s opinion, only the first stop on the way to much higher numbers.
This gives bulls a break, a chance for weaker hands to exit and new believers (bullievers?) to enter with the expection of going higher.
Bitcoin is consolidating under ATH with a neutral bias. If you consider nothing else, know that Bitcoin never stopped climbing when it reached previous ATHs. The odds of it doing so now is very unlikely, with increased demand via ETFs while the inflation from miners is being halved (on 4/20).
But as noted last week, we always look for confirmation on the monthly. Lower timeframes are subject to more speculation, volatility and other influences. In earlier cycles it took nearly two months to escape the previous ATH range.
- If you are still buying spot (as I am), use this time to rotate out weak performers, and double-down on strong performers. By now you know which of your investments have strong fundamentals, semantics and technicals. If your risk tolerance is low, set a stoploss or limit order in-profit, once you can. Once we begin price exploration, the risk/reward isn’t nearly as good, so take advantage of this time.
- If you are a LOW RISK spot holder, you should be starting to exit. Its likely we oscillate here between $50k and $70k for the near term, even in a worst case scenario. You can average into sales, just as you do with buying. Something like X% per day/week/month.
- If you are a day trader, continue to respect the overall high-timeframe bias to the upside. There will be corrections your risk of invalidation or liquidation are greater in short positions.
Bitcoin Dominance
Bitcoin dominance is another way of saying “Bitcoin market share,” or how much of the total crypto market is Bitcoin. While not the clearest indicator, on lower timeframes, you can use this information to speculate when altcoins may rally. This is also described as an “alt season.”
Altcoin rallies often follow a local or major top on Bitcoin dominance and can last for several weeks or longer, while Bitcoin consolidates for the next move. The recent memecoin cycle is a form of altcoin cycle.
Note that throughout the bull market, different narratives will run as subcycles, for example- memecoins are currently popular, but that will rotate to something else eventually. Potential narratives: elections, artificial intelligence, DeFi, layer 1, layer 2, gaming, art, memes, ETFs.
In fact, since late 2023, Bitcoin remains stuck under 54%. Its very possible Dominance will break out later this year, but until then we are likely to see altcoin narratives rotating through the market.
Long Term Cycle Forecast
When discussing cycle tops, you’ll get a range of answers. This writer is targeting a modest Q4-2024 to Q1-2025 target between $100,000 and $130,000, based on historic trends. That said, I suspect it can go much higher, especially if Bitcoin ETF flows remain elevated through 2024. But in keeping with my personal risk management strategy, $130k is my current target and will adjust if market conditions significantly shift.
A fun chart I posted this week. While I rarely believe the market is this simple, it does generally align with my forecast, and many others. Of course tops are always a little volatile and forecasting an exact dollar is a fruitless exercise. Look for a topside range.
Some joke about cycles never being different, but this cycle is very different due to institutional buyers and boomers entering the market. Thats why its difficult to rely on earlier trends, so we should look for confluence across several data points when forecasting this cycle. We are in uncharted territory from now on.
Below is the totality of Bitcoin’s logarithmic growth, which is a great way to display data that spans many orders of magnitude. Just because levels corresponded to historical resistance doesn’t mean they will continue to do so, but its another point of view to consider.
It forecasts price into the lower $100k range no later than early 2025. When considering the current cycle’s growth trajectory, that could arrive earlier, and higher.
On-Chain Data
Given that we are approaching price exploration in a new cycle, traders should begin evaluating different data that might suggest a minor or major top. Never take a singular indicator as gospel, and look for confluence across multiple data points. Below are a few popular ones.
Supply of Bitcoin on Exchanges [no notable change: 1.5% drop past week]
Supply trends are simple- rising supply on exchanges implies bearish pressure, because it’s there to be sold, and the opposite true when supply drops.
More Bitcoin is being bought and HODL’d than is being mined, and this has been the prevailing trend since 2020. As we know with commodities, scarcity boosts perceived value. With a 40% drain on total supply since 2020, we are trending towards scarcity faster than ever.
While general supply trends can signal sentiment, did you know you can also account for localization? For example, in the last cycle, as we approached the top, Asian and international exchanges logged notable increases in supply, while America was net decline. Effectively this meant Asians left many Americans holding bags near the top.
While you consider your position for this cycle, given the current rate of supply decline, its a good time to consider your long term investment over the next decade, especially for leading cryptocurrencies like Bitcoin and Ethereum.
Bitcoin Supply on Exchanges Since 2020
40% drop in four years, 5% drop YTD, and no signs of slowing into 2024 Halving
Net Unrealized Profit and Loss (NUPL) [no notable change: down 6% intraweek at peak, still near highs]
NUPL indicates the total amount of profit/loss in all Bitcoins, represented as a ratio. You can see why that makes for a handy data point, because as more of the market is in-profit, the risk of a retracement rises.
Currently NUPL is trending into the greedy range of “belief,” where traders are mostly in-profit, but holding and expect more upside.
NUPL indicates a potential minor or major top when it rises over 0.75. Another way to think of this is as a greed tracker. The higher the NUPL, the greedier the market is, and eventually greed will turn to fear, as profit-taking cascades towards the end of a cycle or subcycle.
Net Unrealized Profit and Loss
At ~.58 reflects increasing greed & unrealized profit, but room to run before historical peak
Miner Position Index (MPI) [no notable change: past week saw lowest average MPI since February]
Miners are among the smartest traders in crypto. For obvious reasons they need to optimize their selling to fund operations. Miners sell to fund operations, but will HODL supply when conditions permit, and sell heavily in the early to middle bull market.
MPI is the ratio of miner selling against the yearly average. If its rising strongly above the average, it suggests miners are worried about a top approaching expedite their selling. They do not try to land the top of the market, so they often sell in advance, which is helpful to traders trying to also time their exits.
Miner Position Index
Miner selling pressure remains low over the past three weeks.
Bitcoin Netflow (All Exchanges) [no notable change: netflows had a moderately bullish bias past week]
Another fun data point is netflow. This shows the net result of a day’s inflows (moving Bitcoin to an exchange) and outflows (moving Bitcoin off an exchange).
The implication is that Bitcoin moved off exchanges is unlikely to sell. And as we approach tops, the netflows skew towards increasingly heavier inflows (moving to exchanges to sell).
Green on the chart below represents the inflow of Bitcoin to exchanges. Red is outflows, likely from someone buying Bitcoin and moving it to cold storage. Predominantly red or larger red bars represent a prevailing bullish sentiment in the market.
Exchange Netflows
The past 6 months reflect predominantly outflows/buying, implying bullish sentiment.
Pi Cycle Indicator [no notable change: the 111 DMA and 350 DMAx2 didn’t significantly move past week]
The Pi Cycle indicator is something many traders joke about, but there is no doubting it’s effectiveness.
It uses the crossing of two key moving averages (MA) to predict cycle tops: 111 DMA and 350DMA x2. It accurately called earlier cycle tops within a few days. The top signal is when the 111 DMA crosses above the 350 DMA x2.
Whether you believe these two MAs can predict cycle tops, its worth keeping an eye on it. As you can see, we still have time before the MAs converge.
Pi Cycle
Forecast a potential bearish cross between Q4-24 ~ Q1-25
Market Cap to its Realized Cap (MVRV) [no notable change: cooled off to ~12% below this cycle’s YTD high]
MVRV is used to understand when the exchange traded price is below “fair value” by looking at the ratio between market cap and realized cap (approximates the value paid for all coins in existence).
This gives an idea of whether the market is fairly priced and can be used to identify potential tops and bottoms in the market. As with any indicator, don’t use it in isolation; look for confluence with other data.
A new component this cycle is the orange line, the top of the MVRV range, which reflects an increasingly smaller ratio over time. For the first time this cycle, the longer term diagonal resistance is lower than the generally acccepted upper range of 3.7 for cycle tops, so traders should monitor both.
MVRV
Cooled off past week, remains 30% & 50% off key rejection levels, with room for BTC to go higher
US Dollar Index (DXY)
The US Dollar Index (DXY) is an index that measures the strength of the US Dollar. There is an inverse relationship between the DXY and speculative markets like crypto and equities. In general, when the DXY is up, crypto is down. The opposite is also true.
Over the past week the DXY saw some appreciation, but this wasn’t due to fundamental strength in the US Dollar, as much as competing currencies grew weaker. I don’t expect this to turn into a larger rally, especially with the Fed considering rate reductions in the not so distant future.
Of particular importance, the ~101 level, arguably the most significant for the DXY. Almost every time in the past 50 years, when DXY rejected from, or closed under the 101 range, it led to a prolonged period of weakening dollar.
If the fed drops rates in 2024, thats a strong signal that the DXY will continue to drop, and rates will inevitably decrease, its just a question of timing and whether they will start in 2024 or 2025. For rate decreases to occur in a year along with the Bitcoin halving would be particularly bullish.
Market Sentiment [sentiment cooled off past week]
Economic events, political discourse, or general price action are all events that can impact sentiment. The market remains predominantly bullish since October 2023, but occasionally sentiment cools off, as we saw this past week when the market correct ~17%. This is a healthy and necessary move.
Sentiment needs to cool off sometimes, as we saw this past week, or a bull cycle will burn out too early. The market moves in waves of fear and greed, and too much of either can lead to pronounced moves in the opposite direction.
Going into the election cycle, we can expect some volatility to accompany the crypto narrative, with players like Senator Warren building an anti-crypto coalition. It remains to be seen if this will have a bigger impact on sentiment than the increasingly accomodating macro.
Other Sentiment Data
Coinbase App Ranking: Historically when Coinbase rises to the top of the app charts, a major top is approaching. Dropped nearly 15% to rank 290, and down a few positions to 19 among finance apps.
Google Trends: Google Trends reflect what people are searching for on Google and also present a clear sentiment indicator when they rise towards 100. This week saw Bitcoin continue to cool off, after a breakout to it’s third highest level in 3 years.
Note: Remember Bitcoin, Ethereum, cryptocurrency is apolitical; its designed by and for the people. Governments, banks, funds, they are tourists here.
Crypto & Economic Calendar
Disclaimer: Nothing found on this website, or any sources linked to this website includes financial advice of any sort. We are not certified financial advisors, use our content at your discretion as entertainment, and as an educational resource. Do your own research.
The events below inform governments, corporations, traders and investors on the health of the economy. I only list events noted as “high volatility expected” in related markets.
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