A Bitcoin Baptism of Fire: Just a Shakeout?
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In this edition, ethereum turns five, over 61% of bitcoin’s circulating supply hasn’t moved in over a year, and new traders get a memorable baptism of fire. Let’s find out what this all means and more.
Let’s dive right in.
Happy birthday ethereum!
Ethereum’s five year history has been a choppy one, but the entrepreneurial platform has managed to find its footing even after the 2017 ICO boom & bust.
On its 5th birthday, the altcoin’s share stood at 3.1% of the bitcoin. At its peak in 2018, Ethereum occupied around 11%.
Ethereum’s ICO boom and bust cycle over two years ago left a sense that the paltform still has a lot to prove, and it seems like DeFi might be gearing up as the next attempt to do something with the platform.
Indeed, as developers pushed onwards with Ethereum’s transformation to ETH 2.0, patient stakeholders have finally began seeing the fruits of their patience! In fact, Ethereum is now trading in the green against bitcoin as talk about “alt-season” and “decentralised finance” has investors speculating on the platform’s potential again.
Having said all that, in previous mailouts I’ve drawn attention to the inherent red flags with DeFi, namely the fact that these protocols are unregistered securities with potentially manipulable liquidity pools — meaning the last one through the door could be left holding worthless bags of dead protocol tokens.
Still, while the risks are high the prospect of decentralised finance sorting out global money markets is intriguing. Another thing to consider is that once Ethereum eventually transitions to proof of stake, then it’s pretty much day-one all over again for the platform.
During the last two weeks, Ethereum has frequently “front-run” bitcoin, appreciating in value before the rest of the market. This trend won’t last forever but it’s interesting to note from a technical perspective.
61% of bitcoin’s supply hasn’t moved in a year
While ethereum may have temporarily stolen the limelight, bitcoin investors have shown a determination in hodling the number one digital asset indefinitely, with as much as 61% of btc remaining static for a whole year according to Glassnode data.
The figure drops slightly to 44% with respect to the percentage of bitcoin that hasn’t moved in 2 years. Finally, around 28% of bitcoin’s supply hasn’t moved in three years, with all three data-points being summarised in the below chart by Glassnode.
These metrics could indicate a growing confidence among investors that bitcoin is a digitally scarce store of value. Since this describes bitcoin perfectly, it’s good to see this self-reinforcing mechanism take shape. After all, earlier in the year the hedge fund legend himself, Paul Tudor Jones, confirmed that he has put in around 2% of his portfolio into bitcoin, calling it a “store of value” and the “fastest horse in the race”.
Winklevoss: Not owning bitcoin “worse” than not buying Amazon in 2000s
The co-founder of Gemini exchange, Cameron Winklevoss, believes that not owning Bitcoin is a “worse decision” than not investing in Amazon. Since its inception, Amazon’s stock has increased from around $250 to $3,160.
“Not owning Bitcoin today will be a worse investment decision than not investing in $APPL, $GOOG, $AMZN, and $MSFT in the early 2000's.”
Following the tech bubble in the early 2000s, market participants were highly skeptical of tech stocks moving forward. Having seen a whole slew of vaporware products vanish in the boom and bust cycle, some investors held on to their capital or invested it elsewhere in safer bets.
As we know, those that stayed the course however, were amply rewarded — and Amazon was no exception to this phenomenon. In fact, after topping at $90, the stock dropped to $6 before recovering and blasting through $3,000 in recent history. Today, those early days are seen as a blip in Amazon’s history.
In the same vein, bitcoin is at the early stage of its development as an asset and a technology, drawing parallels with early tech stocks.
Commenting on the rally, Winklevoss said that investors hedging against inflation and Ethereum fear of missing out is driving force.
“Unlike 2017, this rally is being driven by BOTH Bitcoin as an inflation hedge and Ethereum DeFi FOMO.”
Blood in the streets: Bitcoin HTF shake-out
Before we get to the shake-out, let’s note that bitcoin’s super-trend indicator, which shows long-term market trends, has flipped green on both the daily and the weekly charts now. Essentially, this naked indicator is saying that bitcoin is in a strong bull market and given the confluence across higher time-frames — the indicator also suggests that pullbacks will probably be short lived.
Zooming in on the daily, bitcoin traded within an $800 range on Sunday as fresh and over-leveraged traders were given their first real baptism of fire — though bitcoin tends to do this even to the most experienced traders.
In any case, as previously mentioned, the $9,600 CME gap might be an “ultimate” bottom target for any major retracement. But since the drop, bitcoin bounced straight off the $10,500 level — an area which was previously characterised as resistance since June 2019. During weekend trading, this level flipped into support, evidenced by the volume traded in the region. Notably, bitcoin also bounced off the 20-daily EMA, which is often used as an indicator that informs relative market trends.
Given the velocity and intensity of this correction, however, it’s not unlikely that bitcoin could consolidate above $10,500 (perhaps wicking to lower levels above $10,000) in the coming days. Another retest of $10,500 would confirm this support level while setting the stage for the next leg up to $14,000 — the 2019 high.
While the move was aggressive, it’s not clear if this was the local top. Typically, bitcoin retests prior levels on both sides before one side gives way, so if price-action is confined between $10,500 and $12,000, this would indicate a ranging / consolidating market before another move. On the other hand, a break above either of these levels would dictate a $9,600 and $14,000 target, respectively.
Both the RSI and MFI are still in bullish territory after having corrected significantly from over-bought conditions.
From a more speculative perspective, this price-action has been observed back in April, where bitcoin ranged for a while, found a local top and consolidated into another range before breaking out again. A similar scenario could be playing out.
Meanwhile, global open interest on exchanges has taken a dip — which was arguably a much-needed correction in order to keep markets from getting too frothy.
Over-leveraged long traders who didn’t take profit also got liquidated, driving a cascade of more liquidations that sent the figure up to $1 billion in global market liquidations across the cryptocurrency space.
4-hour (LTF) signalling bitcoin could retest mid-$10,000 again
On lower time-frames, bitcoin is trading between the 20 and 50 EMAs as it prepares for the next move. Typically, aggressive dumps (or pumps) are followed by at least a second attempt. But given that this is a trending bull market, that attempt could be cut short at any moment.
Provided bitcoin trades above $10,500 (possibly wicking down to $10,300), then tests of the highs at $12,000 should be expected after a period of consolidation. As you probably know, there is no such thing as a straight line up — even with bitcoin. Bullish markets can have periods of interspersed negative price-action and bitcoin is no different.
Ultimately though, any dips in bitcoin’s price are for buying until proven otherwise ($9,000 needs to break to become bearish).
May your gains be high and your losses low.
Catch you next time.
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Read More: open letter: $11,000 bitcoin is a drop in the ocean
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