The Crypto Comms #41; BTC Exchange Reserves Dwindle

Bitcoin fell back to its developing trend in search of an order bloc to create a higher low. That’s more or less the trending market playbook. But Bitcoin does not like conformity. Its inherent antifragility lends itself to wild price swings, and one can’t help but notice when BTC rallies in an environment characterised by bizarre headlines, fraud, and mainstream narratives collapsing in on themselves.

In this issue:

Bitcoin analysis

Bitcoin/Dollar has pulled back within striking distance of the 20-weekly exponential moving average (about 4%). At the time of writing, the coin exchanges hands at $21,800, down -6.7% week-on-week.

Price now traverses next to a cluster of support zones which go as low as $20,500 (20-weekly EMA). Provided price closes the week above this moving average, it’s reasonable to say that BTC/USD has entered a trending market, with probable mark-up targets being $25,000 and $30,000.

Daily-time-frame considerations also indicate a cluster of supportive moving-averages, confluent with a ‘higher-low’ trending market scenario described last week. Bear in mind, BTC/USD hadn’t reclaimed the 200-daily EMA for 300 days before doing so on Jan. 20th. Price is now back-testing support zones/order blocs as we speak.

Locally (H4), a positive price-to-RSI divergence developed over the last 24 hours, such that the relative strength index has printed higher lows, while price printed lower lows.

BTC/USD H4 positive price-RSI divergence

While not guaranteed, low-time-frame considerations tend to indicate precursory momentum that may snowball into higher-time-frame trends.

That being said, today’s US CPI reading at 2:30 (CET) is bound to be a volatile event. If the reading is within expectations, upside price resolution is likely. On the flip-side, there is a scenario where price corrects to around $20,500; the most favourable risk; reward play one could hope for in this medium-to-long-term trend reversal.

In the event that BTC/USD reverses into the teens, it will likely be short-lived given the stacks of confluent data sets which point towards a long-term market bottom.

On-chain data

Net unrealised profit/Loss (NUPL)

The Net Unrealised Profit and Loss (NUPL) is the difference between market cap and realised cap divided by market cap. It is interpreted as a representative ratio of investors who are in profit.

In negative trends, values below zero are normal. Likewise, in positive price trends, the NUPL registers values above ‘0’, and increases as investors enter a greater profit. When NUPL reaches high levels (0.75–1), it shows increasing reasons to take profit, which translates into more selling pressure.

On Jan. 13, the indicator entered and remained in positive territory for the first time since July 2022, indicating a positive market shift.

Bitcoin exchange reserves

Meanwhile, crypto exchanges are facing a persistent Bitcoin liquidity crunch. Since the FTX implosion, exchange reserves fell to just 2.1 million coins.

Demand for coins has increased as market participants bid up the asset, all the while BTC exchange balances stagnate or dwindle. As prices increase, demand also ticks higher. If the trend persists, there will be a threshold point where order books are too thin to accommodate buyers, especially since there is no incentive to sell coins at undervalued prices.

While a comparatively smaller market ($7 billion), this observation is also true (perhaps more true) of Litecoin’s network value model (in that there is no incentive to sell below fair market price).

Strange things are a foot

Besides these promising data sets, strange headlines and events over the last couple of days feel off. From alien abductions, spy-balloons, and a horrific chemical train-wreckage in the US, to nonsensical, absurd and clearly hostile crypto rulings coming from Gary Gensler’s SEC; even lame-stream media news rooms must be feeling awkward at this point.

It’s almost as if there’s a frantic attempt to spin up a new panic and engineer catchy narratives; anything that will shift attention away from important events such as runaway debt, central-bank-caused inflationary pressures, Russia-NATO war games, or the complete unravelling of the covid-19 lockdown scam — all of which appear to have a common denominator.

Is it time to burst the conformity bubble we’ve all been hiding in and face the facts? It sure feels like it.


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Listening material

Dear readers,

The purpose of this newsletter analysis is to provide context to current events and cryptocurrency markets. It is released every Tuesday. I am not perfect and this is not a science — nor is this newsletter analysis a signals service or financial advice. While I cannot promise perfection I do my best to be honest and transparent.

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Journalist-turned crypto-writer & analyst; forging the narrative, stacking sats.

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Chris on Crypto

Journalist-turned crypto-writer & analyst; forging the narrative, stacking sats.