Bitcoin Breakout: Levels, Metrics, & Multiples
With Bitcoin breaking out and the return of bullish sentiment in the crypto markets, these are the things that I'm paying attention to.
After taking out several important moving averages and psychological price levels, I think we can safely say Bitcoin has broken out of a downtrend that largely started at the beginning of June when the coin nearly eclipsed $72k. On July 5th, BTC made a low price of $53.5k before closing nearly even on the day at $56.6k.
Positive sentiment is back on X. The Crypto Fear and Greed index is now reading 69 giggity - which puts the market well into “greed” territory.
The obvious question is, now what?
On-Chain Metrics & Fund Flows
In my view, there isn’t much rhyme or reason to BTC’s price moves on typical day. Assessing longer term trends in key on-chain metrics can generally give insight into what orangecoin may do on a more medium-term basis. One such metric is the HODLer balance:
We already know that HODLer balance is trending lower. Which, believe it or not, has arguably been a good sign historically. HODLers sell to traders. Traders buy momo. HODLers buy back when the bloodshed has intensified. They’re not buying yet which implies we’re not close to the mania type environment that would produce a blow off top for this cycle.
As far as fund flows go, the ETF products are showing bullish again with nearly 900k BTC being vacuumed into these funds. iShares Bitcoin Trust IBIT 0.00%↑ now has almost a 50k BTC edge over the Grayscale Bitcoin Trust GBTC 0.00%↑ for largest Bitcoin ETF.
Total net gain in BTC flow is sitting at a little over 279k BTC as of July 17th.
Based on data compiled by The Block, total ETF net flows have been positive for the entire month of July. It also appears as though the asset bleed from Grayscale has slowed down dramatically. Elsewhere, Germany is officially out of bullets:
However, the Mt. Gox overhang still very much exists as there $5.8 billion in Bitcoin (or 90k BTC) remains sitting with the trustee. For comparison, Germany only had 50k BTC at the peak. They started selling on June 17th when BTC was over $66k per coin. The $6 rally over the last four days has come after Germany finished.
The Mt Gox situation is a little bit different because there is no guarantee that creditors sell after they’re granted their coins. And if they do sell, it’s a good bet that it will be far more orderly than the telegraphed fat finger dump those dunces in Germany just pulled off. But as I alluded previously, I’m of the view that being able to sell BTC very near the all time high after not being able to touch your coins for a decade is going to be a very difficult opportunity for some of these OGs to pass up. Especially because we’re really not anywhere closer to Bitcoin being a global payment system than we were ten years ago. I’d take the money and run TBH.
Multiples
As far as multiples go, the MVRV Z-score is a fairly standard one that Bitcoiners use to gauge cycle tops. That figure is currently coming in at 2:
MVRV Z-score doesn’t generally flash the “get out” alarm until the number hits 7. Of course, we’re trading a much more mature asset than we were back in 2017 with ETFs and institutional buyers. Larry Fink, of all people, is openly talking about Bitcoin on television from the bull perspective. I don’t know whether to be nervous that I’m not bullish enough or nervous that it’s all going to end very badly. Such is life!
My old favorite the NVT ratio:
Good news, BTC isn’t the most overvalued Proof of Work token based on 30 day average NVT ratio! Bitcoin Cash has a higher valuation. Litecoin is still acting like FTX just happened…
Price Action
We can debate for hours about what Bitcoin is supposed to be and whether or not it will ever actually deliver on what the creator(s) sought to provide the world. The reality of the situation is Bitcoin is a digital asset that is difficult to comprehend, difficult to use, and is possibly even compromised as a true instrument of monetary freedom. None of that means the price can’t go up anyway. Thus, it deserves at least consideration in a portfolio of speculative instruments. So where is price going?
🚨Wishy Washy Alert🚨
I don’t know. But I’m leaning the bulls are back in control at this point. Consider the daily chart, here we see the trend breakout from early June and BTC back above just about every meaningful long term moving average - both SMAs and EMAs:
It didn’t quite get to the bottom of my price discovery box like I wanted it to, but it was darn close. If you added in the high $50’s, well done. The daily chart is good because it can show a change in sentiment. And I think that’s exactly what the daily chart is telling us. Sentiment has changed. Personally, I like the weekly a lot more and this is where price is extremely interesting:
I have BTC smack in the middle of the 8 week moving average and the 20 week moving average. 20 is now resistance. I think we want a close above the 8 this weekend (currently $63.9k) or we’re at risk of what could be a simple back-test of the 8 week MA breakdown. That would not be ideal in my view.
There are other MAs to consider as well. The 111 day is used as the yellow line in Bitcoin Magazine PRO’s (previously LookIntoBitcoin) Pi Cycle Top & Bottom Indicator:
Over the green is approaching or at peak, under the yellow is at or approaching bottom. BTC has spent much of July under yellow and just moved slightly back above it yesterday. This would seemingly be an indicator that BTC is at or nearing lows.
Final Thoughts
None of this stuff really means anything will or has to happen. I could argue that the macro environment in this cycle is very different from every cycle before it and that expecting new all time highs to eclipse numbers like $250k to $500k is probably overly optimistic. I’d be happy with six figures this year to be completely honest. I share this mainly for the tactical traders that we have in the group. I still think DCA works fine long term.
I’m not totally convinced yet that Bitcoin has bottomed but I did buy some this week on the strength. There’s always the possibility that we’re about to get the rug pulled. So keep that in mind. Don’t dump capital into this stuff that you need to pay your bills.
Disclaimer: I’m not an investment advisor. I’m a simple man who plays the ponies.