Will Clemente Looks Into Bitcoin, As Historically Bullish Q4 Begins

On-chain analyst Will Clemente looks at various indicators to where Bitcoin is headed, as the markets enters historically bullish Q4.

With September soon behind us, which has historically been bearish for BTC, we now head into Q4. Q4 is skewed bullish as 6 out of 10 (60%) of Bitcoin’s quarterly candles have been positive. Let’s dive into some interesting trends from this week.

Let’s start with this chart, which is a heatmap of the order book on Bitfinex. There are a large number of bids set between $40K and $36K, one of the largest buy walls seen since going back to mid-2020. (Just FYI this is also confluence with my on-chain floor model that is around $39K)This is important to keep in mind for a few reasons. The bull case of this of course would be that some bull whales have set a concrete floor. The bear case however is a bit more nuanced. Large walls of bids or asks can be used to trick other market participants into providing the market participant(s) that have placed the wall liquidity. 

For example: Whale(s) set a buy wall, other market participants buy right above (front-run) the wall, because who would sell into a giant wall of bids?… Right? Meanwhile, the whale(s) are using that liquidity generated above the bids to unload their positions. The same could be said conversely with sell walls, which could actually be psyops to generate liquidity for entering longs.

Not saying the bids are psyops, as some of the bids actually began to fill a few days ago. Just something to keep in mind.

SOPR is a ratio of the profit that coins hold on each given trading period, using aSOPR adjusts for outputs under an hour. For this week I also added a 7 day moving average, in other words making this weekly aSOPR. Have gotten that bounce off 1, now want to see follow through.

Next we look at our entity flows, comparing the behavior of different market participants separated into cohorts based on the size of their holdings. Whales have been buying since late July. Shrimp, crabs, fish, & octopus have been stacking harder than ever. The only cohort that has been on a decline is the 100-1K cohort, which has just recently started increasing their holdings as well.

So where are those coins coming from? And who has been doing the selling over the last few weeks? The first answer is that coins have been coming off exchanges. Exchanges are down 2,869 ($134M) this week, down 62,251 BTC ($3.2B) this month. At the same time we’ve seen BTC continually locked up by entities with low spending behavioral, meaning they are statistically unlikely to sell the BTC they take in.

Note: This chart was created last night, so price isn’t perfectly updated here.

I try to add in my own personal creations to these letters to give you guys some unique information. You’ve seen my illiquid supply shock ratio which is now used by other analysts like Willy Woo, my illiquid supply floor model, now here’s another new one. This is titled Delta Valuation model. Delta cap (conceptualized by David Puell) takes the difference between average cap (all-time moving average of BTC) and realized cap (average price investors paid for their coins, essentially an on-chain VWAP). This has caught macro bottoms quite nicely, but when taking a multiple of this, the tops are caught just as nicely. Taking the mean between the top and bottom cap’s you get the middle blue line. This has been an important level for Bitcoin’s price to interact, serving as resistance to the 2019 mini bull market.

The main potential bearish case from an on-chain perspective revolves around the transactional activity around the network. Things like transaction count, the mempool, overall volume, and active entities are all low. This could be seen as bearish because there is low demand to use the network. However, the counter to that argument would be that speculative market participants are gone (also reflected by google search trends), batching done by exchanges, or also TXs are starting to migrate to the lightning network.

On that same note about the lightning network, check out this growth. Lightning network capacity and average channel size are both going parabolic, as number of channels and number of nodes continue to climb. Here at Blockware we are very bullish on the lightning network, as it is crucial for Bitcoin to inevitably shift to a medium of exchange.

Lastly, let’s take a peek at what’s going on with miners. Orange is hash rate, blue is difficulty. The difficulty adjustment was one of Satoshi’s greatest accomplishments, as it keeps issuance in check with the amount of energy securing the network. When hash comes back on the network, we see positive difficulty adjustments, when hash comes off the network, we see negative difficulty adjustments. Recently BTC has had 5 straight positive difficulty adjustments, the first time since February 2020. This shows just how quickly hash rate continues to come back online following the Chinese miner migration.

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