Analyst Will Clemente Remains Bullish on Bitcoin Despite Volatility
On-chain analyst Will Clemente looked into the action packed week in Bitcoin, during which it broke new all-time high of nearly $69K and corrected to its current level of around $64K.
Last week the analyst discussed that the market volatility was expected, but he had no strong immediate term price view. He mentioned that during each of the 3 previous volatility squeezes, BTC first faked out to grab liquidity from breakout traders before reversing.
This did happen again (in addition to getting volatility), making it now 4 times in a row that we’ve had this occurrence.
From purely a price structure standpoint, remain bullish above the green zone.
After setting new all time highs at $69,000, on Wednesday we got a large influx of open interest, including a large spike on Binance. As price began trickling down we saw this spike paired with rising funding. At the same time we had the market digesting CPI data, Evergrande news, and a few major exchanges going down including FTX. These things made the perfect recipe for a leverage flush, although price action can never be fully explained by one specific thing IMO. In total $536M in longs got liquidated Wednesday.
Here we take a look at the entity adjusted 7D (weekly) version of SOPR. This is spent output profit ratio, comparing the profit market participants are realizing to losses. As long as we are above the “1” threshold (black line) I’m not worried. Would love to come back down and reset + bounce off 1 for further bull confirmation, but last year after confirming in September the ratio just kept trending higher.
In addition to $53K being a key price level, it is also the $1T market cap threshold for Bitcoin. This is evident to be a line in the sand for investor’s, shown by this cluster of on-chain activity. 18.36% of Bitcoin’s money supply has now changed hands above $1T market cap, showing confirmation from market participants that this growing asset class is here to stay.
Next we take a look at a new variant of illiquid supply that I created yesterday. Usually we look at illiquid supply shock ratio, but I wanted to switch it up for you guys so decided to throw this in. This is the 60D relative strength index of illiquid supply shock ratio. Using this metric we can find some interesting signals on the macro state of the Bitcoin market. In 2017 we had a clear bearish divergence between the ratio and price. Once that downtrend was broken in early 2019, the bottom was in. Also note the bearish divergence earlier this year and once the uptrend was broken from 2019, the market drew down in May. In September we broke the previous downtrend, showing we are now back in bullish territory. What we now need to look for is a bearish divergence between the metric and price action to start being cautious over the coming months.
Next up we have Checkmate’s Market Realised Gradient. In Check’s own words, “Delta Gradient is calculated as the difference between the gradient of the spot Price, and the gradient of the Realised Price. This metric therefore measures the relative change in momentum between speculative value, and true organic capital inflows.” What this essentially shows is whether the rate of change in price is aligned with the rate of new capital inflows (shown via realized price).
Earlier this year there was a clear bearish divergence between price and the gradient, showing new capital inflows weren’t supporting the speculative price bid. Will be watching for a similar signature in the metric over the coming months.
Another metric based on realized price, this is On-chain Cost Basis ratio. This comapres the cost basis (or realized price) of both short and long term investors. When short term holder’s cost basis falls below long term holders’, it has historically been a good time to accumulate BTC. When STH CB overextends LTH CB, it is a good time to be cautious. Yes we’re still far from overheated, but note in 2013 it took just 3 months to shoot up past the red line.
This week we have seen our first red prints in long-term holder net position change. This looks at the 30 day net change in long term holder supply. Becuase of this, there must be a fairly strong trend to start seeing a trend in LTH net position change. This is representative of long term holders starting to sell into strength. As we have discussed many times: long term holders buy into weakness (don’t perfectly buy the bottom) and then sell into strength (don’t perfectly sell the top). This is natural bull market behavior; as you can see in 2020 this distribution began in October and peaked out in January of this year.
This is another visual of this phenomena to help solidify the point I’m trying to get across. Green is long term holder supply, Purple is short term holder supply.
Next up we take a look at mean (or average) transaction fees. Transaction fees are a decent way to gauge the demand for blockspace. It looks like we are initiating an uptrend here, similar to prior bull rallies. I think you could also use this as a topping indicator as well. When there are large blow off peaks in fees that has been a signal of exuberance/mania in the market.
Exchange balances are currently in heavy outflows. Zooming out you can see the clear change in market dynamics following March 2020, as outflows dominated. Also note the large amount of coins that moved to exchanges in May. The day before the May 19th crash, we saw a record number of daily BTC inflows to Binance.
Last we take a peek at what’s going on with miners. Hash continues to come back online, showing how resiliant the Bitcoin network truly is. This is also reflected by difficulty. We’ve seen 8 consecutive positive difficulty adjustments.
