Bitcoin On-Chain Analysis (BTC) – Take-off phase imminent?

Clear skies for Bitcoin

After an explosive October that marked a new high of $ 66,300, Bitcoin’s price consolidates on the edge of its old ATH, forming a weekly low of $ 58,200.

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Daily Bitcoin Price Chart (BTC)

While many participants stand ready for a colorful end to the year, the structure of the market seems to favor a medium-term rise.

This week, the price of BTC sits above 95% of the volume achieved. Two clusters of volume are likely to act as supports in the event of correction.

Conversely, there is virtually no upside resistance since historically very few BTC have been traded at such high prices in the past.

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Bitcoin (BTC) RVP chart – Source: checkonchain.com

Beyond appearances, let’s take a look at what’s going on behind the scenes …

To do this, we will focus this week on:

the status of spent BTC tokens; the position of derivative markets; BTC token activity.

Slight profit taking on the outskirts of the ATH

To begin with, let’s try together to answer the following question: “How has BTC been spent recently?” “

By taking a look at the realized profit / loss ratio, it appears that as a whole the market is building what the superswell analyst identifies as a base, a phase of soft profit taking.

This positive signal tells us that, since the end of July, the expenses have allowed participants to make humble profits without instigating too much selling pressure on the price.

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Bitcoin (BTC) aSOPR chart – Source: Glassnode

What about the age of these tokens? Long-term holders appear to have slowed their spending when BTC hit its new high before making new profits since Monday.

This indicates that this group of participants is unwilling to exit the market until they have made larger profits. They are patiently waiting for a new rising leg in order to sell their tokens at more attractive prices.

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Bitcoin (BTC) SOAB chart – Source: Glassnode

This thesis can be corroborated by the study of unrealized profits / losses, offering us an overview of the state of latent profitability of the market.

With a NUPL close to 0.6, we can see that, overall, the market is hatching many profits awaiting realization. He believes that this value will continue to climb gradually until it reaches the stage of euphoria.

Historically, when this indicator exceeds 0.75, a strong majority of latent gains are preparing to be realized, indicating, within a few days, an end of the bullish cycle.

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Bitcoin (BTC) NUPL chart – Source: Glassnode

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Index finger on the trigger

Let’s continue our analysis by looking at the derivatives markets.

Bringing volatility, a confrontation ground for speculators, these platforms offering leveraging services, future contracts and options of all kinds are on the rise.

Not to mention the launch of the ProShares ETF, the total funds allocated to future contracts have grown steadily during the month of October to exceed the $ 25 billion mark.

Although a slight drop in interest occurred after the creation of the new ATH, the cohort of speculators stands ready to add their grain of volatility to the market.

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Bitcoin FOI (BTC) chart – Source: Glassnode

Indeed, the average funding rate of perpetual futures contracts indicates that a wind of optimism is blowing again in the derivative markets this week.

Note: Binance and FTX are experiencing increased growth, which increases the risk of liquidation on these exchanges in the event of a price reversal.

The current funding rate leads me to believe that, in the short term, volatility is to be expected.

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Bitcoin FPFR chart (BTC) – Source: Glassnode

Finally, while the uptober’s infamous month’s rise was partly fueled by a series of short sell-offs, it appears that few traders were liquidated during the recent consolidation.

However, it would only be too wise to remain cautious and we will make sure to monitor developments in the derivative markets throughout future analyzes.

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Bitcoin (BTC) Futures Contract Closeouts Chart – Source: Glassnode

👉 To go further: Grayscale confirms its intention to transform its Grayscale Bitcoin Trust (GBTC) into an ETF

Introduction to economic inactivity

Based on this extensive market observation, let’s add two new metrics to our analysis arsenal.

The days of destroyed tokens

Token Destroyed Days (JJD) is a measure of Bitcoin’s economic activity giving more weight to tokens that have not been spent for a long time, much like realized capitalization compared to market capitalization.

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Bitcoin CDD (BTC) chart – Source: Glassnode

In doing so, we can clearly see the surge in BTC activity from July 2020.

Anticipating the onset of the bull run, many actors revived them, destroying their JJ accounts, possibly removing them from exchanges to store them for long periods of time.

Thus, as early as January 2021, the JJD account resumed a downtrend, indicating more and more BTC are going dormant again.

Liveliness

Vivacity provides insight into changes in HODLing’s behavior, helping to identify long-term holder’s accumulation or distribution trends.

It highlights times when JJs are being destroyed at a faster rate than the global network is accumulating them.

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Bitcoin Liveliness Chart (BTC) – Source: Glassnode

After a quick reading of this indicator, we can clearly see variations in behavior:

During the year 2020: weak liveliness, smart money accumulates for the bull run; In November 2020: liveliness increasing, first wave of distribution causing a strong increase; In May 2021: decrease in liveliness, accumulation and HODLing have dominated since.

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Synthesis

All in all, the current structure of the Bitcoin market seems to favor a powerful continuation of the bull run to the detriment of the scenario – not to be ignored – of a dead cat bounce or a correction in the short term.

After careful consideration, we can now affirm the following points:

Slight profit taking took place this week as the market smolders more and more latent profits; Speculators in derivative markets stand ready to welcome a bullish momentum; Many BTC tokens, held by long-term investors, are returning to their dormant state.

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About the Author: Prof. Chain

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On-chain analyst, fervent fighter in information asymmetry.

My goal is to inform everyone of the state of Bitcoin (as an asset and a distributed network) through the prism of on-chain analysis.
All articles by Prof. Chain.

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