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The parable known as the Byzantine Generals problem – two generals, ancient times, needing to coordinate their attack but lacking trustworthy foot-messengers – often gets used to illustrate how Bitcoin’s Proof-of-Work consensus algorithm works. 

But let’s leave that aside for now. 

Instead, let’s focus on the Twitter account of the BTC analyst known as Byzantine General tweeting on April 11 a succinct overview of “indicator” data. 

In this case, the prolific technician faced a problem of how to conclude a thread on the direction of BTC, a string of 46 tweets that true to the nature of its subject could have gone on forever. 

But tweet 44/45, a quick and elegant summary of what preceded, caught our attention as a jumping-off point for a discussion we’ve been having about BTC directional signals worth watching. Even seasoned airline pilots need to sharpen their focus when it comes to myriad outputs on their instrument panels.

Indexing BTC Indicators 

Which signals are the most reliable and also, just as importantly, what length, time-horizon-wise, over which to keep tabs on them?

We’ve spent the past several weeks looking for just the right collection of BTC indicators, looking at broad categories, from technical/fundamental data points to on-chain metrics, asset flows, all the while parsing what the bulls and bears are saying and to what degree their postures have stiffened or changed course.

Byzantine General, on April 11, with BTC again crossing $60,000, threw down a robust list of indicators, a collection that taken in aggregate seemed to signal bullishness. On April 13, BTC hit a new high above $63,000.

We’ll be keeping an eye on the Byzantine General’s trove if only to have a sensible starting point in an effort to move the ball further up the field in the mission to index BTC indicators sensibly. 

So which indicators (and there is a multitude) are we talking about?

In tweet 1/45 there is plainly a head’s up that 44/45 contains a quick take-away summary, as follows: “derivs a bit overheated; constant strong spot bid; institutional driven flow; no peak retail euphoria yet; mainstream adoption getting very real; Coinbase IPO could be volatility catalyst.”

Regarding, “derivs a bit overheated;” this is a reference to the perpetual swaps market, definitely a signal on which to keep an eye. 

But what is it saying? How overheated?

An OKEx researcher recently highlighted rising funding rates for perpetual swaps. The rates began to rise last week and reached over 0.15% per eight hours, considered a dangerous range.

Fun With Funding Rates

The funding rate, as explained in a DerivaDEX blog post, enables a perpetual swap to closely track its underlying by balancing supply and demand between the buy (long) and sell (short) sides of the market. The funding rate is similar to either a fee or a rebate, that traders pay or are paid to hold their positions, depending on which side of the market they are on. On BitMEX, for example, if the BTC/USD perpetual swap (XBTUSD) is trading above the spot price of Bitcoin, the funding rate would be positive. This means that long traders would pay short traders (discouraging long positions and incentivizing short positions). On the other hand, if the BTC/USD perpetual swap is trading below the spot price of Bitcoin, the funding rate would be negative. This means that short traders would pay long traders (discouraging short positions and encouraging long positions, thus raising the perpetual swap’s price up towards the underlying).

Moving on to the task of tracking retail euphoria … how to measure this?

Online search data shows that “Coinbase” is a fast-rising term … which would indicate that masses of people are unfamiliar with a major crypto player, which could suggest there is potential for mainstream expansion, which might be taken as a bullish sign.

Among the indicators mentioned in the quick checklist, and one we’ve tried to chronicle is institutional driven flows; we’ve been scouring a specific barometer: the CoinShares Digital Asset Fund Flows report.

The latest report came out April 12. It tracked flows as of April 9.

BTC digital asset investment products – Grayscale, CoinShares, 3iQ, ETC Issuance, 21Shares, Purpose, among others – saw inflows of $55 million. 

A report on March 29 (citing data from March 26) showed net inflows of $10 million into BTC digital investment products, which was viewed at the time as a sign of waning of interest – a bearish signal perhaps? But it is also viewed as evidence of a changing of the guard (less speculation, more longer-term institutions) so perhaps this could have been seen as bullish; had we checked today and spotted flows going negative – outflows – might that have indicated bearish sentiment? 

Building a Weekly Indicator Index

And so our quest continues. We’ll keep digging into indicators, asking questions, groping for usefulness and relevance, a journey likely without end. And soon we’ll collect and collate and summarize them, in one place. 

Feel free to come along for the ride.

Not to assign homework but here are some other indicators with which we are wrestling. Feedback is welcome.

  • In early March, we took notice of a Cointelegraph report that flagged rising selling pressure, but the report also noted that it was coming from hedge funds looking to rebalance as the first quarter wound down, as opposed to whales and miners who seemed to be “hodling.” Not quite bearish … but could this be viewed as bullish?
  • On-chain data from Glassnode points to BTC miners having halted selling BTC, for the most part, and shifting into more of an accumulation mode. This seems bullish. What miners are doing (in classic supply/demand sense) would seem fundamentally paramount, are we wrong? 
  • Here’s a mixed signal: The number of BTC “whales” sitting on at least 10,000 coins in one address, as of mid-March, had dropped to an all-time low, suggesting profit-taking; however, as CryptoPotato noted, it also showed a more decentralized distribution of tokens. Bullish?

How best to watch BTC whales? Can we make too much of whale activity? 

And, finally, what do we make of “Bitcoin Dominance?” This is a metric we see thrown around, usually in the context of celebrating “altcoins,” suggesting the potential for BTC selling (so as to rebalance) and which could be taken as bearish.

If BTC is less dominant but breaks new records along the way, how to read that metric, so what if BTC is more or less dominant?