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The Good

The seven-day period (ending 7/11) marked yet another range-bound week for Bitcoin, its seventh in a row week spent flitting lackadaisically between $32,000 and $35,000. 

Here’s what else we’re taking a look at:

For the last few weeks, we’ve tracked Bitcoin’s Stablecoin Supply Ratio (SSR), a counterintuitive metric that measures BTC’s market cap relative to that of its dollar-tracking peers. When SSR is low, the buying power of stablecoins is high, meaning they’re able to purchase a greater percentage of BTC’s circulating supply. Increased buying power gives stablecoins the capacity to exert greater (positive) influence over Bitcoin’s price. SSR continued its bullish consolidation this week, settling in at 5.91 as of 7/11, down 3%.     

The ratio’s well-followed oscillator, a Willy Woo-creation which tracks how SSR’s 200-day SMA moves within a set of Bollinger bands, is hovering near levels unseen since September of 2020, suggesting some of that stablecoin-infused “dry powder” is starting to make its way back onto the markets. 

Another key source of “dry power” we’ve kept our eyes on this week is money wagered on Euro 2020. Yes, that’s right, out of England’s penalty-kick misery may come a positive development for the world’s 1st crypto. Per Coingape, the start of the European Championships saw huge sums rerouted from crypto to sports gambling. Now that the tournament has concluded, many believe these funds will once again flow back into digital assets, spiking volatility on spot exchanges in the process. 

While some decentralized purists may scoff at crypto finally being embraced by the mainstream … crypto is finally being embraced by the mainstream: this week saw the start of Crypto.com’s ten-year, $175 million deal with the UFC. The exchange’s logo was front and center at UFC 264, only one of the highest-selling pay-per-view events in the history of mixed martial arts. 

A swift roundhouse kick to the face some may not have seen coming in a BTC buyer’s market – supply shock. The re-accumulation trend is being closely watched by on-chain analysts. Several metrics continue to suggest BTC illiquidity brewing. Coin Days Destroyed (CDD) has lurched steadily downward over the past six months, suggesting old coins remained locked deep inside a dungeon from which they may never return. Likewise, exchange outflows have stabilized at an average of -2,256 BTC over the past week, hinting that even more coins are being taken out of Bitcoin liquid supply. The entities buying BTC over the past week also paint a bullish picture towards re-accumulation with whales adding a total of 65,429 BTC to their positions. Per data from Glassnode, 17 new whales were born over the past week.   

The Bad

A divergence between some of Bitcoin’s technical and on chain indicators appears to be widening. While on-chain metrics are singing a bullish, re-accumulation-themed tune, the technicals are downbeat, luring bears to the dance floor. 

As of 7/11, Bitcoin is trading below virtually all of its well-tracked moving averages (both simple and exponential) in a development that cannot bode well for the coin’s short-term price prospects. Bitcoin is currently sitting more than $10,000 below its 200-day SMA of $44,412, an unprecedented development (in absolute $ terms) for the world’s largest crypto. The next biggest gap we’ve seen was roughly $4,000 in June of 2018. In that case, it took nearly a year for the price of BTC to pass back above the 200-day. 

One on-chain holdout we’ve been tracking is aSOPR. The metric, which serves as a key proxy for market profitability, has continued to consolidate below its key threshold of 1 over the past seven days, indicating that for the 3rd consecutive week sellers of BTC did so at a loss. ASOPR finished the week at 0.994, up 0.6%.  

The Ugly

During an appearance on CNBC last week, Scott Minerd, CIO of Guggenheim Partners, projected that BTC’s recent drawdown may have a longer runway than he previously anticipated; in fact, he went so far as to say that BTC could plummet to around $10,000 before this current cycle ends. While institutional skepticism is certainly nothing new in the crypto space, Minerd’s negative outlook is quite notable considering that, as recently as December, he was suggesting BTC’s fundamentals implied a fair value of just around $400,000 per coin. His change of heart was primarily motivated by what he sees as historically volatile dynamics reappearing to sustain risks to the downside. Minerd also noted that the parabolic price moves seen throughout this year are now working to BTC’s detriment. 

On Chain 

>Stable Coin Supply Ratio, 7-day SMA (SSR): Measures the supply of BTC relative to the supply of all stablecoins–denominated in BTC. In most cases, a ratio less than 10 suggests a lot of “dry powder” waiting on the sidelines ready to spur a rally; on the other hand, a measure greater than 20 usually points to a low supply of stablecoins able to accommodate additional BTC purchases, a condition that usually precipitates a decline for the latter. The ratio’s 7 day SMA moved slightly downwards from levels seen last week, coming in at 5.91. The metric has largely moved sideways over the past three weeks, hinting that stablecoin inflows have remained pretty steady as BTC’s price remains stuck in a pretty tight range–relatively speaking. Nonetheless, the stablecoin asset class as a whole has experienced quite the run this year, with the market cap of the group has grown nearly four-fold YTD. Zooming out of the crypto space, excess liquidity is sloshing around the entire financial system as short-term interest rates remain pinned around zero. In this market context, even assets that don’t offer good prospects of returns can see some sizable inflows. Whether it’s negative-yielding sovereign bonds, money market funds, or stablecoins, investors seem willing and able to park their excess cash wherever they can.

>>Adjusted Spent Output Price Ratio, 7-day SMA (aSOPR): Examines levels of profitability/loss experienced by coins moved on-chain over a given time interval. Ignores UTXOs with a lifespan of less than 1 hr. A ratio above 1 indicates that coins–on aggregate–are being sold for profit, vice versa for ratios below 1. The metric exhibited choppy movement for much of the past week, averaging 0.994 for the week ending 7/11. Since mid-May, the measure has spent more days below 1 than above; however, short-lived moves to the upside have appeared pretty frequently in the same time span.

>>Stock to Flow Deflection Ratio (S2FD): Bitcoin’s status as a relatively scarce commodity enables the Stock to Flow (S2F) model to gauge the current amount of BTC available–the stock–in relation to the amount of BTC mined annually–the flow–to project an appropriate price for the asset. The deflection ratio simply divides the current spot price of BTC by the projected price calculated by the S2F. Any reading above 1 suggests BTC is overvalued according to the model; anything less is regarded as a signal that BTC is undervalued. The deflection measure largely spent the week moving sideways and settled around 0.31 by Sunday. According to proponents of scarcity-derived value theory, the model continues to show a deep value play. However, even the creator of the S2F model–an independent analyst known as Plan B–notes that the present divergence between the spot price and the S2F’s projected price might hurt the model’s credibility if such a gap persists in the foreseeable future. In his view, the next six months will “make or break” the S2F as a tool for predictive analysis.

>> Number of Transactions, 7-day SMA: Weekly moving average for the daily number of transactions on the Bitcoin ledger. On-chain transaction volume is a helpful proxy for gauging underlying network effects and mainstream adoption. As P2P exchanges grow, the thesis behind BTC’s use cases is buttressed, thereby reinforcing bullish market cycles. BTC’s ledger verified 211,993 transactions per day on average for the week ending 7/11, down nearly 40% from yearly highs seen back in January. Coming out of the self-regulatory algorithm update that took place over 2 weeks ago, transaction volume hasn’t really changed much despite the fact that mining difficulty was reduced by 28%. Transaction activity could see a spurt upwards in the coming weeks as payment fees have dropped by around 80% in the wake of the mining adjustment; in fact, the median fee imposed on P2P transactions dropped from a monthly high of $5.28 seen on July 2nd to about $1 as of July 11th.

>>Coin Days Destroyed (CDD): CDD is used to gauge extended market cycles by placing heavier weighting on the trading actions of investors that hold BTC for the long term. For each day that one BTC remains unspent, its UTXO address accumulates a coin day: the balance of BTC within the address multiplied by the number of days dormant. When that idle coin is eventually spent, the accumulated level of coin days on the UTXO is recorded by the CDD measurement; simultaneously, this process essentially destroys the accumulated coin days within the UTXO by resetting its coin days level to zero. To measure the aggregate level of days destroyed, CDD takes the respective lifespan of each UTXO spent on the date in question, multiplies it by the volume of coins spent on each respective UTXO on the same date, and then sums all the individual products together. Historically, CDD values less than 5 million days signal an approaching lower bound floor for the price of BTC; conversely, values greater than 20 million days indicate an approaching ceiling as long-term investors start to take profits on their existing holdings. During the past week, CDD hovered around a daily average of 4.26 million coin days. The metric has edged downwards for much of the past six months, hinting that BTC might not have further room to fall going forward as coins held by HODLers remain dormant. Considering that these levels reflect a strong bullish conviction among the earliest adopters of BTC, CDD presents a positive outlook. 

Technicals

>200 Day Simple Moving Average: Equally weighted average tracking daily pricing data from the last 200 trading days. Often represents a key area of support/resistance and provides a solid assessment of underlying momentum by largely ignoring volatile day-to-day price swings. The current level of $44,412 continues to reflect poor prospects, as the gap between the 200-day SMA and the price of BTC grew moderately from last week. Looking back historically, this same kind of rift between the spot price and a higher 200 day SMA also emerged in the spring 2018 crash. In that case, the gap ultimately took a little over a year to close. With this in mind, the divergence we’re seeing today may show little signs of going away, especially with prevailing market sentiment hinting that many institutional investors see a long consolidation phase on the horizon. 

>>Relative Strength Index (RSI): Momentum indicator measuring both the speed and rate of change of recent price movements. Helpful in determining overbought/oversold market conditions. Values above 70 indicate an overbought market and bearish momentum, while values below 30 signal an oversold environment with bullish momentum to the upside. Despite a number of on-chain metrics signaling bullish, oversold market conditions, RSI has continued to hold its neutral rating, settling in at 45.21 as of 7/11.

Fundamental 

>Open Futures Interest, 7-day average (All Exchanges): Calculates the total amount of funds ($USD) currently allocated towards BTC futures contracts (across all exchanges) that have neither been exercised nor expired. Provides insight into the actions of institutional traders, while also evaluating the general level of strength/weakness that underlies the price movement of BTC. For the past week, daily average open interest in futures contracts came in at $11.65 B, up marginally compared to levels seen during the prior week. Considering that the past seven days witnessed a pretty stable level of futures inflows coinciding with choppy movement in the price of BTC, futures positions projected a largely neutral outlook. At the moment, there is no pronounced trend to be gauged by what we’re seeing. 

>Exchange Net Flows, 7-Day SMA: Weekly moving average tracking the difference between # of BTC flowing into exchanges vs out of exchanges. The numbers projected by the metric are quite counterintuitive; positive net inflows are normally taken as bearish signatures, and vice versa for outflows. For the week (7/5 – 7/11), daily net flows registered an average of -2256 BTC, still projecting a positive outlook even though this measure was about 4% lower compared to levels seen during the prior week. Overall, the metric expresses a growing conviction among long-term HOLDers that BTC’s negative reversal looks to be in the rearview mirror. 

>Network Value to Transactions Ratio Signal, 7-day SMA (NVTS): Slight variation of Willy Woo’s NVT ratio. Measures BTC’s market cap relative to the 90 day SMA of daily transaction volume on the Bitcoin network. Provides insight on overbought/oversold market conditions, serving as a leading indicator of market peaks/troughs. NVTS continues to present a bullish case having once again consolidated over the past. The metric is currently sitting at 19.82 as of 7/11 (up 1.7%), suggesting an already oversold market continues to dish out deals. This trend will continue until serious positive price momentum can be sustained.     

>Market value/Realized value Ratio (MVRV): Takes the current market cap of BTC and divides it by the realized capitalization. The latter attempts to gauge the true economic weight locked up in BTC by multiplying the number of UTXO’s by the price at which the coins in those UTXO’s were last moved–not at the current market price. Since realized cap presents a cumulative cost basis for the market and removes the influence of dormant coins, it provides a noteworthy assessment of Bitcoin’s long-term fair valuation. Periods in which the ratio falls below 1 signal the possibility of an impending accumulation phase; in this case, such a reading can point to the formation of a newfound fair value threshold. On the other hand, historical evidence suggests that a ratio above 3.7 flashes overvalued conditions, showing that speculators are primarily dominating buying activity. The ratio ended the week at 1.75, hovering around a low point not seen since last October. Overall, MVRV currently suggests a somewhat balanced relationship between BTC’s current price and its fair value as implied by the realized capitalization. 

Hash Rate (estimated), 7 -day SMA: Bitcoin’s decentralized nature incentivizes a global matrix of computer operators to verify network transactions through an ultra-fast competition of brute computational power, known as “mining”. Miners work to verify transactions by producing a series of unique 64-digit alphanumeric codes, collectively referred to as “hashes”. Hash rate is an estimation of the total numbers of hashes produced each second by miners on the Bitcoin network, serving as a key proxy of the total computational resources underpinning the world’s largest crypto. Bitcoin’s hash rate fell off a cliff in mid-June, declining more than 50% from May’s sustained peak; it’s yet to fully recover. The nose-dive can be almost entirely attributed to an intense Chinese mining crackdown which has effectively shuttered half of Bitcoin’s processing power. Miners are flocking out of China at record paces in an event deemed the “Great Migration” by many in the on-chain community. A quick hash rate recovery will signal bullish momentum, indicating miners (on aggregate) have successfully relocated (or liquidated) their operations. On the other hand, a slow and prolonged recovery will flash bearish, signaling displaced miners are having trouble finding a new home. Hash rate averaged 97 EH/s for the week ending 7/11. Although it’s still far below levels seen in earlier this year, a positive outlook can be extracted from this metric when considering that it has started to rebound from the yearly lows seen during the end of June. At the moment, it looks like the automatic stabilization of mining difficulty is serving its intended purpose: to incentivize greater market activity after a temporary freefall in network processing power.