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The Good

Despite a volatile week, BTC, through the prism of on-chain considerations, would seem to have some wind at its back. It gusts in the form of supply-side dynamics, underscored by an increasing illiquid supply shock ratio and continued exchange outflows. 

Long-term holders (LTHs) continue to run the show, adding a total of 83K BTC (or roughly $3.8 billion worth) to their aggregate positions over the past week. Interestingly, this increase isn’t solely because the most seasoned holders are snapping up coins (and indeed they are), but also owes to a larger number of short-term holders (STHs) simply aging past the 155-day threshold used to categorize LTHs. Either way, these developments bode well, especially considering the sheer extent of last week’s deleveraging event. 

BTC’s most important constituency, LTHs, seem to have had their conviction strengthened in the wake of the Sept. 7th crash.

The Bad 

Continued regulatory crackdown drumbeats and unnerving volatility seem to be intimidating small and large investors alike. On the technical front, BTC is finding some resistance at the 200-day SMA, emboldening market bears. In terms of on-chain signals, demand for blockspace remains low. Evidence of that: a relatively empty mempool (where all the valid transactions wait to be confirmed by the network). The transaction count metric has dwindled by 60% relative to January’s highs.    

The Ugly

When has September ever spelled trouble for the world’s largest digital asset? 

Only in six of the last eight years, historical price data shows; the ninth month of September indeed leans largely toward BTC price losses or at best has brought merely single-figure percentage gains. Bullish metrics seem to be obscured by macro forces – the macro trading world sees BTC as a risk asset and powerful central financial figures view it as just risky.

On-Chain:

>Stablecoin Supply Ratio (SSR), 7-day SMA: 7.53

SSR measures the supply of BTC relative to the supply of all stablecoins, denominated in BTC. Assessing the relationship between the size of the stablecoin market and BTC allows the investor to determine whether buying power remains ample, or conversely, has been exhausted.

The current level of SSR continues to reflect positive prospects for BTC. At its current mark, SSR’s 7-day SMA continues to loiter well below January’s YTD highs, suggesting ample buying power (in terms of USD-pegged stablecoins) remains on the sidelines. Last week’s abrupt selloff caused SSR to fall below the 8.0 mark, as the metric has failed to break out to the upside since the onset of the bear market in mid-May. Increasing enterprise adoption of BTC coupled with the persistence of volatile price dynamics has strengthened the use case for stablecoin positioning since the start of the year. If deployed, this dry powder could serve as the backbone underpinning future rallies. However, the growth of DeFi services coupled with the emergence of stablecoin lending products suggests that SSR might continue to hover in a historically low territory over the coming years. 

>Adjusted Spent Output Ratio (aSOPR), 7-day SMA: 1.006

The aSOPR metric examines levels of profitability/loss experienced by coins moved on-chain over a 24-hour interval; aSOPR calculates an aggregate level of daily spent outputs or the price at which a coin is sold divided by its respective cost basis. A ratio above 1 indicates that coins–in the aggregate–are being sold for profit, and that goes vice versa for ratios below 1.

Bullish: The week ending 9/12 clearly wasn’t one for profit-taking as evidenced by aSOPR’s recent decline on the weekly charts. As of Sunday night, the metric was standing tall above 1 (a bullish signal) but last Tuesday’s deleveraging event has clearly taken its toll. On the intraday charts, aSOPR has continued to make a habit of bouncing on price dips, signaling the market (in aggregate) refuses to sell at a loss. This is a bullish trend.    

>Number of Transactions, 7-day SMA: 251,691

Weekly moving average tracking the daily number of transactions successfully processed by the Bitcoin ledger, serving as a proxy for block-space demand and the underlying strength of the network.

Despite reiterating a bearish rating, transaction volume has witnessed some upward momentum from YTD lows seen in late June. On the other hand, the Bitcoin network’s daily transaction count still remains about 60% below January’s YTD highs, suggesting demand for block space has largely stagnated. While this lasting divergence between price and on-chain activity sings a bearish tune in the short term, it is not without precedent, with many drawing similarities to the pre-bull accumulation phase of 2020.

>Coin Days Destroyed (CDD), 7-day SMA: 5.35 million CDD

CDD is used to gauge the dynamics and length of market cycles by placing heavy attention on the trading actions of investors that hold BTC for the long term. The spending behavior of long-term holders is reflected in the size of CDD; consequently, traders can use this metric to track potential inflection points in market cycles.

Neutral: BTC’s August rally coincided with a considerable spike in CDD (nearly 300%) on the weekly charts, suggesting that some long-term holders (LTHs) have begun to take profits (as was expected). However, the metric has recently fallen back down to more familiar levels–compared to the trend seen in the first few months of the year. In addition, CDD movement in the past few weeks has been noticeably less volatile compared to prior months. On the positive side, last Tuesday’s selling pressure did not result in any major change in the spending of older coins, indicating that despite the sudden emergence of pessimistic trading conditions, meaningful economic activity on the blockchain did not change considerably. This fact reinforces faith in the commitment of LTHs to “hodl” their BTC through any sort of short-lived market disruption. 

Technical:

>200-day SMA: $45,813

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 the underlying price trend by largely ignoring volatile day-to-day price swings.

Bearish: After spending about three weeks comfortably above its 200-day MA, BTC’s price fell below this widely tracked technical measure towards the end of this past week. Despite this signal, we have not witnessed any major negative divergence between BTC’s price and this moving average as of yet but, over time, well, we shall see. 

>RSI, 14-day: 44.85

Momentum indicator measuring both the speed and rate of change of recent price movements. Helpful in determining overbought/oversold market conditions.

Neutral: For the third consecutive week RSI has printed a neutral rating on the daily charts. At its current level of 44.85 (down -5.7% WoW) RSI would once again seem to indicate that the market is neither overbought nor oversold, a proverbial “goldilocks.” RSI is also reading neutral on the weekly charts, confirming this recent trend.    

Fundamental:

>Open Interest, Futures, 7-day SMA: $14.9 billion 

Calculates the total amount of funds ($USD) currently locked in BTC futures contracts (across all major 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 price fluctuations of BTC. 

Neutral: In last week’s edition of the scorecard we noted that nearly $4 billion in open futures interest has been wiped out due to last Tuesday’s massive de-leveraging event. While this blowout reflected poorly on BTC’s price in spot markets, many on-chain analysts, including the “wizard” Will Clemente, seem to think that the de-leveraging is healthy for longer-term prospects, hence the neutral rating. As Clemente put it, “this was a healthy cleaning.”

For the week ending 9/12, open interest was sitting at $14.9 billion, representing a 12% decline from this time 7-days ago. Keep a close eye on open interest in the coming weeks, aware of its implication on BTC’s short-term price movements.  

>Net Exchange Flows, 7-day SMA: -3,634 BTC

Weekly moving average tracking the difference between # of BTC flowing into and out of exchanges. The numbers projected by the metric are counterintuitive; positive net inflows are normally taken as bearish signatures, and vice versa for outflows.

Bullish: On a net basis, traders have largely continued to move their BTC off exchanges since the last week of August. Even last Tuesday, a day in which BTC witnessed a sudden price correction, saw ex net flow volumes come in at -4,241 BTC. Overall, these levels suggest that no major change in sentiment has taken over the minds of traders at the moment. 

>NVT signal (NVTS) 7-day SMA: 32.15 

NVT measures BTC’s market cap relative to the 90-day SMA of daily transaction volume on the Bitcoin network. It provides insight on overbought/oversold market conditions, serving as a leading indicator of market peaks/troughs and whether price action has outstripped economic activity being generated on the blockchain.

 Bullish: After a largely uninterrupted climb between the end of July and August, NVTS has cascaded down to more sustainable levels. The decline witnessed last week ultimately brought BTC’s price more in line with the value being created on the blockchain over the past 90 days. This sudden bullish reversal is a great sign as far as fundamentals are concerned. NVTS’s current path suggests that it might make new YTD lows in the coming weeks. 

>Market Value/Realized Value, MVRV Ratio, 7-day SMA: 2.27

Takes the current market cap of BTC and divides it by the realized capitalization.

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.

Bullish: What this ratio is saying is that, hypothetically, if all holders were to sell their BTC positions right now, they would receive–on average–2.27x their initial investment. Given the ratio is still well-off March’s YTD highs, MVRV would seem to hint that BTC has not yet heavily outstripped its “fair value”. Just like NVTS, MVRV witnessed a largely uninhibited climb between the end of July and August. As of last Monday (9/6), this trend has started to reverse. With BTC’s spot price still hovering well above its realized counterpart (about $20,900 as of 9/12), investors can remain confident that there won’t likely be any rush to take profits over the coming weeks. 

>Mean Hash Rate, 7-day SMA: 133.5 EH/sec 

Hash rate: 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.

Bullish: In what can be seen as a bullish trend, hash rate continues to rebound nicely from that CCP induced “migration” (and subsequent HR decline) we saw a few months back. As of 9/12, Hash rate (on the weekly charts) was standing at nearly 133.5 EH/sec, representing a 58.5% increase from July’s near 2-year lows. It’s important to note that this newfound hash power means more miners are competing for the same block rewards, thereby limiting their earnings potential (in BTC terms). As a result, we have seen some profit-taking, although nothing significant. Per Glassnode, miners parted ways with 427 BTC over the past 7 days.

>Futures Perpetual Funding Rate, 7-day SMA: 0.005%

This metric is designed to track the average funding rate–weighted by the size of open interest on each tracked exchange–required to hold a perpetual futures contract tied to BTC. The prevailing rate–whether positive or negative–incentivizes traders to buy/sell perpetual contracts to converge the perpetual futures price with the spot price. To maintain a hypothetical $1,000 perpetual BTC futures position, longs were paying shorts about $0.05 every few hours over the past week, on average.

Slightly bullish: It’s become pretty clear that leading up to the sudden price correction on Sept. 7, the futures perpetual funding rate was hitting excessively optimistic levels. Leverage, fueled by positive sentiment over El Salvador’s formal adoption of BTC as legal tender, suggests that derivatives markets may have gotten a little overextended. On the positive side, the funding rate has moved back down to more sustainable levels over the past few days. Despite concerns about the rapidity of last week’s selloff, there has been no major inflection point in sentiment while looking at the sentiment implicit in derivatives markets. The funding rate did fall into negative territory on 9/7 and 9/9, but not by a considerable margin. This suggests that traders have internalized last week’s selling pressures without getting too pessimistic.