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28 October 2021
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On-Chain Analysis: Is Q4 The Savior For Crypto? What’s In the Store For Bitcoin & Altcoins

The cryptocurrency market lost more than 350 billion dollars in value over the last ten days. Bitcoin is now down to its lowest price levels since late July. At the time of writing this article, the price of BTC is hovering around 41k-43k, and other cryptos, as usual, are following its price movements. 

We are now witnessing a sell-off based on public sentiment led by the equity market crisis and China banning crypto transactions. Evergrande China is the second-largest real estate developer, and it is on the brink of default. With over $300 billion in debt, the company is experiencing a financial meltdown raising concerns for investors worldwide. Some of them are nervous because it could turn out to be one of the Lehman Moments. 

With so much fear circulating, the market conditions globally got affected in a large way. We saw Dow Jones lose over 500 points, making it the biggest fall since July. Even the Europe Index and Hang Seng were down by more than 2%. 


This economic contagion is a serious threat to investors and the people employed at Evergrande. The real estate company is estimated to provide four million jobs annually. If the Chinese government fails to bail them out, the economic growth will be stunted to a greater degree. Some experts like Ray Daliobelieve the situation is manageable for the simple fact that the debt is denominated in their own currency.

On-chain Overview 

From an on-chain perspective, the supply dynamics have not changed much. Long-term investors continue to accumulate and leverage these pullbacks as much as possible. Even in terms of miners, they have shown zero sell pressure, and hash power is recovering nicely. We have also seen many trends continue over the past few weeks, and there has been no direct correlation to what’s happening in the equity markets. To understand the underlying data of bitcoin, let us look at some on-chain metrics. 

Realized Price Distribution 

The URPD chart mainly helps us break down demand zones and investor cost basis. Over the last week, we have seen the market absorb $650 million in losses for two consecutive days. This is the first time such a thing has happened since early July. A lot of this has to do with China dropping more news on banning crypto. The SOPR also shows us that we are still in a state of profit, but it must sustain for the next week. 


Open Interest 

A couple of weeks back— we saw massive liquidation take place in bitcoin futures that were mainly driven by high open interest and funding. But this week, we see a lot of uncertainty in the futures market. Both traders and investors seem to take their bets off the table and wait till there is a confirmation signal. In other words, they are not ready to take risks when the macro trends for bitcoin are unresolved. 

Funding Rate 

When the funding rate is negative, it indicates a bullish price action. As we can see in the chart, the funding rate was in the red for two months, which later led to a massive uptick in price growth. We are now again in the negative percentages, meaning the spot is leading futures. 

Bitcoin Accumulation Score 

According to Rafael, the accumulation is still trending upwards, despite the equity crisis rollover. He believes a continuation of this trend indicates an extremely bullish price action for bitcoin. The blue tones in the chart depict cohorts that are accumulating, and the red tones mean entities are selling aggressively. 


                                                                   Source- Rafael 

Supply Held by Retail 

Many well-known on-chain analysts like Will Clemente and Willy Woo predict retail investors will drive the middle of this bull run. The percentage of retail holdings forms a large portion of the total supply, increasing every week. In Will’s newsletter, he draws a chart that shows us previous bull runs, and it is clearly visible that retail continues to accumulate in the middle.

Supply Shock Ratios 

Will also plotted the illiquid supply ratios that helps us understand- if there is a change in investor behavior. He sees a trend reversal take place right now, as opposed to pure speculation in the past. 

Most of these metrics indicate a similar trend: big players accumulate first in masses and sell into strength. But the bigger news this week was lightning network integration with Twitter. In every aspect, Strike is showing incredible growth year to date. The capacity of payment channels increased by more than 160%, making a strong case for rapid mainstream adoption.


 Source- Glassnode

The Strike API is going to simplify cross-border payments like no other application. Jack Mallers also gave a demo on how effortlessly one can transfer money using the lighting network. IoS users can access this feature, and it will later be available to all Android users. This is a big step forward for bitcoin acceptance worldwide. And it is not limited to Twitter’s tip feature. It shows how the same can be done for other applications and make the whole social media networks interconnected by Stripe. 


Announcing the Stripe API

Closing Thoughts 

Although the fundamental price models of bitcoin remain the same, it is safe to monitor the equity markets as it can indirectly impact multiple asset classes. The only good news we had was lightning network integration, but we still need to see a fully-operation version. Evergrande’s debt crisis will continue to raise fear until and unless the government or the company comes forward with an announcement. In terms of on-chain data, we still see similar trends continue, but they have to sustain moving forward. 

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