Using on-chain and valuation data, Cycling On-Chain provides a deeper understanding of past bitcoin market moves, as well as a prediction that we’re still in the cycle. The first section of this fifth edition takes a quick look at the variables that acted as a headwind for the price of bitcoin during September. In the next section, we will look at a variety of on-chain indicators that saw a significant trend shift all-around January 1 bitcoin price peak, which, in retrospect, also served as a price floor for the current fall in the bitcoin market. This column concludes with a discussion of Bitcoin’s present on-chain supply dynamics and the broader macroeconomic environment. Before we move on with our article, please register yourself on crypto trading, and Join the Immediate Edge community to trade in cryptocurrency.
Headwinds In September
In September, after two straight months of good returns on bitcoin over the summertime, numerous headwinds blew in, causing bitcoin’s price movement to move lower primarily. When El Salvador adopted bitcoins as legal currency, it followed an initial price rise in response to favorable market sentiment around the adoption of bitcoin as legal tender at the beginning of the month. As seen, financing rates (in green) on September 7 were not as high as they had been in the first quarter of the year, when the market frenzy was still in full swing.
That incident undoubtedly alarmed some market participants who had never seen anything like it before or did not comprehend the fundamental mechanics of the market. Following that, reports that Chinese real estate firm Evergrande may be on the brink of bankruptcy rekindled memories of Lehman Brothers going bankrupt at the outset of the global financial crisis in 2008, prompting a similar reaction. On September 20, the stock market saw a significant sell-off, mirrored in bitcoin’s price.
Despite these challenges, the bitcoin price ended the month of September just $3,302.45 (7.01 %) lower than it had started the month. It demonstrated some resiliency. While it is true that these patterns are subject to alter, for example, if the current macroeconomic environment worsens, these dips may be seen as potentially valuable purchasing opportunities based on on-chain trends.
Decrease in Price
Bitcoin Price Temperature (BPT) is a metric that evaluates the bitcoin price volatility over four years by measuring the high standard deviation the actual cost is from its four-year moving average throughout that period. Since then, bitcoin returns have begun to fall (as shown by the right grey arrow), and the price temperature has already started to drop as well. Following that, we’ll take a closer look beneath the hood and evaluate several on-chain patterns that have altered substantially since that same January local peak.
The Old Coin Movement Is Declining
In January, there was a reduction in the quantity of relatively old bitcoin transferred on-chain, indicating that the selling pressure of experienced market players has decreased. However, as previously stated, not every on-chain transaction that moves has the same weight regarding the possible effect on the bitcoin price. Because, after all, a 1,000 Bitcoin transaction has a far greater ability to impact the price of Bitcoin than does a 0.001 Bitcoin transaction. And to resolve this issue, the actual on-chain volume transferred is used to effectively rectify the error, resulting in the display of a measure known as “dormancy” in blue. Except for a few exceptions, dormancy has been steadily downward since the local peak in January.
Threats To the Macroeconomic Environment That May Arise
Since June, the Federal Reserve of the United States has begun to indicate that they are examining the possibility of turning off part of its money-printing machines in the future. However, the rising dollar currency index since then shows that others have begun to adopt a “risk off” mentality, contrary to the beliefs of confident investors who think they will not be able to do so without wreaking havoc on the economy. Moreover, the recent concerns surrounding Evergrande, the Chinese real estate behemoth that may be on the brink of bankruptcy, have increased the level of uncertainty in stock markets, resulting in an increase in the rotation of money away from equities and toward cash.