What in the world is going on with crypto? Where do we go now? Don’t get out the pitchforks just yet, folks. And remember, stay classy.  Covered: Macro On-chain Data Derivatives What’s Next? Macro You may not be surprised to hear that the major culprit of the drawdown has been macro factors. More specifically, the […] The post Bitcoin and Crypto: What Happened? What’s Next? appeared first on CryptosRus.

Bitcoin and Crypto: What Happened? What’s Next?

What in the world is going on with crypto? Where do we go now? Don’t get out the pitchforks just yet, folks. And remember, stay classy. 

Covered:

  • Macro
  • On-chain Data
  • Derivatives
  • What’s Next?

Macro

You may not be surprised to hear that the major culprit of the drawdown has been macro factors. More specifically, the BTC correlation to the Nasdaq and other “risk-on” assets. This is something we highlighted back on December 6th and foreshadowed what is happening right now. In that article, he highlighted just how overvalued equities were; this has proven to be correct.

Despite a massive crash in stocks, with the Dow tumbling over 800 points today, the good news is that Eurodollar futures, “a market for the expected Feds funds rate,” appears to be pricing in 4 rate hikes by December of 2022. That is to say, today’s plunge is accounting for future woes; we are ripping the band-aid off.

credit: @dylanleclair_

The above rate is showing increased demand for eurodollars and away from BTC and stocks, which means investors are “de-risking,” expecting future tightening of interest rates. Which, in summary, means no more cheap money inflating asset prices. Equities are now extremely oversold.

credit: fidelity

As we have discussed before, Bitcoin is performing like a risk-on, correlated asset because institutions have stepped into the crypto market. They have superimposed their macro outlook on crypto, as they do with other assets, like stocks. As you can see below, in the bull run beginning in 2020, GTBC “scooped up 400k BTC in return for $GBTC shares on behalf of accredited investors and institutions.”

credit: @dylanleclair_

This means that while we benefitted greatly from this institutional adoption, we are now suffering the consequences of it as well. As Dylan LeClair of Bitcoin magazine pointed out: “indiscriminate selling of $GBTC took place recently as markets went risk-off, and the $GBTC discount to NAV widened to new all-time lows.” 

On-Chain Metrics 

Let’s take a look at where Bitcoin stands relative to historical valuations. The on-chain cost basis of Bitcoin is at 24k. Put simply, cost basis “is equal to the amount of money in US Dollars that an asset cost you to acquire.”

The MVRV (market value to realized value) ratio (a ratio of the cost basis and price) is at historical lows. As you can see below, we are very close to the “generational buying opportunity” zone, according to Deepdive.

credit: deepdive

Long-term holders have also been selling into this downtrend; this is unusual because they usually buy into bearish territory. This could be institutional holders who have been in the game for some time now.  Usually, as the price goes down, you’ll see (blue) accumulation rather than selling (distribution). However, in the past 30 days, we have seen selling.

However, it is important to note that accumulation is starting again for long-term holders if you look closely at the chart below. This doesn’t mean a spike is imminent, but it may be mean we’ve reached the bottom of the “wacky” macro reaction.

credit: deepdive

Derivatives

Of course, derivatives (leverage longs/shorts) have played a massive factor in what we have witnessed since November. As LeClair points out: “speculative bulls no longer dominate, but bears aren’t being over-aggressive either.” What is odd is we have yet to see negative funding. Meaning, people are still longing Bitcoin more than shorting.

credit: deepdive

As you can see, when the price goes into the red for extended time frames, so does the funding. Meaning bears are getting confident. This is usually a buy signal for the bulls. We are not quite in negative funding, but it appears to be trending that way.

What’s Next?

The good news: over 81% of the BTC supply is in the hands of long-term holders. A metric that has been on the uptrend since 2016. This is a good sign. Moreover, hash-rate is still trending massively upwards. Considering the terrible geopolitical climate, this is a great sign.

credit: glassnode

As LeClair says in his analysis: “volatility is your opportunity, and thankfully it doesn’t look like it’s going away anytime soon.” Keep in mind that these dips are always what people dream of being able to seize and take advantage of when the price goes parabolic. Buying Bitcoin at 33k v 29k doesn’t make much of a difference when Bitcoin is at 60k.

The post Bitcoin and Crypto: What Happened? What’s Next? appeared first on CryptosRus.