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Quick takeaways:
- Several of Bitcoin's on-chain and social indicators may slowly be moving into 'bullish' territory
- Assets covered: Bitcoin
- Metrics used: Holder disribution, social seniment, price-daa divergence, mvrv long/short difference, daily active addresses
It’s been a week of cold showers for Bitcoin, as the benchmark cryptocurrency recorded double-digit losses (-10.2%) over the past 7 days and is now inching closer to retesting the $8500 support level.
Unlike most BTC corrections, though, this one has failed to take down the entire market with it, as many high-cap alts were up strong against BTC to start the week.
The decoupling seems to have breathed new optimism into altcoin enthusiasts, as we’re seeing multiple recent spikes in the amount of ‘alt season’ mentions on crypto social media, correlating nicely with Bitcoin’s ongoing decline.
So what’s up with BTC? Are we officially $7k bound or is this all simply positioning for another quick bounceback?
Well, at least according to its on-chain and social data, there may in fact be several reasons to be cautiously optimistic about the top coin’s short-term price potential. Let’s explore.
BTC whales back to accumulating?
In addition to our existing set of Holder Distribution metrics on Sandata, we recently added a few alternative but very instructive dashboards for different Bitcoin holders.
One of those charts tracks the number of addresses holding more than X BTC over time. As it happens, the number of addresses holding more than 100 BTC seems to reveal some very interesting patterns over the last 3 months.
As you can see, the 100+ BTC club has a tendency to grow into BTC dips, like it did on a number of different occasions since the start of the year. The most prominent example occurred during the ‘Black Thursday’ dump, with the addition of 400 new addresses holding more than 100 BTC in a span of 5 days.
The growth in whale addresses is also often accompanied by a quick rise in Bitcoin’s price. The most recent example of this was during the May 10 dump - as BTC lost more than 10.5% in a span of 48 hours, more than 450 new addresses were added to the 100+ BTC club. Soon after, the price of BTC sprung back above $9k.
In a similar fashion, the amount of these addresses also tends to shrink a few hours/days before local Bitcoin tops. For example, in 24 hours before the May 8 top of $9920, the 100+ BTC club shrunk by 740 addresses. Bitcoin’s price took a nosedive shortly afterwards.
So what’s the latest on the 100+ BTC club? Well, the amount of these mega whale addresses has started growing once again over the last 9 days, with 800 new addresses joining the fray. Once again, the big players seem to be accumulating into the dip.
Based on historical trends and paired with other indicators (some of them covered here), this could be a positive sign for Bitcoin’s short-term action, as market-moving addresses are once again starting to show increased confidence in the top coin.
Should we bounce back over the coming week, I’d keep my eyes peeled on the behavior of these addresses. If they start to deflate again, that could be the cue.
MVRV Long/Short Difference approaches 0%
One of the custom on-chain indicators available on Sanbase, Bitcoin’s MVRV Long/Short difference is our addendum to the popular MVRV ratio, and looks at the disparity in the ROIs of long-term vs short-term Bitcoin holders.
To make this article about 700 words shorter, those interested in exactly how MVRV
Long/Short difference works can read about it here. In a nutshell, however, this indicator will often bottom at the lowest point of Bitcoin’s bear market and peak at the top of its bull cycle.
Since Bitcoin’s inception, the MVRV Long/Short difference indicator has crossed the 0% mark only 4 times. The first 3 times it happened all earmarked the start of a major bull run for the world’s largest cryptocurrency.
In fact, we covered the indicator’s third move above 0 back in May 2019. When we wrote the article, Bitcoin was hovering around $5900. Within a week, it breached the ~$8000 level. In 45 days, it was retesting $13000.
The 4th time it happened was in February of 2020 - right as the coronavirus pandemic became a reality. Even so, the price of BTC grew by 9.6% within a week of the MVRV L/S crossing the 0% mark. And then, well, Black Thursday happened, and we’ll never know what might have happened next.
Well, boys and girls, we are quickly approaching event #5. At the time of writing, Bitcoin’s MVRV Long/Short difference is hovering around -2.75%, up from -18.5% at the start of the month. This indicates that the MVRV ratio of long-term BTC holders is once again very close to overtaking the MVRV ratio of short-term BTC holders, which has historically coincided with a bullish breakout.
According to Valentin Mihov, Santiment’s CTO:
“The explanation could be that the short term traders are usually profiting when the market goes down and sideways, while during a bull run the long term holders are the ones that will have the final call - ultimately when the long term holders start to sell, that will be the end of the bull run.”
Social media sentiment finally turns bearish - good for BTC?
There was A LOT of hype surrounding Bitcoin prior to and immediately after the May 12th halvening. And this is not coming just from my personal experience with crypto Twitter lately - it’s also backed by cold, hard data.
At the moment, Santiment tracks over 1000 crypto-specific social media channels, collecting and filtering hundreds of thousands of new comments and messages every day. Using this dataset, we’ve custom-built our own social sentiment algorithm, and trained it to label incoming messages on a scale from ‘very positive/bullish’ to ‘very negative/bearish’.
One of the coolest metrics to come out of this work is our ‘Sentiment Volume Consumed’ metric, which calculates the difference between the amount of positive and negative coin mentions all over crypto social media, and adjusts it for the amount of social volume. Essentially, it can tell you whether the crowd is bullish or bearish on Bitcoin or any other coin in our database.
Using this algorithm, the above graph visualizes the ‘average mood’ on crypto Twitter towards Bitcoin over the last year. If the orange line is above 0, the mood is positive on average and vice versa. The higher or lower the orange line, the more extreme the crowd sentiment and its deviation from the mean.
As you can see, Twitter turned overwhelmingly bullish toward Bitcoin mid April, after it bottomed out at $6750. The hype eventually peaked on May 7th (right before Bitcoin’s 10.5% drop) and has been in a gradual decline ever since.
Over the last 2 days, the average Bitcoin sentiment on crypto Twitter has finally turned bearish.
Now, some might think this should be a bad sign for BTC’s short-term action - but not necessarily. In fact, it’s the extremely bullish sentiment that has often led to Bitcoin corrections in the past, as the hype peaks and whales dump on the FOMO crowd.
As you can see on the chart, several local BTC tops in the last year - including both 2019 tops - were accompanied by strong growth in bullish BTC sentiment.
On the other hand, most Bitcoin rallies in the last year started in a predominantly bearish atmosphere. It’s basically the ‘crowd is always wrong’ principle, visualized.
Breakouts in July, August, October and December 2019 all coincided with a decidedly negative mood on crypto social media. Most recently, Bitcoin’s post-Black Thursday rally started when Twitter sentiment was at -0.5, marking a strong bearish mood within the community.
As I mentioned, Bitcoin-related sentiment just broke into bearish territory for the first time in over a month. To me at least, the status quo feels a bit reminiscent of the May 2019 interim top. The price of Bitcoin mushroomed over 50% all the way up to $8050 between May 1st and May 15th, along with a massive spike in bullish BTC sentiment. Then, the crowd mood started to decline, correlating with a period of consolidation and short-term retraction back to $7700 range.
Once we were comfortably back to bearish sentiment, only then did BTC skyrocket again, this time peaking at $12500.
Should we see the bearish mood continue to grow on crypto social media along with other bullish on-chain and social indicators for Bitcoin, I wouldn’t be surprised to see a repeat of the 2019 scenario sometime in the near future.
Bitcoin’s price-network activity bond offers room to grow
Finally, I wanted to briefly touch on our Price-DAA divergence model, which tracks the ongoing relationship between Bitcoin’s price and its on-chain activity (daily active addresses).
Historically, strong divergences in these two metrics often earmarked solid Buy/Sell levels. When the price goes up while the amount of active addresses declines, the model triggers a ‘Sell’ signal, and vice versa.
Year to date, our Price-DAA model has been money. Here’s a short overview of the Buy/Sell signals it triggered in the last 3 months alone:
- March 4th - a solitary BUY signal. The price of BTC gained 4.1% in the next 48 hours
- March 13th-22nd - a series of BUY signals, one each day. The price of BTC gained 34.4% in that time period.
- March 27th - two BUY signals. S...
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