Buenos Dias, DOers!
Kyle here, writing from the beautiful beaches of Nicaragua 🏖️ (FYI: Buenos Dias means GM in Spanish).
Today we’re going deeper down our journey of understanding where markets are heading.
We spent the last 2 weeks learning about the markets from the macro perspective and today we will look at the markets from the onchain perspective. 🔗
Looking onchain doesn’t just enable us to uncover key insights about business, blockchains, and protocols - we can also learn plenty about market dynamics.
How? 🤔
By understanding things like where coins are moving, who is moving them and so much more. The metrics we are about to show in this PRO report are one of the coolest things about moving financial markets onchain as none of this is possible in the traditional financial world.
Once again, by looking onchain you can understand things that others simply do not.
Now, I’ll warn you, some of the terms we will use may sound a bit foreign to you. Words like: HODL waves and adjusted SOPR. 📚 But don’t worry, as usual, we will explain them clearly and simply for you. 😊
Finally, you’ll notice we mainly look at metrics surrounding Bitcoin. We do this because Bitcoin is still the dominant coin in crypto as it has the largest marketcap, volumes, and holder base, so it gives us the best overall understanding of the market direction. 🚀
To help us on our journey of understanding markets by looking onchain, we’ve brought in Mark Helfman from the Crypto Is Easy newsletter. 💡 Mark has been looking onchain well before it was cool to do so, so he knows a thing or two about this!
At the top of the newsletter, you’ll find a video of Mark explaining each chart, it’s definitely worth a watch as he explains everything in much more detail.
Otherwise, scroll down and read the report below for a quick and simplified version. 😉
Enjoy!
Bitcoin Realized Cap HODL Waves (1y - 3y Holders)
Hi, everyone! Mark here, happy to be sharing some of the onchain insights with y’all. 😊 Let’s jump right in, shall we?
Let’s start by discussing an interesting onchain metric called Bitcoin Realized Cap HODL Waves. 🌊
This metric shows the movement of Bitcoin over time, in different groups of people, based on how long they have gone without moving their Bitcoins.
The metric is weighted by the value of that Bitcoin in terms of market cap, which allows us to see the influence these different bands have on price and momentum.
What we've observed recently is unprecedented growth in the one to three-year holders, despite the price going up 70-80% from the bottom. Not only are they still holding, but they are also growing as a proportion of the market cap.
This bodes well for the durability of the current price move, as long-term holders with a lower cost basis are not selling, and there's not even a hint yet that these people are starting to take profits. 💪
You can see in the chart above that when this same thing happened back in 2019, 2015, and 2012 the following years did really really well in terms of the price of Bitcoin.
Of course, we can’t rely only on one metric to tell us the direction of the market, so let’s continue on…
Bitcoin New Wallet Addresses
New addresses also continue to increase, suggesting interest from newcomers or those engaging with the network in new ways. You can see that anytime the trend of new addresses increases, the price of Bitcoin increases as well.
While there may be some manipulation by whales 🐳 spreading out their crypto across many wallets to sell without detection, this is likely present at any point in time, so it evens out.
What's important is the trend and direction these metrics show 📈, as they provide a reality check on whether the price is supported by any fundamental behaviors.
Bitcoin Realized Cap HODL Waves (24h - 1m Holders)
Looking at the HODL Waves, we want to see growth in the lower bands that lead to growth in the bands above them (ie. 1 day to 1 week to 1 month and so on). The bands for people who have held for one day to one week, and one week to one month are growing, showing a healthy churn. 💪
This trend is reminiscent of the period from 2018 to 2019, where there was a nice churn, and new money 💰 stuck around, eventually leading to price increases.
Recently, we've seen new money enter the market and stick around, as people are not cashing out as the price goes up, or at least not cashing out enough to make a noticeable difference. 🚀
If we look at the one-month to three-month band, there was nice growth earlier this year, which laid the foundation for the market to go up.
It remains to be seen if this pattern will continue in the next couple of months, but the current trend suggests a healthy churn, similar to what we've seen in the past.
Keeping an Eye on Miners: Analyzing the Puell Multiple
When it comes to onchain metrics 📊, it's crucial to pay attention to the Bitcoin miners, a large part of the Bitcoin holder base.
⛏️ Miners are always selling, and one useful metric to monitor their activity is the Puell Multiple. The Puell Multiple measures the value of newly mined Bitcoins relative to the previous year's average value.
Currently, the Puell Multiple is on the rise. While it's not at an extreme level that would cause concern, the increase suggests that the value of newly mined Bitcoins is significantly higher than the historical average over the past year.
This uptick is visible in the price of Bitcoin, but the Puell Multiple offers a unique perspective from the miners' standpoint.
Understanding the Puell Multiple and its fluctuations can provide valuable insights into the mining sector's behavior and potential impact on the market. 💡
Miners' Position Index: What It Means for the Market
🛠️ Another essential onchain analysis tool is the Miners' Position Index (MPI), which represents various mining activities.
This metric offers a simple projection of how much miners are selling now compared to their sales over the past year.
Recently, the MPI has been steadily increasing ⬆️, which suggests that miners are taking advantage of the rising prices and selling their Bitcoin.
However, the proportion of Bitcoins in the hands of miners is at a historically low level, which raises the question of how much impact their selling has on the market.
If the current price sustains itself and the MPI continues to rise, it could indicate that miners are selling out of the market. Since the protocol constantly issues new Bitcoins to miners, their inventory is continuously replenished. 🔄
The potential reduction in selling pressure from miners running out of Bitcoins might be a positive sign for the market. 🚀
Currently, we don't see clear indications of renewed interest from retail investors or increased traffic to exchanges, but these factors are often lagging indicators that may change over time.
As of now, there's plenty of room for growth in the market 🌱, and there are no major warning signs of a looming downward trend.
The aSOPR: Analyzing Profit and Loss in the Crypto Market
The aSOPR, or Adjusted Spent Output Profit Ratio, is an important onchain analysis metric that measures the average profit or loss 💰 of coins being sold on the market.
In simpler terms, it helps determine whether investors are in profit or loss when they sell their coins.
When the aSOPR is above one, it indicates that on average, investors are selling their coins at a profit. Conversely, when it's below one, it suggests that they're selling at a loss.
Currently, the aSOPR is slightly elevated above one, but it's not at a level that should cause concern. In the past, when the aSOPR has reached higher levels, people have become more inclined to take profits, leading to selling pressure. 📉
Ideally, we don't want the aSOPR to rise too high. When it reaches extreme levels, we'd like to see it return to one, either through a period of sideways price movement or a potential price correction.
Monitoring the aSOPR can help you gauge the market sentiment 🌡️ and make better decisions about profit-taking and potential risks.
Stablecoin Activity: An Unusual Trend
Another metric that’s useful to keep in mind and monitor is stablecoins.
Despite the recent price increase, we haven't seen stablecoins picking up significantly.
Stablecoins are essential in the market, as they provide fuel ⛽ to push prices higher and act as a cushion during price drops.
We've seen a downward trend in stablecoins, and I want to dig a little deeper into some specifics.
Binance USD ($BUSD) has been dropping consistently and, similarly, so has USD Coin ($USDC) experienced a substantial drop, with more than $8 billion taken out of circulation. 💸
On the other hand, Tether ($USDT) seems to be absorbing the outflow from both $BUSD and $USDC. It's ironic to think that $USDT could be the safest stablecoin, considering its controversial history. 😅
With the recent news of Tron founder Justin Sun being served by US regulators, it's crucial to note that 51.7% of $USDT circulating supply runs on the Tron blockchain, which is highly centralized. It will be interesting to see how this situation develops.
As for my opinion on $USDT, I have a feeling it is fully backed, primarily because the type of people who use $USDT wouldn't tolerate anything less.
Instead of a proper audit, $USDT has only provided attestations and proof of reserves, possibly due to sloppy bookkeeping 📚 and/or wanting to keep their clientele private. 🔒
The situation with stablecoins could potentially be reminiscent of the Panama Papers scandal, with criminal syndicates and nation-states using $USDT instead of the legacy financial system.
This is all speculative, of course, but it's something we need to keep an eye on as the market evolves. 👀
Market Direction Takeaways
There are plenty more metrics that we can look at onchain to continue to build out our theory of where the markets are heading, however, I don’t want to overload you all with too many new words and metrics. 🧠
Before I get into my takeaways, I’m curious, was this interesting to you? 🤔
If so, please reply to this email and let the Web3 Academy team know. If there’s enough interest in the replies, I’ll make sure to come back and write more insights on an ongoing basis for PRO members.
📝 Here are my final thoughts on the markets:
👉 The recent price action across crypto seems to be healthy and has underlying merit to it (at least from what we are seeing onchain). We have momentum in terms of long-term holders accumulating, new addresses, as well as healthy dynamics with the miners, which may enable the markets to move much higher from here if things work out.
👉 The stablecoin market is a bit wonky, so we will wait to see what happens there, but it’s likely out of whack due to the recent issues with USDC and regulatory concerns. I don’t think this is something that will largely impact the direction of the market though.
👉 The big thing to keep in mind, however, is you never want to rely on only one metric or one category of metrics to build your thesis on where markets will head next. It’s important to look into multiple metrics across multiple categories, such as macro, technical analysis, investor sentiment, and onchain analysis.
Kyle provided a great explanation last week of where macro is sitting currently and what that may mean for markets. So now our job is to combine that with the onchain metrics above, among other analyses, and come up with a thesis.
❗Nothing in markets is a certainty.
Instead, it's about weighing the odds. Short-term, it’s difficult to say where we head next as we’ve recently seen a nice little run-up in Bitcoin prices, however, long-term the metrics seem to dictate that we are entering another leg up in the crypto market.
Good times are ahead for us already in the market.
And that’s about it! 🥳
I want to thank all of you for reading and diving into these insights with me.
I hope this information has been valuable and shed light on some aspects of the crypto market that you might not have considered before.
If you'd like to receive more insights like these and stay up-to-date with the ever-evolving world of cryptocurrencies, I invite you to join my Crypto Is Easy newsletter.
By subscribing, you'll gain access to the latest news, trends, and analysis, helping you make well-informed decisions in your crypto journey.
Once again, thank you for your time and happy investing! 🚀
ABOUT THE AUTHOR
Mark Helfman
Founder of Crypto is Easy newsletter
Find him on Twitter
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