Crypto Market And Legacy Report By Onchainlabs
The crypto market has been showing signs of weakness lately, although the macro picture is still bullish. In this second edition of the On Chain Report we are going to see some other metrics that will let us understand what is happening behind the scenes with Bitcoin since it is the main driver of the whole cryptocurrency market and overall market sentiment comes from whatever Bitcoin is doing.
On Tuesday’s CPI event, we saw the US inflation print come in at 8.5%, this is the highest inflation print we have seen in the US since 1981. This only means that FED approach for the upcoming tightening cycle is going to be more aggressive, and they will need to start reducing their balance sheet to help combat inflation; by doing this, the FED will take liquidity out of the system by selling back bonds and keep the USD (bringing supply of USD down). Last week we had the Meeting Minutes for the March meeting released, and the information there is telling us that rate hikes for May event is most likely to be 50 basis point plus start selling USD 95 billion worth of assets each month to help towards the USD 4.6 Trillion FED bought during Covid-19. But the real question here is what does this means for crypto? Well, this effectively means that we will see a significant reduce of market liquidity on overall risk on assets, which will likely make them decline as the liquidity won’t be there.
Metric 1 — Active Addresses
When looking at this metric, the ideal scenario for extreme bullishness is that active addresses spike up to add confluence on the health of the trend, since this will mean demand is growing. As we can see in this picture below, this is not the case right now as we haven’t seen any spike above 1M, which is the main level to take into consideration when we have real bullishness. This suggests that market participants right now are ones willing to hold with the current market conditions.
Metric 2 — Net Realized Profit/Loss
When looking at this metric, it is all about market sentiment. Normally, when people are realizing losses (Red Spikes), this suggests that market sentiment is not that strong and that fear is present as people are willing to take losses and get out of the market. As this picture below suggests is that recently, investors are willing to realize losses. The ideal scenario for a bullish market is to see green spikes or to hold the 0 line and this will mean strong investor sentiment since unrealized profits will be at break-even, but they are not willing to sell at a loss and are willing to hold their position = strong sentiment.
Metric 3 — Realized Price
This is an interesting metric as it visualizes the average price of all current unspent bitcoins were purchased for. In all Bitcoin bear markets, price has revisited this realized price market, which right now is currently sitting at $24,000. This doesn’t mean we are going to see that price and that we are in a bear market since macro market structure is bullish, but this is important to take into consideration as this realized price represents one of the best macro bottoms and times to buy Bitcoin.
Metric 4 — Exchange Net Flow
This metric is useful when looking at investor behavior. We can clearly see over this past few months that outflows from exchanges have been pretty aggressive. Right now, we are currently looking at the beginning of a possible new spike of outflows. This means that investors are willing to accumulate more Bitcoin at the current prices, which is good to possibly create a supply shock on price.
The market has been dealing with heavy geopolitical developments over the past few years, and we have seen that reflected in current prices. The fact that exchange outflows are spiking over the last few months assure the fact that investors are accumulating and holding more Bitcoin despite the financial uncertainty. This also reflects on active addresses metric as there hasn’t been any spike, so market participants are holding as well, but we need new money coming into the market to expect a real bull run from Bitcoin. Economic conditions are not favorable right now for risk on assets, and it is possible that this will get worse overtime and this means that it is difficult for prices to gain real momentum as professionals will likely sell into higher prices rather than hold; at the same time inflation is the highest we have seen in over 40 years and people are realizing they can protect their assets value by holding Bitcoin just like we saw on 2020 when Bitcoin price spiked up just because of the expected inflation.