TradingRage newsletter #3
Weekly technical, on-chain and sentiment analysis on Bitcoin
Introduction
Hi, my name is Edris. I’m a Bitcoin on-chain and sentiment analyst, working as a specialist and verified author at CryptoQuant. I’m going to share my views on the Bitcoin market using different analytical tools on a weekly basis.
Remember: I am not a financial advisor and this content is for informational and educational purposes only.
Technical analysis
Bitcoin’s price has finally reached the $45K level after clearing the liquidity above the $42.5K high, following a rally in the past few days. However, the up-trend seems to be losing momentum, as the last couple of daily candles suggest. There may be a small correction in the short-term, but a deeper one or a crash is still unlikely, because of the massive liquidity which is still resting above the $46K level.
If the price breaks above $46K, hunts all the buy stops and drops back inside the current range, the bearish scenario will be more probable and the price will likely complete the bearish flag pattern and break it to the downside. In this case, the price action in the $30K demand zone should be closely observed, as a potential bullish reversal and mid-term bottom may be formed there. On the the hand, if the price breaks above the bearish flag and the major supply zone above $46K, the next likely target would be the $52K area.
On-chain analysis
Looking at the exchange inflow SOAB metric for the 1m-3m old coins, it is evident that the short-term holders who have entered the market in the past few months, are depositing their coins to the exchanges aggressively, selling into the strength as the price keeps trending higher.
However, this is not the first time this behavior has been witnessed during this downtrend, as there are 3 other huge peaks marked on the chart. These peaks can either mean capitulation or marginal profit realization. Speculators who have tried to catch the dip during the crash, mostly capitulated and sold at a loss as the market kept dropping lower. However, some of them may have correctly identified the bottom and accumulated at lower prices and are currently realizing their profits and exiting the market.
In the next section, we try to identify whether the coins deposited into the exchanges in these peaks were profitable or sold at a loss.
After three months of constant loss realization by the short-term holders, this cohort is back above water and some of them are using the exit liquidity to get out of the market.
The Spent Output Profit Ratio is one of the most useful on-chain metric which measures the magnitude of profits/losses being realized by the holders and in this case, the short-term holders. Short-term holders are considered as market participants who have entered the market in the last 155 days (5 months), which means they have bought Bitcoin after the $69K all-times high in November 2021. This group mostly consists of people who bought the top and impatient dip buyers who entered the market in the middle of the crash. They have been selling their coins at a loss for the past few months, as the price kept dropping lower. So, the first three peaks demonstrated on the Exchange Inflow SOAB chart in the last section, were capitulation events as those coins were mostly spent at a loss.
However, the short-term holders have recently started realizing profits again following the recent price rally towards $45K. Considering the price action in the last 155 days, these are participants who have bought the dip below $45K during the past couple of months (the recent peak on the exchange inflow SOAB chart). These coins coming back into circulation should be met with enough demand in the upcoming weeks, or this selling pressure may cause another drop in the short-term.
Futures Market Sentiment analysis
The open interest is a key metric in evaluating the futures market sentiment. As the chart demonstrates, the open interest in all exchanges has risen rapidly in the past few days as the price is approaching the $45-$46K area. This sharp rise in open interest indicates two things. Firstly, many traders have opened futures positions in the last couple of days. The bulls are betting on the start of a new uptrend and the bears are trying to short at the $45K resistance which has rejected the price lower multiple times in the past few months. The second takeaway is that even with the recent rally, not many short positions have been liquidated to cause a drop in the open interest (look at open interest after the rally from the $28K bottom last year).
Either way, open interest is getting close to the levels which were previously witnessed on the $64K and $69K all-time highs and it means that massive volatility is imminent.
When market sentiment is bearish, especially after a massive drop, traders seem to go all-in and open short positions aggressively. In this situation, whales can easily manipulate the market and make huge gains by applying a little buying pressure. The price would rise slightly as a result of their act and begin to liquidate the short positions. These liquidations push the price higher and more and more shorts get liquidated like a domino.
These events are often referred to as “short-squeezes” and are demonstrated with huge peaks in the short liquidations chart. For example, the market experienced a massive short-squeeze when the price bounced off of the $28K bottom last year. The huge amount of short liquidations during that event is marked on the chart.
As mentioned in the last section, no significant short-squeeze has occurred during the recent weeks, even with the price rallying from $37K to $45K. This indicates that many stop losses and liquidation prices remain above the $45-$46K resistance area and if the price is able to break above this level, huge amounts of short liquidations and high volatility is expected.
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you nailed bro congrats ! short squeeze happened
Oooh fantastic