Every week, IntoTheBlock brings you on-chain analysis of top news stories in the crypto space. Leveraging blockchain’s public nature, IntoTheBlock’s machine learning algorithms extract key data that provide a deeper dive into the major developments in the industry.
Key Metrics Pointing to Where Crypto May Be Heading Next
Crypto markets have traded within a narrow range the past few weeks, following the precipitous crash in mid-May. As market participants struggle to take the lead in either direction, news and blockchain indicators may provide valuable insights into what is likely to come next for the crypto space.
In terms of news, probably the most relevant recent occurrence is the Reserve Bank of India’s (RBI) clarification that it will not be banning crypto trading. It had been rumored for multiple months that the RBI would be making it difficult for both institutions and individuals to access crypto and they have cleared up that will not be the case. Following the recent crackdown in China, this comes as a relief for the crypto market.
In other news, Google has reversed its stance on advertising from crypto exchanges and wallets. Although crypto entities looking to advertise on Google will still need to be registered with the financial regulators FinCEN, this is a step forward from banning all crypto-related ads in June 2018.
Both of these news signal positive developments for crypto. Similarly, on-chain data points to bullish activity following the crash.
By looking at the variations in profitability, we are able to identify that buying activity is taking place. The Historical In/Out of the Money (HIOM) does just this, breaking down the number of addresses profiting over time.
Comparing Bitcoin versus ten days ago when it traded slightly higher, we observe two interesting patterns. First, the number of addresses in the money (making profits) is 900k greater, even though the price is currently lower. This points to a large number of holders taking the crash to $30,000 as an opportunity to buy and lower their average costs, thus making them profitable as prices rebounded.
Second, the number of addresses out of the money decreased by nearly one million. Though some of these averaged down their entry price, it is also likely that many panic sold, realizing their losses and no longer being considered by the HIOM.
This marks the transition in Bitcoin holding from short-term speculators into longer-term investors. The pattern is apparent when looking at the decrease in addresses holding for less than a month, classified as traders by IntoTheBlock.
The decrease in short-term trading comes as investors become uncertain about where Bitcoin may be heading next in the near-term. Using data on addresses’ profitability we can also determine points of support and resistance for Bitcoin’s trajectory.
Addresses’ profitability directly impacts buy and sell orders set by investors. Using on-chain data, IntoTheBlock’s In/Out of the Money Around Price (IOMAP) groups clusters of addresses depending on whether they are profitable (in the money) or losing money (out of the money), at least on paper.
The largest clusters of addresses represent at which price the most volume of Bitcoin had previously been bought, and directly influences near-term support and resistance levels.
The IOMAP reveals that 1 million addresses had previously bought approximately 570K Bitcoin at a price around $37,000. Due to the large buying activity around this area, there is expected to be strong support from new buyers and current holders. Were this level to fail, then a drop to $34,000 is likely.
On the other hand, there is strong resistance just below $40,000. The high amount of volume that was previously bought there (320K BTC) is expected to create selling pressure as many holders tend to look to sell positions at a break-even level. Moreover, if buyers are able to get Bitcoin beyond this range, a move to $43,000 seems probable as there appears to be little resistance in between.
Due to the high concentration of volume currently near price, it is likely that price may continue range-bound, unless there is a major catalyst in either direction. Finally, it is probable that a breakout in either direction for Bitcoin will lead the rest of the crypto markets along.
This is the case as correlations to Bitcoin have been increasing across the board. In Ether’s case, the correlation with Bitcoin is back to 0.9, pointing to a strong positive relationship between the two, after being negatively correlated for a short period of time.
Overall, crypto is at a critical point where people debate whether or not the bull market is over. With positive news and buying activity picking up momentum, it is possible that the worst may be behind us. However, it is too early to discount a move lower if Bitcoin prices drop below $36,000, which would drag the rest of the market along with it.