Capitulation, Accumulation, Uptrend?

Louis Sykes
July 13, 2021

Crypto markets are undoubtedly unique.

But one way it's recently caught our attention is that we can see flows of capital BEFORE they show up in price. These are called on-chain metrics.

The blockchain is a public ledger.

We can see how many users are transacting on the network, how old these addresses are, how many coins they have, the profit and losses of these transactions, and the flows into exchanges before they hit the market.

If you're not incorporating these metrics into your analysis, we think you're missing out.

Markets operate under the constant influence of greed and pessimism. This is especially true in Crypto where we don't have CEO's, earnings, or arbitrary discounted cash flow models.

It's pure supply, demand, and human emotion at work.

We can apply our technical tools to these markets because that same human element often has a funny way of repeating.

These last few months are just a testament to this entire school of thought...

When bitcoin undercut its lows and we subsequently flipped the book long, we saw massive spikes in the realized losses of traders.

This signified that their stops were hit, and they were whipsawed out of the trade like no tomorrow:

We're seeing the same behavior exhibited by the miners.

The hash rate of the network continued to drop following the China ban but didn't bottom until a few days after Bitcoin undercut its lows.

Now the hash rate has started to steadily recover as the new strong miners in the space stepped in to fill the void left by the weak hands that capitulated.

We're seeing that through Bitcoin's Difficulty Ribbon, which plots a series of moving averages to the difficulty of Bitcoin mining:

When the bands compress as they have been, it signals capitulation on the part of weak miners.

Fast forward a few short weeks, and we're now seeing Bitcoin's exchange balances hit multi-month lows, and in the case of Ethereum, the lowest levels since November 2018.

If large accounts were ready to offload their bags, we'd likely see these inventories on exchanges blow up as we saw in April before things got dicey.

But we're witnessing the opposite.

Coins are being scooped up from exchange wallets and put into cold storage:

And what's more is the number of addresses holding Bitcoin and Ethereum has stabilized, and in many cases, have started to make new highs.

So is this it?

Capitulation, accumulation, and then off to the races?

Only looking at the data in front of us right now, we have to err on that side.

BUT, if we're below 30,000 in Bitcoin, the entire bullish thesis is invalid, at least for now. Either way, that'll be our signal to flip our approach and begin riding these things lower again.

The beauty of incorporating all this on-chain data into our analysis is that we're still watching the charts.

At the end of the day, the market will always have the final say.

We still need to stay objective in our approach and respect the levels.

To dive further into the most relevant Cryptocurrency charts, here's this week's Crypto report, featuring nearly 150 Crypto-related charts.

Alternatively, you can always check it out online through our Chartbook here.

To wrap up, here's today's Performance Recap:

What's got your attention out there right now?

We'd love to hear your thoughts!

Allstarcharts Team.

 

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