A Moving Target

Many onchain derived pricing models are moving targets, driven by the dynamic flow of capital in and out of Bitcoin. Today I explore the underlying mechanics of what makes our price targets climb.

G’day Folks,

In Bitcoin bear markets, we usually have a pretty good gauge of demand, since the HODLers often step in near the lows. What we don’t know much about is the supply side, and who needs to be shaken out. We can gauge the pain threshold which wipes out speculators, but supply is the major unknown in bears.

In a Bitcoin bull market, everything is reversed. We can measure sell-side supply, and also estimate the profit threshold when sellers become engaged. But we have no idea who is going to hit the big green button, when, and with how much size. In bull markets, demand is the major unknown.

I often split the Bitcoin market into two fundamental components:

• Underlying fundamentals such as measurable capital in/outflows, with the Realised Cap being the most obvious metric for this.

• Speculative premium as the market tried to re-find equilibrium in bull, or bear markets. Price, and the market cap is the most obvious metric here.

When the speculative premium diverges too far and too fast from the underlying fundamentals, that is usually when reversals happen.

Since we’re in a ripping bull market, the reversal most folks are looking for is the fabled ‘top’. We have pricing models which help estimate when heavy sell-side is engaged, but we also have to account for the inflow of new demand.

The Bitcoin top is a moving target, so let’s dig into what makes it move!

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📈 Reminder: you can find the charts from our articles on the Checkonchain Charting Website, and a guide in our Charts Tutorial Video.

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