Is The Bitcoin Market Top Heavy?
As Bitcoin prices correct off the $73k ATH, several onchain metrics signalled major profit taking is underway. We assess whether the market is now top heavy enough to establish a global cycle peak.
Bitcoin is one of the few global markets which trade 24/7, and as a result, it is increasingly a focal point for investors when major macro-economic or geopolitical events happen over weekends. On 13-April, news broke of elevated tensions and attacks taking place between Iran and Israel, resulting in Bitcoin prices selling off by over -$5k (-7.6%) in just a few hours.
Given few other markets were open, Bitcoin acted one of the few vehicles liquid enough for traders and investors to express their uncertainty.
In this edition, we will assess the damage of this sell-off and whether we consider it to be a typical uptrend correction, or the start of something deeper.
Disclaimer: This article is general in nature, and is for informational, and entertainment purposes only, and it shall not be relied upon for any investment or financial decisions.
Heated? or Overheated?
Bitcoin prices have been consolidating and correcting since mid-March, and this sell-off can be argued to be just the latest in a string of weaker performance since the $73k ATH. The chart below shows the rolling daily price performance for Bitcoin, and demonstrates that this downside move is not the first of its kind in recent weeks.
Sell-side pressures appear to be creating more downside volatility, with with several down days being two sigma moves.
Another metric which caught our eye this week is the Value Days Destroyed Multiple (VDD Multiple), which exploded into an almost textbook peak of 4.0 in late-March. This metric can be best thought of as tracking the time-and-volume-weighted expenditure across the Bitcoin network, and it rallies when long-dormant coins start to transact in large volumes.
Interestingly, this metric has historically peaked around 3 to 4-months before the market truly topped out in the last two cycles. It suggests that many long-term Bitcoin investors are happy to take their first, and often largest round of profits as the market enters price discovery. These patient holders are taking advantage of the burst of new demand liquidity that new ATHs bring.
We can support this notion that profit taking is taking place by assessing the amount of supply held for at least 6-months (blue in chart below). Like clockwork, these older hands ramped up their distribution pressure as the market broke to new ATHs in March, flagging our ‘heavy spending’ signal (red zones).
This cohort of longer-term holders have revived around 1.33M of dormant BTC YTD, noting that around a third of these coins will be associated with the ongoing outflows from GBTC (a topic we covered in a recent video to get a sense of relative scale).
It is worth noting that the binary spending indicator at the bottom is in the early stages of cooling off (with ‘heavy spending’ meaning seven consecutive days of net distribution by this cohort). This cool down suggests that older hands may be starting to slow their pace of profit taking, and we will revisit this idea later in the piece.
Profit taking behaviour at these levels makes a lot of sense in the context of the magnitude of unrealised gains held by investors. The MVRV Ratio, which tracks the average unrealised profit held, has found resistance at 2.6, meaning the average unit of BTC is up over +126% from its original cost basis.
The market has previously hit resistance at similar MVRV levels, forming both local and global peaks in prior cycles. This is a function of the growing incentive for long-term holders to take chips off the table, with elevated prices being sufficient for them to release supply to meet the new demand.
Note that during the raging bull markets of 2017 and 2021, MVRV managed to break well north of 3.4, which is both two standard deviations from the mean, and aligns with a current price level of around $96k.
We now have a cohesive story in play where;
Long-Term Bitcoin holders are in profit taking mode, although with very early signs it may be slowing down.
Macro indicators like the VDD Multiple have flagged an extreme peak, which has preceded the ultimate cycle peak by 3 to 4-months in prior cycles.
MVRV has reached heated, but not necessarily overheated conditions, flagging sufficient incentive for holders to release long dormant supply to meet demand.
The rest of this article will investigate whether these conditions represent a true over-saturation of demand, and if a long-term market peak may have been established for Bitcoin.
📽️ Video Analysis - Part 1 (Free Version)
For our free subscribers, you will find part 1 of our video analysis here.
For our paid subscribers, thank you for your support, and you will find Part 2 of our analysis below, and the full video at the end of the report.