Quantitative, fundamental and sentiment analysis on Bitcoin
This is the continuation of my previous idea that I have linked below. It will be a deep and thorough analysis through my own lens. Personally I never look only at TA when it comes to Bitcoin and always seek for patterns that go
beyond typical price movements. This has always given me a better feel for the market and imho everyone should posses all 4 types of analysis even if he doesn't use them all together all the time.
Let's start with the quarterlies premiums. A general observation is that usually after the new contract launch or right after the expiration of the previous one... The market usually takes one direction and doesn't change until the next launch or expiration. The shift was being 'prepared' long before, but the main change usually occurs right after these contracts launch or expire. In this occasion the dip to 6400 came 5 days after the launch and the final dip to 6850 came right after the expiration. Since then the market has kept going up and up making it clear that it has chosen a direction.
On the March futures we can see the weird divergences at the bottoms and how these played out afterwards. Both lead to significant increases in price and we can see that Bitcoin found support every time premiums crashed near or below 0 on the specific contract. 2 days ago the price hit the 3.4% 'resistance' and went up to 4%. This is a quite high premium compared to where the price was the previous two times the premium was at those levels. On the one hand we are seeing the market confirm the break out with higher premiums and a change in their structure, but on the other hand the premiums are quite high as expiration is getting closer (they should diminish) showing that the market got too bullish too quickly.
We are currently seeing a retest of those premium 'breakouts' which will confirm the bullish breakouts if they don't break their structure. The direction of the premiums is sometimes more important than the premium itself as the market could get extremely irrational any time. The fact that the March's premium has a higher APR than June's is telling me people are clearly bullish for the halving and the main pump could come a lot earlier than the previous ones. At the end of the day with a relatively bullish structure, on the verge of a breakout and with the halving in 4 months it looks pretty normal to me that premiums are 2-4%. Would have I liked to see a proper capitulation through premiums with steep discounts like the ones we got in late September? Of course, that was what I expected but didn't get it.
1st halving - Pump after the halving
2nd halving - Pump starts ~2 months before the halving
3rd halving - Pump has either already occurred or it could have already started from the 18th of December, ~5months before
On the chart below you can see how perfectly the time component is playing out at the moment. I use 320$ and 6500$ as they are clear lows that confirmed the new bullish trends. They are where we get a clear change in the direction after we get an S/R flip. It is imperfect, but this major 'scam' pump really shaped expectations differently. Back then the market was also a lot smaller and even less people knew about the halving, let alone expecting it to be bullish (most expected a collapse). Hence I chose 2$ as it was also a major double bottom and captured the whole cycle.
Below you can see why 6400 could truly be the bottom even though going to 4100 and 5300 has decent chances of being tested (won't get into this here). Hit the VP HVN, the VP looks quite smooth with the price testing all areas and 6400-6800 was a key area for many reasons:
That's where the stablecoin wars started and most stablecoins were launched. it was done on purpose to kill shorts on Finex and USDT exchanges, as well as break the liquidity of Bitcoin. It was clearly orchestrated by big players that used Tether FUD in their advantage to make lots of money. It was also when the Bcash hash wars took place (no coincidence that the both BCHes pumped now). At the same time it was an area were the largest CME gap ever took place and the close was anomalous. Not only that, but not all exchanges bottomed at the same price. From 6200 to 7000 is a huge difference, making that area act like a magnet and 'demanding' a proper retest, as once again the drop was orchestrated by specific players using Bitstamp's low liquidity or platform issues in their advantage. So such a key level that has led to all sorts of fuckery turning into support can't be ignored.
Now lets get into basis, open interest, long/shorts and funding. First of all the basis has been slowly going higher and funding on most derivatives platforms has been slowly going up. Usually that's bearish, especially when coupled with OI on Bitmex above 100k BTC. In these occasions I've observed that there is a push higher or lower in order to trap more traders and then the market reverses. My expectation would be an SFP near 9150 if a bearish scenario plays out. If we drop lower first to 8240 I'd expect a strong bounce on which I'd like to see a quick close above 8500 (it is the R3 pivot which has currently turned into support). If that level is lost and then rejected, 7600 should be in the menu.
In May and June 2019 positive basis didn't stop Bitcoin from going to 14k despite some extreme chop. Even during those two months all local bottoms came after basis had turned negative. Before the blow off phase where the basis was sky high along with premiums, from November to May the basis was negative and the futures had steep discounts too. The problem with choosing only this period is that A. we had just come off capitulation in no time and B. the halving wasn't 4 months away.
In order to get a clear picture, we have to look into more data. Let's start by long/short data on Bitfinex, Gate, OKex and the CoT report from CME. Long/Short ratios have been very high for some time. From the moment L/S went above 2 on Bitfinex, the top was in. The picture started changing when somebody big was buying big on Finex, even when the price was significantly going against him, without any issues. They probably simply used Bitfinex to buy coins (that they could had bought without any leverage anyways), just to trick people into thinking there are too many longs. The way longs went up and then down made it obvious it was probably one player or one group alone. Unfortunately this way we don't know how many other traders opened or closed longs in that period.
However there are a few things that tell us there are probably quite a few retail longs on Finex, while the big player might be almost completely out of their longs (or nearly all out)... Bitfinex had a 0-1% premium over the rest of the market since August, which is now completely gone and even had a discount for a few days. During the period where longs went up, more and more BTC kept being deposited of Bitfinex and even though longs kept going down along with the premium, USD lending rates on Bitfinex kept going up! And all that while 2000 BTC shorts also closed in that period. To me this smells like accumulation which has turned into silent distribution. Shook out the shorts, trapped longs and now ready to push it lower. Exactly the same way they did the 7.8-8.8k accumulation, wick down and then throwback to the distribution zone. Otherwise why would such a smart buyer close his/her longs? My theory could be wrong as the data isn't all that clear (at least not to me).
By looking at other platforms we can see that the speculative retail interest is still pretty high, as most traders are long. Other than Gate and OKex, on CME on January 7th Retail trader longs where back at ATHs. This fact alone is quite bearish, but when I looked at the entirety of the data and tried to find some correlations with the price, I found out that there are several mixed signals and the data is currently outdated.
With the exception of Bcash, Dash, Monero and maybe a few others, all other coins have had their Long/Short ratios constantly go up and up and up. Especially Bcash was the only one that its L/S was below 1:1. On average the rest are above 10:1 in USD terms. During the alt bear market this has proven to sometimes be beneficial for BTC as these longs usually absorb people selling alts to get into BTC, essentially providing buy support from BTC.
Sell alt for BTC -> Arbitrageur matches that order with a trader wanting to buy alt with USD -> BTC goes up and the alt gets fucked. Alts could go up for a bit longer until Bitcoin either shits the bed or goes on a rampage making most of these longs underperform. Clearly doesn't seem like this is very healthy, but if it is mainly large players that have bought those alts, then this is actually incredibly bullish.
For USDT there isn't too much to say based on its premium. What I can say is that the Total Market cap / Total Stablecoin supply had reached its ATLs when we bottomed. There was a lot of money sitting around compared to the low prices of Bitcoin and all those shitcoins. Remember that this is a very important metric and always keep an eye on it. It isn't perfect, but it is a good way to see what could the potential demand be and how has the price react to it in the past. Unfortunately Glassnode has started its subscription model and cointrader . pro has an issue with the stablecoin supply.
Another important thing to note is that a few days ago 500M Tether came on the market. This alone is quite bullish long term for sure, but short term they might have done this to trick people to FOMO while they were simply preparing to buying lower. The thing is we don't know what are they planning to buy with all the USDT.
To sum it all up to this point: Lots of mixed signals again and it depends on your own views. All this data is confiming that the price is in a weird / transitional state, but they also support that there should be clarity soon. This isn't a state that the market would want to go sideways. Either we moon or we doom. Imho there is something tell me moon is more likely than doom, but for now shorting around 9100 seems like the best R/R and P trade. It is clear something large is brewing and with the halving ahead I wouldn't want to be short above 9500 where the market could sky rocket. 9100 could just be like 5700, a resistance cluster completely ignored by the market.
Some key observations: I've seen a lot of skepticism, even from myself on this price rise. A lot of disbelief... Most retail traders, good traders, all can't stop looking for shorts since 8000. While many quantitative and fundamental traders like Tuur Demester, Willy Woo and others who have a phenomenal track recond are all bullish. It seems to me that traders who made good money shorting BTC all the way down, can't change their minds. Most of them don't believe in BTC or simply got caught be surprise by all the beautiful bearish setups that have been invalidated.
Fear & greed index also shows a big change in the sentiment which could be a trap... We are back at the late October levels after the big pump which again shows we should wait for a bit for more clarity. Google trends still at 12 month lows, yet hashrate is at ATHs showing extreme interest in mining despite the fact that the miner reward will be halved. To me most miners are extremely well prepared and have hedged / sold lots of coins to be able to sustain any damage from the price dropping. Either are mining to be exposed as much as possible or they have lowered their risk in all sorts of ways in order to be able to take any potential hits. The selling from the Plus token scam also seems to have stopped, while CNBC is making back its appearance (they usually come back before a big move in either direction, not a joke and everyone should be tracking what they say and when they say it. At least I do).
The S2F model is now at 8200 which was near the most traded average price of 2019 (no coincidence imho). The jump higher won't happen in one go, as this is simply a model and the market takes its time to adjust. If you are in crypto and you don't get why halvings are bullish long term you shouldn't be trading at all. Stay away from markets. So could there be a pre-halving dump to shake out all the bulls? Maybe. This was my initial thesis, but I expected all this to play out a lot faster and certainly didn't expect 8900 with alts mooning. This is irrelevant to what the S2F model is about anyways. Short term fluctuations mean nothing as this is clearly an irrational market.
As for all the new options coming on the market... My view is that they are bullish long term, but they will make volatility go down slowly. They came at a time were the market has already gone up 30% (maybe in anticipation of the CME options launch). It would make more sense if large players accumulated BTC to sell it along with selling options for now, and then later on to accumulate again but also buying options instead of selling. They can do it on the way up, but it doesn't seem as efficient. Like Bakkt this could be a sell the news event, not so much because people anticipated these launches (not many did), but mostly because these products exist for large players to accumulate (why would they accumulate here and not at 4-6k?).
beyond typical price movements. This has always given me a better feel for the market and imho everyone should posses all 4 types of analysis even if he doesn't use them all together all the time.
Let's start with the quarterlies premiums. A general observation is that usually after the new contract launch or right after the expiration of the previous one... The market usually takes one direction and doesn't change until the next launch or expiration. The shift was being 'prepared' long before, but the main change usually occurs right after these contracts launch or expire. In this occasion the dip to 6400 came 5 days after the launch and the final dip to 6850 came right after the expiration. Since then the market has kept going up and up making it clear that it has chosen a direction.
On the March futures we can see the weird divergences at the bottoms and how these played out afterwards. Both lead to significant increases in price and we can see that Bitcoin found support every time premiums crashed near or below 0 on the specific contract. 2 days ago the price hit the 3.4% 'resistance' and went up to 4%. This is a quite high premium compared to where the price was the previous two times the premium was at those levels. On the one hand we are seeing the market confirm the break out with higher premiums and a change in their structure, but on the other hand the premiums are quite high as expiration is getting closer (they should diminish) showing that the market got too bullish too quickly.
We are currently seeing a retest of those premium 'breakouts' which will confirm the bullish breakouts if they don't break their structure. The direction of the premiums is sometimes more important than the premium itself as the market could get extremely irrational any time. The fact that the March's premium has a higher APR than June's is telling me people are clearly bullish for the halving and the main pump could come a lot earlier than the previous ones. At the end of the day with a relatively bullish structure, on the verge of a breakout and with the halving in 4 months it looks pretty normal to me that premiums are 2-4%. Would have I liked to see a proper capitulation through premiums with steep discounts like the ones we got in late September? Of course, that was what I expected but didn't get it.
1st halving - Pump after the halving
2nd halving - Pump starts ~2 months before the halving
3rd halving - Pump has either already occurred or it could have already started from the 18th of December, ~5months before
On the chart below you can see how perfectly the time component is playing out at the moment. I use 320$ and 6500$ as they are clear lows that confirmed the new bullish trends. They are where we get a clear change in the direction after we get an S/R flip. It is imperfect, but this major 'scam' pump really shaped expectations differently. Back then the market was also a lot smaller and even less people knew about the halving, let alone expecting it to be bullish (most expected a collapse). Hence I chose 2$ as it was also a major double bottom and captured the whole cycle.
Below you can see why 6400 could truly be the bottom even though going to 4100 and 5300 has decent chances of being tested (won't get into this here). Hit the VP HVN, the VP looks quite smooth with the price testing all areas and 6400-6800 was a key area for many reasons:
That's where the stablecoin wars started and most stablecoins were launched. it was done on purpose to kill shorts on Finex and USDT exchanges, as well as break the liquidity of Bitcoin. It was clearly orchestrated by big players that used Tether FUD in their advantage to make lots of money. It was also when the Bcash hash wars took place (no coincidence that the both BCHes pumped now). At the same time it was an area were the largest CME gap ever took place and the close was anomalous. Not only that, but not all exchanges bottomed at the same price. From 6200 to 7000 is a huge difference, making that area act like a magnet and 'demanding' a proper retest, as once again the drop was orchestrated by specific players using Bitstamp's low liquidity or platform issues in their advantage. So such a key level that has led to all sorts of fuckery turning into support can't be ignored.
Now lets get into basis, open interest, long/shorts and funding. First of all the basis has been slowly going higher and funding on most derivatives platforms has been slowly going up. Usually that's bearish, especially when coupled with OI on Bitmex above 100k BTC. In these occasions I've observed that there is a push higher or lower in order to trap more traders and then the market reverses. My expectation would be an SFP near 9150 if a bearish scenario plays out. If we drop lower first to 8240 I'd expect a strong bounce on which I'd like to see a quick close above 8500 (it is the R3 pivot which has currently turned into support). If that level is lost and then rejected, 7600 should be in the menu.
In May and June 2019 positive basis didn't stop Bitcoin from going to 14k despite some extreme chop. Even during those two months all local bottoms came after basis had turned negative. Before the blow off phase where the basis was sky high along with premiums, from November to May the basis was negative and the futures had steep discounts too. The problem with choosing only this period is that A. we had just come off capitulation in no time and B. the halving wasn't 4 months away.
In order to get a clear picture, we have to look into more data. Let's start by long/short data on Bitfinex, Gate, OKex and the CoT report from CME. Long/Short ratios have been very high for some time. From the moment L/S went above 2 on Bitfinex, the top was in. The picture started changing when somebody big was buying big on Finex, even when the price was significantly going against him, without any issues. They probably simply used Bitfinex to buy coins (that they could had bought without any leverage anyways), just to trick people into thinking there are too many longs. The way longs went up and then down made it obvious it was probably one player or one group alone. Unfortunately this way we don't know how many other traders opened or closed longs in that period.
However there are a few things that tell us there are probably quite a few retail longs on Finex, while the big player might be almost completely out of their longs (or nearly all out)... Bitfinex had a 0-1% premium over the rest of the market since August, which is now completely gone and even had a discount for a few days. During the period where longs went up, more and more BTC kept being deposited of Bitfinex and even though longs kept going down along with the premium, USD lending rates on Bitfinex kept going up! And all that while 2000 BTC shorts also closed in that period. To me this smells like accumulation which has turned into silent distribution. Shook out the shorts, trapped longs and now ready to push it lower. Exactly the same way they did the 7.8-8.8k accumulation, wick down and then throwback to the distribution zone. Otherwise why would such a smart buyer close his/her longs? My theory could be wrong as the data isn't all that clear (at least not to me).
By looking at other platforms we can see that the speculative retail interest is still pretty high, as most traders are long. Other than Gate and OKex, on CME on January 7th Retail trader longs where back at ATHs. This fact alone is quite bearish, but when I looked at the entirety of the data and tried to find some correlations with the price, I found out that there are several mixed signals and the data is currently outdated.
With the exception of Bcash, Dash, Monero and maybe a few others, all other coins have had their Long/Short ratios constantly go up and up and up. Especially Bcash was the only one that its L/S was below 1:1. On average the rest are above 10:1 in USD terms. During the alt bear market this has proven to sometimes be beneficial for BTC as these longs usually absorb people selling alts to get into BTC, essentially providing buy support from BTC.
Sell alt for BTC -> Arbitrageur matches that order with a trader wanting to buy alt with USD -> BTC goes up and the alt gets fucked. Alts could go up for a bit longer until Bitcoin either shits the bed or goes on a rampage making most of these longs underperform. Clearly doesn't seem like this is very healthy, but if it is mainly large players that have bought those alts, then this is actually incredibly bullish.
For USDT there isn't too much to say based on its premium. What I can say is that the Total Market cap / Total Stablecoin supply had reached its ATLs when we bottomed. There was a lot of money sitting around compared to the low prices of Bitcoin and all those shitcoins. Remember that this is a very important metric and always keep an eye on it. It isn't perfect, but it is a good way to see what could the potential demand be and how has the price react to it in the past. Unfortunately Glassnode has started its subscription model and cointrader . pro has an issue with the stablecoin supply.
Another important thing to note is that a few days ago 500M Tether came on the market. This alone is quite bullish long term for sure, but short term they might have done this to trick people to FOMO while they were simply preparing to buying lower. The thing is we don't know what are they planning to buy with all the USDT.
To sum it all up to this point: Lots of mixed signals again and it depends on your own views. All this data is confiming that the price is in a weird / transitional state, but they also support that there should be clarity soon. This isn't a state that the market would want to go sideways. Either we moon or we doom. Imho there is something tell me moon is more likely than doom, but for now shorting around 9100 seems like the best R/R and P trade. It is clear something large is brewing and with the halving ahead I wouldn't want to be short above 9500 where the market could sky rocket. 9100 could just be like 5700, a resistance cluster completely ignored by the market.
Some key observations: I've seen a lot of skepticism, even from myself on this price rise. A lot of disbelief... Most retail traders, good traders, all can't stop looking for shorts since 8000. While many quantitative and fundamental traders like Tuur Demester, Willy Woo and others who have a phenomenal track recond are all bullish. It seems to me that traders who made good money shorting BTC all the way down, can't change their minds. Most of them don't believe in BTC or simply got caught be surprise by all the beautiful bearish setups that have been invalidated.
Fear & greed index also shows a big change in the sentiment which could be a trap... We are back at the late October levels after the big pump which again shows we should wait for a bit for more clarity. Google trends still at 12 month lows, yet hashrate is at ATHs showing extreme interest in mining despite the fact that the miner reward will be halved. To me most miners are extremely well prepared and have hedged / sold lots of coins to be able to sustain any damage from the price dropping. Either are mining to be exposed as much as possible or they have lowered their risk in all sorts of ways in order to be able to take any potential hits. The selling from the Plus token scam also seems to have stopped, while CNBC is making back its appearance (they usually come back before a big move in either direction, not a joke and everyone should be tracking what they say and when they say it. At least I do).
The S2F model is now at 8200 which was near the most traded average price of 2019 (no coincidence imho). The jump higher won't happen in one go, as this is simply a model and the market takes its time to adjust. If you are in crypto and you don't get why halvings are bullish long term you shouldn't be trading at all. Stay away from markets. So could there be a pre-halving dump to shake out all the bulls? Maybe. This was my initial thesis, but I expected all this to play out a lot faster and certainly didn't expect 8900 with alts mooning. This is irrelevant to what the S2F model is about anyways. Short term fluctuations mean nothing as this is clearly an irrational market.
As for all the new options coming on the market... My view is that they are bullish long term, but they will make volatility go down slowly. They came at a time were the market has already gone up 30% (maybe in anticipation of the CME options launch). It would make more sense if large players accumulated BTC to sell it along with selling options for now, and then later on to accumulate again but also buying options instead of selling. They can do it on the way up, but it doesn't seem as efficient. Like Bakkt this could be a sell the news event, not so much because people anticipated these launches (not many did), but mostly because these products exist for large players to accumulate (why would they accumulate here and not at 4-6k?).