#forecast 042 : Dips

Dec 12, 2021

Dear subscribers,

Welcome to The Bitcoin Forecast #42.

Top level summary for 12th Dec 2021 (current price $50.5k):

Macro structure: HODLer buying has soften recently with this month’s price pull back, however long term holders remain in a region of peak accumulation. Structurally we are still in a bullish macro region. Despite bearish price action the underlying structure has no signs of a bear market.
Short term: HODLers have been buying the dip. Coins are moving off the exchanges. Coins held by HODLers have been rising, recovering from recent weakness. Our on-chain Supply Shock valuation model implies BTC is presently trading at a $6k+ discount.
Data from derivative exchanges is showing an uptick in demand, a bullish divergence has formed suggesting the bottom may be in.
BTC price action expectation: Price recovery from lows with further consolidation over the weeks of December.
Price action conviction: Medium.

All the best until the next letter.

-W

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DON’T GET REKT!
Please do not trade on this forecast assuming perfect accuracy. All forecasts are probabilistic with roughly 80% historical reliability for short time frame forecasts. Short time frames are subject to unpredictable events and the randomness of markets, please use appropriate risk management. Longer range forecasts are more reliable as it takes time for fundamentals to play out.

Analysis Breakdown

Macro: No evidence of a bear market

While price has pulled back from highs a month ago, the net flow of coins moving towards HODLers remains in the bullish region. The heatmap below show that it has softened since a month ago, but there has not yet been sufficient sell-off to warrant a deeper bearish phase. We watch this space closely.

This chart tracks coins moving to/from HODLers over a 50 day period. HODLers are defined as investors who have a history of accumulating coins vs selling them at a minimum of a 3:1 ratio.

Meanwhile we can see in the chart below, long term holders have been selling down and taking profits, but as a cohort they continue to be in a region of peak accumulation. Bear markets coincide when these holders have divested of their coins, despite the fear in the market, structurally we are not setup for a bear market.

Long Term Holder Supply Shock is a ratio of coins held for a period of 5 months or more vs the coins held for less than this period. Coins that have aged beyond 5 months tend to have lower probability of selling (“strong hands”).

Short term: Investors spotted buying the dip

We are now in a region of coins moving off exchanges, signifying significant spot demand.

1 week sum of coins moving to and from exchanges. Negative values are bullish, signifying buying by longer term investors. i.e. withdrawing the coins they bought into cold storage.

Looking at the on-chain “Supply Shock” demand, the structure has been recovering from recent weakness.

Supply Shock measures the coins that are unlikely to be sold vs coins that aren’t, in order to gauge on-chain investor demand. We look at the forensic on-chain history of various cohorts of investors in order to assess this.

Below is our heatmap visualisation of the same data. We are seeing HODLers buying the dip. It’s a moderate level of buying, while not necessarily short term bullish, it does provide strength to the market to stave off bearishness.

Using our Supply Shock valuation model which finds how the market priced BTC at prior times where on-chain demand was at similar levels we can see a valuation slightly below $60k. Bitcoin presently is trading at a discount to this valuation.

Shortest timeframe: Bottom may be in

My PDL Oscillator which looks at speculator demand on derivative exchanges has put in a bottom and finding strength, also forming a hidden bullish divergence. This suggests the bottom is in.

Links and References

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Newsletter Archives: The Bitcoin Forecast
Data Provider: Glassnode (free on-chain charts, paid tiers available)
Woobull on-chain charts: charts.woobull.com

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The Bitcoin Forecast by Willy Woo