Dear free and paid subscribers,
There is a common consensus that Bitcoin is a risk-on asset. However this week I’ve been delving into the on-chain data, and it clearly shows investors already consider Bitcoin a safe haven.
In other words, medium and long term investors should NOT be bearish on BTC in the case of a possible second pull back in stocks. Consensus wisdom and press coverage see BTC as a risk-on asset, the underlying capital movements disagrees with this view, in fact it’s far from the truth.
Here’s my brief analysis.
BTC on the price chart
During the 2 months of the COVID "correction" the BTC price on monthly candles went from $9k to $9k with a quick and deep rejection of prices below $7k.
The price discovery mechanism rejected lower valuations inside the wick.
Unlike traditional assets, we can peer into the blockchain to see capital movements between long term investors, removing the noise of short term speculators. It’s these long term movements that determine the future movements in valuation.
Investment activity on the blockchain
During the COVID correction on-chain volumes, reflecting the long term investors, actually started growing. You can see this below in the NVT Price Chart (which values BTC according to this organic on-chain investor volume).
Simultaneous to this climb in investment activity, the BTC inventory at spot exchanges reversed a two year long term trend. Inventory started dropping as coins were scooped off spot exchanges and locked into long term HODL wallets. This trend is still continuing. It’s the largest in Bitcoin’s history.
So while there was a scary momentary collapse of price to $3800 it was caused by a cascade of speculative long positions being liquidated on derivative exchanges by short term traders. Meanwhile investors were accumulating bitcoins from spot exchanges at a scale that has never been seen before, shrugging off any ideas that BTC isn't an inflationary hedge or safe haven asset.