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13th October 2021 > > On-chain analysis.

tl;dr

Some positive and some negative metrics.


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Market Wrap

So, what to make of that alt sell-off yesterday morning? Pretty brutal huh.


There is probably a plethora of theories going round, but I tend to view the world a little more simply than wasting time on complex theories in which facts are twisted to suit one’s personal beliefs.


Alts are by definition highly volatile, very likely to go to zero, and can undoubtedly be subject to price manipulation (Elon Musk and either DOGE or SHIB are just two very public examples).


Part of the issue with alts is that there is a certain section of the retail investor market chasing the early day gains that were available from BTC and ETH.


These people are not strong hands, and they likely lose money on a regular basis.


My alt portfolio is 10-15% of my total crypto portfolio. And yes, much like everyone ese, I would like to see 10,000%+ gains.


But if the alts I have chosen to invest in go to zero, it will not kill me.


Curious Cryptos’ Commentary – Some positive and some negative metrics

It is traditionally the case that in periods of significant price increases for BTC that these increases grab the attention of retail investors with little or no knowledge or experience of cryptos.


A way of measuring that attention is to look at data from Google Trends which monitors the relative popularity of different search terms.


I am pleased to report that there has been no apparent up-tick in interest from retail in BTC since the start of October when BTC was languishing in the low 30s.


This is good news for two reasons.


Firstly, it implies that this current rally may well have a lot more legs in it, as FOMO has yet to kick in.


Secondly, these later arrivals to the party are some of the weakest hands, leading to much greater price volatility. The longer they stay out, the better for all of us, in the long run.


One popular measure of market conditions is known as the Fear & Greed Index:



This is a daily measure that draws together several factors (peruse the website if you think it is a good use of your time to understand more about this).


The makers of this metric claim that “Extreme Greed” may lead to a downward price correction, and “Extreme Fear” to an upward price correction.


Currently the analysis of those factors points to “Extreme Greed”. Someone who believes in this index would be feeling nervous right now.


It is worth noting that “Extreme Greed” always occurs after a ramp-up in prices, and “Extreme Fear” always occurs after a sell-off.


In my opinion, the Fear & Greed Index is similar to technical analysis, in that it is only ever backward looking, and provides precisely zero quality information about the future.


It is self-evident that price rises will be followed by price falls, and that price falls (unless you subscribe to Jamie Dimon’s view of cryptos) will be followed by price rises.


But like technical analysis, this index has many adherents of an almost religious fervour, which is why I bring it to your attention.


Glassnode – who provide on-chain analytics – have noted that “long term holders”, defined as wallets that have not seen outflows for more than 155 days (that is most definitely me and my seven BTC wallets), are sitting on 13.3mm BTC, 70% of the supply. This tells us that these strong hands are not being tempted by the recent price increase.


In fact, quite the contrary – in the last seven months these wallets have increased their holdings by 2.27mm BTC. When compared to the number of BTC minted in that time (just 186,000) the striking imbalance between supply and demand is plain to see.


Glassnode also report that so far this month the number of active addresses has risen by 19%.


Correlation is not causation, but they state that:


“More active market participants have historically correlated with growing interest in the asset during early stage bull markets.”


Finally, median transaction size has increased from 0.6 BTC to 1.3 BTC which may, or may not, indicate growing interest and involvement by institutions.


But the metric I like the most is a very simple one – the amount of BTC held on an exchange, BTC which is readily available to sell.


Happily, I can report that the BTC balance on centralised exchanges is now at 2.4mm BTC, a three-year low.


Holders are not selling, and they do not look like selling any time soon.

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