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26th December 2022 > > Price analysis.


A brief look at some indicators that might give insight into the health or otherwise of the BTC market.

Market Snap

Market Wrap

That’s SIX days in a row now that BTC has remained at $16,800 (rounded to the nearest $100). What does this mean? Read on folks …

Curious Cryptos’ Commentary — BTC price action analysis

Just in case we didn’t know it already, here is graphical proof of the lack of volatility in the price of BTC that we are currently experiencing:

Crypto supporters are happy with this situation, for now at least. Price stability gives a solid base for price improvements further down the line, for what this tells us is that despite fears over further FTX fiasco contagion, there is growing confidence that we might finally be able to move on from 2022’s leveraged shake-out.

Despite the lack of price action, those purveyors of snake-oil – aka technical analysts, aka techies – still claim they provide insight to future price movements. As regular readers know, techies spout nonsense, but it’s no bad thing to be aware of the nonsense being spouted. So, let’s look at a few squiggles and stuff.

This graph shows the 50-day MA (moving average) and the 20-day EMA (exponential moving average).

Moving average is a simple concept – it’s the average price over a specified period, in this case 50 days. Techies never explain why 50 days is any more meaningful than say 36 days, 16 hours, and 4 minutes. They expect us to take it on trust.

Exponential moving average gives greater weight to recent price points compared to older price points and it seems that if the 20-day EMA is the same as the 50-day EMA as in the chart above, this holds special value for techies, for reasons that remain obscure.

Anyway, this techie (whose name will remain anonymous to share his or her blushes) concludes that we “may soon witness a range expansion” but that “it is better to wait for the pair to make a decisive move before initiating directional bets”. Both comments are probably the least useful insight I have ever come across after 25 years working in financial markets.

Implicit in the second comment is that TA (technical analysis) is only ever backward looking, but you will never get a techie to admit this core failing of their religion.

Here’s another one:

These are the candlesticks for the 4 hour trading range. 4 hours again holds special significance for techies, again with no clear justification. We just take it on trust.

This techies’ conclusion? “Despite the fact that the RSI and MACD are both in the positive purchase zone, Bitcoin is still being dragged down by the 50-day moving average” which is strong competition for the earlier entry of least useful insight after 25 years of trading.

I have a few more examples but I think you get my point. Enough teasing of techies let’s look at some real data which has real value.

The hash rate is a measure of the computing power allocated globally to the bitcoin network. There has been a strong migration of the hash rate to the US in recent times, much of which is in Texas taking advantage of the renewable energy initiatives in that state, or so I am reliably informed. Please correct me if I am wrong.

The storm of recent days affecting large tracts of the US reduced the global hash rate from 230 EH/s to 155 EH/s. EH stands for exahashes, one of which is equivalent to one quintillion hash, but the exact number of zeros need not concern us. What is important is that one-third of the computing power supporting BTC got taken down in short order, and the BTC network continued unaffected in any shape or form.

That demonstrates extraordinary resilience, not seen in any other technological endeavour of humankind.

Another statistic associated with mining is this one:

This shows on a 14-day MA that BTC flows from miners to exchanges is at multi-year lows.

I agree that no greater significance should be attached to 14 days than any other period, but what is important here is the trend. Unsurprisingly there is a clear correlation between the extent of sales of BTC from miners (the only reason a miner moves BTC to an exchange is to sell) and price moves of BTC. Simple economics 1.0, a concept that we have seen is far too complex for central bankers and governments across the globe to comprehend as they engineered a massive inflation spike with incompetent policy decisions.

For our last graph today of real-world data we have this little beauty:

What we see here is the cost basis of short-term holders, the cost basis of long-term holders, the difference between them (the purple line at the bottom), and the price of BTC on a log scale.

To interpret this graph we do need to make some assumptions.

The first one seems relatively intuitive to me – a large proportion of long-term holders are supporters of BTC placing great faith in this transformative technology. They are generally what are known as “diamond hands”, unwilling to sell (especially during a bear market) and willing to add (especially during a bear market). I count myself in that group, natch.

Short-term holders will be made up of several cohorts. Some short-term coins are recent purchases by diamond hands and will likely become long-term coins. Some are coins that are used for investment purposes when wrapped (see yesterday’s CCC for more details), but one suspects that most are speculative in nature, known as “weak hands”.

Weak hands will always sell into strength, but also often sell into weakness. Clearly the latter half of 2021 saw many entirely speculative purchases from those who simply responded to mainstream media news about BTC without any real understanding or appreciation of the underlying technology.

Those people are likely to sell at break-even when they get the chance, which does suggest a dampener going forward.

But this graph might tell a different story.

What this graph is potentially showing is that the balance between weak and diamond hands has materially shifted in favour of the latter. That is an environment which most likely proves positive for price action in 2023.

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