Disclaimer
The data I use (BitInfoCharts, Coinglass, CoinMarketCap) to compile the tables and graphs contained in the on-chain section of this analysis do not always align with data found via others sources like Glassnode and CryptoQuant. I cannot explain the reason for the differences nor can I confirm which sources are most accurate. For this and other reasons, I have come to trust only the on-chain data I collect when trying to explain and/or predict Bitcoin’s (BTC) future price action (PA). Whether you too find my on-chain analysis useful is for you to decide, but I can assure you that some of my observations and/or predictions will differ, often markedly, from other observations and/or predictions you will see on Crypto Twitter (CT) and elsewhere.
Price Action
Bitcoin opened April at $28,482 (on BLX) and closed the month at $29,226, a gain of 2.63% for the month. The monthly chart below illustrates that April’s PA was more volatile than the modest month-end return suggests.
As shown, April saw a low of $27,007 (on the 24th) and a high of $31,001 (on the 14th), which is a near-15% change in price despite the month eventually closing “only” 2.6% higher. In this sense, April’s PA mirrors that of February, which witnessed considerable volatility despite closing literally exactly where it started ($23,135).
Although I am no advocate of technical analysis (TA), it is encouraging to see that the relative strength index (RSI) depicted at the bottom of the monthly chart above is not only at a modest value right now (50), but it is also trending higher after bottoming in December 2022 (its lowest value ever, incidentally, at 40).
That said, the weekly chart below is not as overtly bullish as the monthly chart above. As shown, while current price is well above both the 200-week moving average (WMA) and the so-called bull-market support band (BMSB), the RSI is near the top end of the range (75), and on declining/low volume to boot.
In other words, it is possible that the current rally is losing steam. This thesis is reinforced by recent on-chain data distributions, as delineated later. That said, while pullbacks are painful in the moment, if price were to pull back to one or both of these key indicators in the near term, it would actually be healthy for the market because excess leverage would get flushed along the way (assuming of course one or both indicators ultimately holds as support).
As shown above, the 200WMA is currently sitting just below $26K and the BMSB just below $25K. Both are rising, however, so a near-term retest of either/both would likely occur around $25.5K. Equally importantly, however, we longs need to maintain a healthy perspective on current PA. As shown below, Bitcoin is already up a whopping 77% this year, which is a tremendous gain, even by Bitcoin standards.
Then again, the current rally is coming off the cycle low of $16K, so such a gain is not overheated by any stretch, especially after such a brutal 13-month stretch, where price dropped 77%, from a peak of $69K all the way down to $16k.
Contextualized within the halving cycle, an up April was to be expected:
As I have stated on multiple occasions, I think the halving cycle is more important than calendar months per se, particularly when there is such low market participation by US institutions (who trade much more seasonally than do retail investors). As shown above, what I call the (re)accumulation phase for BTC (months 31 to 45 of the halving cycle) is typically more bullish than bearish, particularly the first third of the phase (months 31 to 35). That said, the middle of the accumulation phase (months 36 to 40) diverged quite a bit, with the 2012 accumulation phase having been much more bullish than 2016. For this reason, when combined with the uncertainty enveloping the global macroeconomic environment right now, I think predicting near-term BTC PA will prove especially difficult.
In one respect, as shown below, May is more often often a bullish month than not, having printed green in seven of BTC’s first 12 years of existence.
On the other hand, May has printed red the previous two years, and markedly so (-35% and -16%, respectively). Moreover, BTC once again has already rallied 77% this year, so a pullback in May would be reasonable, and perhaps should even be expected.
On the other hand, if it is true that more people are now starting to view BTC as a safe-haven asset rather than a risk-on asset (something I anecdotally believe to be true), then continued/increased chaos in the global macroeconomic environment would actually be a positive catalyst for BTC (at least overall, but not without nauseating volatility along the way). My only hesitation embracing the “BTC is a safe-haven asset” narrative right now is the relative lack of support via on-chain data.
On-Chain Data
Below are the on-chain distributions of network addresses for the past 12 months.
The data above are a tale of two markets within BTC: in one respect, more and more people are joining the network virtually every single day. As shown above, Minnows increased by 382.2K in April alone and by 3.85M over the past year. Exponential network growth by any measure. On the other hand, institutional involvement not only stalled after early 2021, but there has been considerable contraction since then, and particularly among the Orcas, who, for anyone has followed me for a while, knows I consider to be the most important investor tier with respect to PA. In other words, from a philosophical perspective, the table above should be incredibly reaffirming and exhilarating: literally millions of people are joining the BTC network over time, and that level of growth will likely continue increasing exponentially for the foreseeable future. Moreover, as shown later, retail buyers hold more coins now than at any point since the start of the current cycle. In this light, BTC is indeed fulfilling its raison d'être: a decentralized peer-to-peer monetary network. Amazing. HOWEVER…
For those among us who have invested primarily/solely for the “number-go-up” (NGU) feature of BTC, then large institutional investors flooding into the network are a necessary evil, especially at current USD price levels. Retail buyers simply don’t have the purchasing power to move price sustainably higher from here, something I have discussed in detail before (e.g., here, here and here). It is for this reason that I think the current rally is not only in danger of losing steam, but also actually ushering in a pullback. Does this mean I think price will utterly collapse, perhaps retracing all the way back to the cycle low or even lower? Absolutely not. But I do think a retrace to at least the 200WMA is likely, whether in the coming days or the coming months.
Much of the reason I think so is rooted in the on-chain coin distributions over the past year. As shown below, Orcas have been projectile-vomiting coins for the past year, to the jaw-dropping tune of 668.4K coins. Admittedly, 216.0K of those coins flowed up-chain to the Blue Whales (BWs), which is bullish for price, but the other 452.4K coins flowed down-chain, with the lion’s share dumped on retail heads (N.B. 332.7K new coins have been mined over the past year, hence the reason retail buyers have accumulated many more coins than “only” the 452.4K coins vomited by Orcas).
Visually, you can see the Orca contraction that has taken place over the past two years:
As I have illustrated many times, Orcas stampeded into the market in late 2020, which is why price skyrocketed shortly thereafter. Price later collapsed for the opposite reason: Orcas literally began devolving the day after Tesla’s purchase announcement and have not recovered any meaningful momentum since (NB: the early-2022 vertical increase in Orca addresses was due to a Grayscale wallet reorganization; moreover, I explain the reason for the price rally of mid-to-late 2021 while Orca levels remained flat in this article).
Long story shorter, buyers with a lot of capital are required to move price substantially and sustainably from current USD levels. We retail buyers simply lack the purchasing power to move price substantially/sustainably. As such, while we can and will see modest rallies from here, particularly coming off the cycle lows, I think future upside ultimately will be limited until institutional investors return to the market en masse. When will this happen? Globally-speaking, I think it is slowly happening now and will continue to pick up speed as the USD and other G7 fiat currencies in particular reveal more of their flaws. In the US, however, I think institutional adoption will remain stagnant until regulatory clarity is provided. That said, I believe Grayscale will win its lawsuit against the US Securities and Exchange Commission (SEC), and if/when it does, I think it not only hasten regulatory clarity in the US but also induce some long-overdue fear of missing out (FOMO). Because I am a patient (but greedy) person, I actually hope Grayscale wins its lawsuit next spring, right before the next halving. Can you imagine the FOMO? A US-approved BTC Exchange Traded Fund (ETF) coinciding with (or shortly preceding) the next halving? That is one scenario under which I think retail alone could move price substantially and sustainably. Oh my…
But I digress. Right now, US institutions remain hamstrung by the current wave of anti-crypto sentiment propagated by some US politicians and the SEC, so they will remain on the sidelines until regulatory clarity is provided, and that is a headwind to any near-term price rallies. In my opinion. That is not to say we longs couldn’t see a pump beyond $30K, particularly with the right narrative, but any such pump will prove only temporary. In my opinion.
One other data set before closing. Below are exchange inventories for the past 12 months.
As shown above, there was a reasonably large inflow during April, nearly offsetting the entire outflow of March. That said, flows were clearly exchange-specific. Binance alone had an inflow of 46.8K coins, meaning all other exchanges had a combined outflow of 22.4K, led by a 15.2K outflow from Gemini and an 8.6K outflow from ByBit (Bitfinex also had a sizable inflow of 8.3K coins).
While outflows are generally considered bullish and inflows bearish, I personally think recent exchange flows are primarily a latent response to the centralized-exchange (CEX) scare of late 2022 as opposed to being indicative of current investor sentiment. e.g., Note above the 63K coin outflow from Binance in December 2022 (shortly following the FTX collapse). I personally think much of the recent Binance inflow is due to investors having their confidence restored in Binance (rightly or wrongly) as opposed to a bearish shift in sentiment. Whatever the reality, I personally view current exchange flows as neutral overall despite recent inflows.
Conclusion
2023 PA has thus far been in line with my personal expectations based on where BTC is in its halving cycle. We are in what I consider to be the early part of the (re)accumulation phase of the halving cycle, the 12-15 month period following the cycle low but before the next halving (which, by the way, is currently projected for late April/early May 2024). Particularly coming off the cycle low, a robust sustained uptrend was to be expected and has indeed played out for the third cycle in a row. Whether this is coincidence or not, the data are indisputable. That said, a 77% gain off the low, and within only four months, is even more robust than many would have predicted. Taking into account both technical-analysis indicators (e.g., the weekly RSI, the 200WMA and the BMSB) and on-chain data distributions (most notably Orca contractions, both in addresses and coins), I personally think we longs should be prepared for a pullback in the coming months. Does this mean a pullback is preordained and/or in the immediate offing? No. As I have stated many many MANY times, absolutely NO ONE knows where price is headed next. That said, if I had to place a wager on one direction or another for the near term, I would bet on downside rather than upside. Only mildly so and only temporarily, but a breather after such a strong rally makes sense to me. Whatever the reality, selfishly I will be happy. If price dips, especially back to the mid-to-low $20Ks, I’ll be buying with whatever free cash-flow I have at my disposal. If it rips instead, all the better; I already have a sizable bag of the corn. But whatever happens in the near-term, I do think long-term price ascension is preordained. How can it not be? The exponential adoption currently happening at the retail level will (in my opinion) soon be followed by robust institutional adoption (once regulatory clarity is achieved) and then, eventually, by sovereign adoption (when more fiat currencies begin to fail). In the meantime, I will continue staring at price just like the rest of you maniacs, smiling when it blinks green and crying when it blinks red. (I would follow this final statement with a winking emoji if I could figure out how to insert one into a Substack post).
Go #BTC.
I thoroughly enjoy your end of month write-up’s. You make it easy to digest and show the facts and reasoning behind your thoughts. I will gladly recommend you to anybody looking for insight and I also follow you on Twitter as well. Thanks for what you do!! BTC TO THE MOON!!
Thanks Dave!