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
August PA was unpleasant to say the least. After opening the month at $29,230, price trended lower the entire month, with the largest one-day contraction occurring on August 17, when price dropped 7.2%. The one bright spot in this sea of red is the 6.2% pump on August 29, when it was announced that Grayscale won its lawsuit against the US Securities and Exchange Commission (SEC). Unfortunately, price started reversing the very next day and the month closed at its nadir of $25,932, down 11.28% overall.
Below are the calendar-month returns for BTC throughout its history:
As shown above, not only has BTC’s price contracted two straight months, we are now heading into what is BTC’s worst calendar month of the year, September. As I have said many times, I do not believe in calendar-month returns per se. They simply aren’t predictive. The one exception, however, is September. As shown above, September has been down the past six years and nine of the first 12 years of BTC’s existence. Yikes. That said, trading lower three months in a row is unusual in what I call the accumulation phase of the BTC halving cycle:
As shown above, while the accumulation phase of each halving cycle (the lower portion of the three-phase table) experiences a combination of up months and down months, only once has price traded lower three consecutive months during the accumulation phase (Jul-Sep 2019), and that one instance followed a five-month winning streak where BTC price tripled (i.e., Price cooling three consecutive months after tripling the prior five months is not unreasonable).
All of this is to say I actually expect BTC price to recover at least somewhat in September. Yes, September is a notorious month, but streaks are made to be broken, right? Especially when the streak being broken doesn’t have strong predictive validity in the first place. i.e., I trust the rhythm of the halving cycle more than I do calendar months per se for the reasons I explained here. As such, I expect September to trade at least modestly higher simply because I don’t expect price to retrace three consecutive months in this phase of the halving cycle. Still, I was dead wrong in my prediction last month that August would trade higher, so who am I to say?
One other reason to don a skeptic’s hat can be seen in the quarterly chart below:
As shown above, previous accumulation years (2015 and 2019) each had two up quarters and two down quarters. This of course is bad news for 2023 given that the first two quarters were up quarters (as they were in 2019). That said, Q2 2019 was up a whopping 162%, which is nearly twice the gain BTC has had in 2023 even at its peak (85%). As such, there is no need for price to cool two consecutive quarters in 2023 with price now “only” 56% higher year-to-date. But Q3 overall? Yeah, almost certainly. And it has traded lower thus far, down 15%. But will price contract even more this quarter (in September)? Certainly could. But September could also recover somewhat and the quarter still trade lower overall, which is why I am throwing my hat in the optimism ring despite all the negative sentiment right now.
Of course, all bets are off regarding PA if a US spot-BTC Exchange Traded Fund (ETF) is approved in September, in which case price will EXPLODE, at least temporarily. And temporary it would be. Let me explain.
At least according to the sentiment in my Twitter feed (I refuse to call it X), many people assume a spot-BTC ETF will help price achieve escape velocity from this awful bear market. And it will. Eventually. i.e., While there most assuredly will be a pump upon ETF approval announcement, actual accumulation won’t really commence until the ETF starts trading, which will likely be 30 days or more after approval. And even then, there is so little general-investor interest in BTC right now, the accumulation will be muted after the first day or two, in my opinion. So, what do I see happening?
God candle the first 24 hours after approval announcement
Near-complete retracement of the pump in the days following
Gradual climb thereafter leading into ETF launch
Big pump 1-2 days following the launch
Plateau
Trend higher or lower from there depending on market sentiment
This is the reason price completely retraced the $2K pump induced by the Grayscale lawsuit win against the SEC: the win didn’t lead to more accumulation per se; it “merely” paved the way for more accumulation at some point in the future. But that’s the point! That’s why the win - not the announcement of the win - matters so profoundly. The road is now (or will soon be) paved for widespread BTC accumulation in the US. Yes, I am very aware that one does not truly own BTC unless they hold it in cold storage, but for the general-investor population, a spot-BTC ETF will serve as their gateway, meaning A LOT of people who wouldn’t buy BTC previously will now do so via an ETF. But only when market sentiment shifts, and that time is not now, unfortunately. But soon enough. A severe macro crisis (e.g., another major bank failure) and/or the next halving will turn many more eyes toward BTC, and when that happens, it’s off to the races for the fourth time in BTC history.
NB: For those who question whether US spot-BTC ETF approval is a foregone conclusion at this point, for me it is. The Grayscale lawsuit is the second crypto-related ruling the SEC has lost in the past two months (including the XRP lawsuit). As it happens, the SEC recently announced it will appeal the XRP ruling, but for anyone who has read the US Court of Appeals opinion for the Grayscale lawsuit, it would seem the SEC has no reasonable justification to appeal the decision. The SEC in short is boxed into a corner and now just has to find a way to save face before approving one or more spot-BTC ETFs. This is the only reason, in my opinion, they delayed their decisions yesterday: they need more time to find a face-saving narrative.
On-Chain Data
Below are the distribution of addresses and coins for the past 12 months:
As shown, network adoption continues unabated irrespective of PA, which is truly extraordinary. For those with a really long time horizon, this is all you should care about. Price will take care of itself over time because BTC is a finite asset. If you keep increasing the number of people who want to buy something, price must adjust higher to meet demand. Unfortunately, the problem for PA these days is that the people who want to own BTC (retail investors) don’t have the purchasing power to move price higher. Conversely, as shown, big traders (Great Whites, and to some extent, Orcas) are the ones who can move price substantially and sustainably. They are the ones who caused price to rocket 85% higher YTD through June, and they are the ones who are now taking price back down. Such is market sentiment these days, at least among big traders. But long term? I have never been more bullish. Just look at the data above. Over 6M new wallets in only the past 12 months, the greatest rolling 1-year expansion ever. And look at the monthly gains. New addresses have emerged every single month the past 12 months. Worldwide adoption of BTC is most assuredly happening; it is only a matter of time before price catches up. More on price perspective later.
Below are exchange inventories for the past 12 months:
As shown, exchanges continue to see their inventories deplete. A whopping 83.2K coins left the listed exchanges above during August, and this is despite price cratering most of the month. How to interpret this seeming anomaly? Well, part of the outflow is undoubtedly due to investor concern surrounding the stability of certain exchanges (e.g., Binance). However, the majority of these outflows is due to a few new whales who chose to put their coins in cold storage. Note that the largest confirmed outflow this month was from Gemini, an exchange known for catering to institutional investors (I’m still trying to trace the 30.5K outflow from Bybit). So yes, despite PA and general market sentiment, there are still some institutional hodlers out there willing to buy huge chunks of the corn and put it into cold storage, presumably for the long(er) term.
Orca address changes also reflect this institutional accumulation/expansion:
As shown above, there was a slight uptick in the number of Orcas in August (8), which in part explains the exchange outflow we saw in August. Large non-traders did in fact emerge despite (or perhaps because of) downward PA and took their coins off exchanges. That said, and as I have stated repeatedly for the past two years, we longs will not see a substantial and sustainable price increase until Orcas return en masse, and that simply is not happening right now. But it will. Eventually.
Conclusion
So, are we in a bear market? If it isn’t obvious, this question ALWAYS depends on when you enter a market. Bought BTC in 2011 when it was $1? Heck, volatility is just part of BTC’s charm! Bought the $69K peak in November 2021? BTC is the biggest Ponzi scheme in history! It’s all about when you enter a market. To wit:
As shown above, whether YOU see this moment in time as a bull market, bear market or otherwise will likely depend on the price/time you bought. That’s why, despite a prevailing sense of bearishness at the moment, 2023 has been incredibly bullish (up 56%) even if price is down 12% the past month, 15% the past quarter and 47% the past three years. Like with all things in life, the only thing matters is how we perceive them. Still, my heart goes out to all those underwater right now, especially if you arrived on the shores of Bitcoinistan in late 2021. That said, even if you did, keep the faith because BTC has proven throughout its history that every single purchase eventually turns positive given enough time (and patience). There simply is no reason to doubt this incontrovertible fact until/unless it proves otherwise.
Go BTC.
Nice analysis as usual David, Cheers