It's too quiet in here...
On-chain update 19th March 2021
Yesterday was my first blog post from The Coin Crypt, if you didn’t read it I encourage you to check it out here first because in that post I gave descriptions of the bread and butter metrics I’m checking on a daily basis. Moving forward, I’m going to talk about these metrics as if you already understand their basic definitions. Every time I introduce a new metric I’ll go over it’s core definition in the first post in which it appears and from then on, assume you know what it means. So make sure to read regularly and stay up to date so you don’t get lost.
The other aim of doing this is to keep these posts as short and informative as possible; I want you to be able to come here, read for 2 mins, have a good idea of where we think the market is going to go so you can make an informed decision on whether to buy, sell or just hold through the chop chop.
These articles are generally geared towards my trading style, that is, spot trading. If you’re trading on leverage you might find it useful but also sometimes you might not because I’m trying to interpret more High Time Frame (HTF) signals cause I tend to swing trade over 2-6 weeks at a time.
Let’s get to it, give me those delicious charts, hom nom nom…
First Bitcoin Exchange Reserves, all exchanges:
Since yesterday, these have seen a little bit of an increase. Nothing to be too worried about because these reserves could quite quickly be bought up, but it does send my Spidey-sense tingling. Later we’ll look at whether these have turned up on the spot market or the derivatives market.
Next is Stablecoin Exchange Reserves, all exchanges:
Conversely these have seen a small decline, not enough to inform a trading decision but these two things are bearish. Bitcoin reserves going up and Stablecoin reserves going down means there’s more Bitcoin around to be sold and less Stablecoins around to buy it.
Finally Stablecoin Exchange Inflows:
Nothing has really changed since yesterday.
This is probably the last time I’ll include this on the blog in a regular fashion, I’ll include it in future if there is something significant to note but expect to see the previous two charts in every post.
I’m going to start including this one, Ethereum Exchange Reserves, all exchanges:
Which continues to just go down, down, down…
I’d expect to see more upside in price given how ETH is flowing off exchanges at this rate so it’s puzzling as to why we don’t see that. I can only assume that it’s the gas fees narrative that continues to be it’s Achilles heel and suppressing price. Also I’ve heard that Grayscale may use a market maker to suppress price and give their customers more time to buy spot at this price - but that’s basically just speculation!
The Spot Market vs Derivatives Market
Onwards! To the spot market vs derivatives market - which one received the Bitcoin and why does it matter?
BTC Spot Exchange Reserves:
BTC Derivative Exchange Reserves:
It matters because BTC turning up on derivative exchanges isn’t always a sign that it’s going to be sold, it could be there to be used in longs or short in token margined contracts.
As you can see from these charts, the BTC turned up on Spot Exchanges. Not exactly what we wanted.
BTC Spot Netflow:
ETH Spot Netflow:
Here’s spot netflow for BTC and ETH which show two different things, it’s positive for BTC and negative for ETH. This lines up with what we’re seeing in the previous charts and it’s of such low volume recently that there isn’t much we can take from these. Just putting it in here to get you used to seeing these charts.
New section, new charts.
I absolutely shamelessly stole this method from @MrBenLily at Jarvis Labs who I’ve been following very closely. He’s super smart, does amazing analysis and has taught me a lot through his Daily Espresso blog posts. Please, show him some love by giving him a follow and reading his posts which are why more advanced that my own.
We’re trying to get an idea of how much institutional buying is happening and this is a little tricky. Even though the blockchain is public, we can’t see this exactly but can make a good guess.
Since institutions tend to make OTC deals, their transfers don’t show up on exchange reserve charts. So we have to look at:
How many BTC tokens are being transferred on the network since institutions tend to make very large purchases, when the number of tokens transferred is high it suggests institutions are buying spot.
How much exchanges are involved in the flow of tokens on the network, if it is low AND BTC tokens transferred is high, it suggests there is a lot of tokens being transferred between addresses and it’s not happening on exchanges. Which means it’s happening Over The Counter (OTC).
BTC Tokens Transferred:
Back in August / September 2020 we say a massive increase in Tokens Transferred which correlates with the beginning of the bull run.
More recently this has been tailing off…
BTC All Exchanges Fund Flow Ratio:
Around the same time, Fund Flow saw a big decline but more recently has been increasing.
This suggests that institutional buying is slowing down for now.
It just happens that during this time is when the Grayscale GBTC premium is negative and the Grayscale Effect is one of the biggest driving forces in the spot market and institutional buying. If you don’t know what the Grayscale Effect is, read Ben Lily’s post: Grayscale Trust and ‘The Effect’ on Crypto Prices
TLDR on the Grayscale Effect is, if the premium is negative, it’s bearish, if it’s positive, bullish.
You can track the Grayscale Premium on Bybt here.
Okay I know it’s got quite long, just gonna round off with funding rates then summary, the we’re done.
It’s quiet on the funding front, rates are low, the market is running cold.
This means it’s attractive to be in a long position right now. With the weekend ahead and the spot market looking quiet. This is quite bullish but maybe not 75k bullish.
I think we’re likely to see some upside over the weekend or the sideways chop chop continues. Ciao!