Uncharted #2

January 29th

Hi everyone! We’re glad you enjoyed our last post- here are a few updates for this week. [Please note that this should not be taken as financial advice].

Institutional interest in bitcoin has continued into the first weeks of January, with Grayscale accumulating an additional 45k bitcoins.

This buying intensity can be further seen with the increase in bitcoin withdrawals from Fiat on-ramp exchanges (Exchanges that offer Fiat trade pairs like Coinbase, Gemini, Bitstamp). As seen in the chart below, withdrawal sizes in recent weeks have been larger than usual.

Fiat on-ramp exchanges bitcoin withdrawals have been an order of magnitude larger over the past 4 weeks, when compared to the withdrawal volume coming from crypto-only exchanges like Binance Okex and Huobi, suggesting new money is entering the space.

Retail flow towards the top 3 websites in the ecosystem has dropped off after a peak in early January 2021, which indicates a short term peak in retail interest.

When looking at aSOPR, the current consolidation becomes more apparent. We see that throughout 2020 whenever aSOPR touches the 1 line (green circles), it sets the stage for a next leg up in price. A bounce off the 1 line indicates that there is a willingness to sell at a profit but not at a loss.

The bitcoin exodus from exchanges looks like it will continue its downward trend into the first week of February.

Leverage in the system is also decreasing, as traders opt for closing out levered positions in favor of directional spot exposure.

More importantly the futures markets have cooled off, with the CME term spread indicating a pullback in future expectations of higher prices for the time being.

It is important to note that the basis spread (difference between near future and spot price) has risen sharply due to the large spike in bitcoin price from 31k to 38k. This has had a short term effect on the term spread, moving it closer to backwardation.

Perpetual funding rates have also fallen to a multi month low, allowing for a consolidation at this price level, providing a strong foundation for the next leg up.

Options with February strikes are also much less skewed to the upside when compared to January, implying that there is a short term indecisiveness to where the market will go, reinforcing the bitcoins price consolidation narrative for the time being.

The Bitcoin Fundamental Index (BFI), although it experienced a pullback over the last week due to lower on-chain activity, still sits strongly within the bullish regime.

In the wake of the giant’s resting lies opportunity. When we look at our Bitcoin/Altcoin cycle indicator, we see clearly that we are entering an Altcoin season this week, after 5 months of bitcoin dominance, the scale seems to be tipping.

Oracles and DeFi projects have been leading the way doubling on average since the beginning of 2021.

Ethereum has also started to build up solid momentum in price, that is further supported by a steady increase in active addresses.

Ethereum withdrawals from exchanges has also started to accelerate again since beginning of 2021, shortening supply on exchanges.

This outflow is partly responsible for a historical all time high of Ethereum being locked up in smart contracts.

At the same time we see open interest staying elevated as we move into the first week of February.

Similarly as for bitcoin, Ethereum’s funding rates have cooled off, and are thus nicely setting the stage for an interesting week ahead of the Ethereum CME futures launch on February 8th.

That’s it for now, till next time!