Chief Scientist, Managing Partner at Invector Labs. CTO at IntoTheBlock. Angel Investor, Writer, Boa
We are going through one those irrationally bearish moments in the cryptocurrency markets with prices dropping from mid 8000s to low 7000s. A lot of speculation has been created around the macro-factors influencing the downturn.
The drop has also break through every technical charts and analysts keep publishing daily forecasts calling new bottoms or reversals that, somehow, contradict their predictions from the previous day( not that this ever happened before 😉 ).
But how does this downturn reflects in blockchain activity? Looking at some of the IntoTheBlock models, we can find some interesting patterns that reveal the bearish momentum in the market and offer some clues(not predictions) about the direction.
One of my mentors in machine learning always used to say that we should be very good at “predicting the present” rather than the future. What he meant was that clearly understanding an environment offers all sorts of insights about the near term future without having to do major forecasts. Let’s think about the blockchain activity as a way to predict the present of major crypto assets.
Let’s explore some interesting metrics for Bitcoin:
IntoTheBlock In-Out Money model looks at the distribution of individual wallet positions based on the current price. A current picture of the model reveals some interesting insights. For starters, there are almost 2million addresses with balances between $6600 and $7900 which indicates that there might be buy/sell activities within those ranges.
Also $6600 seems to be a relevant level of support. Even if it break through those numbers and investors buy to support their positions, there is enough volume at the next level (first green cluster to left of the price line) to control a bear rally.
If that population start selling, we might have another significant drop. That first in-the-money cluster contains almost 2 million Bitcoins.
Large transactions are always a good indicator to measure the health of a crypto-asset. In the case of Bitcoin, IntoTheBlock’s Large Transaction model reveals that we are experiencing levels of activity that are similar to last week which could signal confidence and trading activity.
This was a bit of a surprise, Bitcoin is a global cryptocurrency that is traded evenly between Asian markets and the rest of the world. With some of the news pointing to Asia as the root of this price drop, the investor activity has shifted towards the West as IntoTheBlock’s East-West Analysis reveals.
Based on IntoTheBlock’s Network analysis, the levels of addresses actively trading in the Bitcoin network has remained relatively steady throughout the downturns which is another indication that the network activity is not always a clear indicator of the sentiment in a crypto-asset. However, it is interesting to notice that the Bitcoin has started to grow again adding more addresses than those leaving the network.
IntoTheBlock’s exchange netflow analysis shows that money has been flowing out of centralized crypto exchanges in the last few days. Furthermore, that movement seems to be trending towards it worst levels in the entire year.
During a bear market, it is common that investors park assets in stablecoins as a safeguard. The activity in Tether seems to reflect that, with the number of transactions increasing and the network growing steadily.
Tether enjoys a solid adoption within Asian markets but that seems to have been increased in the last few months as shown in IntoTheBlock’s East-West analysis. That seems to align well with what the same analysis showed for Bitcoin indicating that western investors have been more active trading while Asian investors have parked assets in stablecoins like Tether.
These metrics are not attempting to predict the next direction of the market although you can certainly draw some interesting conclusions from it. Instead, it showed some factors that clearly explain the behavior of a crypto asset during this tumultuous market conditions.
This type of blockchain-based analysis is not available to any other asset class and is what makes crypto such a fascinating world. As my mentor used to say, predicting the present is a cheaper and more effective way to navigate the markets.
(Disclaimer: The author is the CTO at IntoTheBlock)