After a week of global stocks selling off and BTC managing to hold quite well, the pressure continues as SPX futures dropped sharply as fear and uncertainty regarding Evergrande’s $300B debt crisis remain.
Investors need to be cautious as the SPX has broken a higher time frame structure, likely leading to increased volatility in the coming weeks. This will likely impact volatility in BTC as risk assets are highly correlated.
Technical Support Tested – Key Levels to Hold
The near-term selling pressure has pushed Bitcoin below the critical 200-day moving average and the 50-day moving average. BTC needs to hold the 200-day MA for the weekly close to maintain the longer-term bullish technical structure and the bull market validation phase.
There are highly confluent levels of support between $43.9k to $43.6k. This zone of support includes the 21-week EMA, rising trend line, the lower part of the trading range, and other key levels. If global stocks continue to sell off, the next major levels of support are at $42.6k and $41.3k, which must hold.
If BTC tests support in the lower $40k’s, it will likely be driven by further global risk-off, rising dollar, and uncertainty on Evergrande and Fed monetary policy.
Pullback Driven by Liquidations and Younger Coins Panic Selling
So far, the two major catalysts sparking the recent sell-off have been a massive $4 billion liquidation wipe out and global stocks correcting. These are events that have little to do with Bitcoin fundamentals and especially the bullish trend in on-chain metrics. Although the near-term price action looks bearish, the on-chain metrics continue to show a firmly bullish trend as the long-term holders, large miners, and entities holding older coins are not the ones selling.
Instead, on-chain metrics have identified younger coins, especially the 1 week to 1 month and 3 to 6-month-old coins, as the groups selling in fear. Cohorts holding coins older than 12 months continue to firmly hold and accumulate the dip.
On-Chain Trend Remains Bullish
Even with the near-term pullback due to global risk-off, the overall trend in on-chain metrics remains firmly bullish. CryptoQuant’s Mean Coin Age metric, which measures the activity of long-term holders, remains firmly in re-accumulation as older coins continue to hold.
The chart below, which tracks Bitcoin miner reserves and outflows to exchanges, continues to show miners have no interest in selling large amounts of BTC at current levels. Bitcoin miner reserves have continued trending higher this entire year, a strong sign of accumulation. Additionally, spot exchange reserves continue to remain at multi-year lows as BTC continues to be withdrawn from exchanges into cold storage.
The current sell-off was primarily driven by long liquidations and younger cohorts panic selling, making this correction an attractive buying opportunity for long-term investors.
What’s Needed for Bull Market Continuation
The current bull thesis is dependent on the bullish trend in on-chain metrics continuing along with seeing the next wave of capital enter the market, ideally in Q4 2021. Investors must be aware that anything is possible, and there is an invalidation point in the Bitcoin bull thesis.
In order to invalidate it, long-term holders, large miners, and entities holding older coins will have to sell large amounts of Bitcoin now and start a trend of on-chain selling, pushing price back below $41.3k into the $30k to $40k trading range. This will likely require global stocks to unload significantly, causing widespread panic selling across all assets.
Major Week Ahead
The direction of global stocks this week will likely impact Bitcoin. We can continue to expect near-term volatility as uncertainty remains over Evergrande and Fed monetary policy. Investors will be watching Fed commentary later this week to get any clues on their plans to taper later this year.
It’s important to note, the Fed balance sheet is making new highs every week, rates are still at zero, the US government has eased concerns of rates increasing after tapering completes, and there are trillions in liquidity searching for a store of value against fiat currency being debased. Risk assets have been correlated to the Fed balance sheet over many years, which suggests macro conditions still favor them.
As trading continues during the week, it will be important to keep track of the aggregate on-chain data to see if larger buyers are accumulating the dip or if long-term holders and large entities are selling. As of now, the overall trend remains bullish as most of the selling is coming from liquidations and younger cohorts panicking. At the moment, the BTC sell-off has dislocated fundamentals and price, potentially creating a buying opportunity for investors.
