Don’t Get Too Greedy On Bitcoin, Analyst Suggests, Here’s Why

Bitcoin has experienced a significant trend change; the market sentiment has also changed in 2023. Since breaking from consolidation, Bitcoin’s momentum has shifted to the upside, transitioning from a bear market to potentially the early stages of a new bull market.

In a monthly newsletter, veteran quant investor and the inventor of the Hash Ribbon indicator, Charles Edwards, share essential industry updates, significant trends, and technical and fundamental analysis related to Bitcoin.

A Momentum-Driven Shift, A New Regime For Bitcoin

According to Edwards, as prices become more attractive, the market becomes saturated with long-term holders, those who do not intend to sell until prices are significantly higher.

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For the analyst, long-term holders recognize the value of the cryptocurrency and are “price insensitive;” when the market reaches this stage, exchange/broker order books become more illiquid as there are fewer marginal sellers. As prices become more and more attractive, the market becomes saturated with long-term holders, those who no longer intend to sell until prices are substantially higher.

Bitcoin HODL Waves Source: Glassnode 

In the chart above, Edwards points out that bitcoin is becoming increasingly illiquid, with an exponential increase in long-term holders, who now represent 49% of the network, a new all-time high.

For Edwards, once a whiff of demand hits an illiquid order book, deeply undervalued assets rocket up in a short-squeezed fashion. The reason is that there are very few active sellers in the market; buyers have no sellers to buy from. This results in bullish momentum as the closest available sellers place orders.

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The Market Leverage Ratio, a Capriole Investment measure of aggregate leverage and positioning in the market used by Charles Edwards, suggests an almost identical pattern occurred in January 2023 as in mid-2021 when Bitcoin entered a price discovery phase. The analyst wrote:

(…) “We saw the same long liquidation, capitulation and short squeeze structure in mid-2021 as in January 2023. Both lasted 9.5 weeks. In crypto, we call this a “sell side liquidity crisis”.

Funding Market Leverage Source: Glassnode

According to Charles Edwards and Capriole Investment, this phase is a significant turning point, the “beginning of a new regime.” It is expected to have a positive 2023, with more significant returns coming in 2024.

Bitcoin Bear Market Bottom Confirmed?

Bitcoin’s Percent Addresses in Profit metric has bounced from a typical bear market low of 50% to 70% to this date. The typical bear market pattern shows a performance grind down in addresses in profit as long-term holders see the value of their Bitcoin plummet. 

(…) “Percent addresses in profit have bounced significantly from 50-70%, a structure which usually sees some profit taking, but also marks a regime change”.

In brief, Edwards and Capriole Investments have identified confluences and several factors for Bitcoin’s recent breakout and further upside price action in the coming months:

Optimal halving cycle timing where Bitcoin typically bottoms (Q4 2022 and Q1 2023). Bitcoin cycle drawdown has hit typical -80% levels. In November/December, Sentiment was at its worst, and market hedging was at its highest on record. Gold strength in November/December as a lead for Bitcoin in January onward. More in our December Newsletter. A likely Fed rate pause and change of policy in 2023.

All of the above suggests that the market is at the early stages of a new Bitcoin bull market regime.

Bitcoin price suffers a pullback Source: BTC/USDT TradingView 

Bitcoin is currently trading at $23.450. It’s 2.1% down in the last 24 hours despite the favorable news after the Federal Reserve (Fed) raised the basis points by 0.25%. Bitcoin still has managed to profit in the seven days, up 1.8%. Bitcoin’s price action suggests a pullback to the support line for a further counterattack to regain the $24.500 level. 

Featured Image from Unsplash, chart From TradingView.

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