Comeback clues from January’s crypto cold spell

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Comeback clues from January’s crypto cold spell


With key stakeholders taking profits and confidence in buying the dip staying high, traders who were overzealous about a quick Bitcoin rebound back to all-time high levels were punished with further price declines.

Although Bitcoin (BTC) has subtly bounced since dropping below $34,000 in late January, its price is still down 20% in the last 30 days. Ether (ETH) has fared worse, dropping 30% in this same timeframe. This edition of the Market Insight’s newsletter takes a deeper look at the data behind the cryptocurrency market’s performance in the past month.

For example, Bitcoin’s key whale trader tier, typically comprising addresses holding between 100 and 10,000 BTC, has dumped approximately 150,000 BTC in the past three months.

The supply held by this group is very often used as a primary leading indicator for where prices will head next. The current supply held by these whale addresses has dropped to 47.31%, within sight of the one-year low of 47.20% held back in mid-May when prices were declining swiftly.

NVT was bearish for BTC but turned bullish in January

Santiment’s Network Value to Transactions Ratio (NVT) model measures the amount of unique BTC circulating on the network, then calculates whether that output is above, on par, or below the expected amount of circulation to justify Bitcoin’s current market capitalization.

There has been a healthy and expected amount of tokens moved since October 2021. When prices were falling during the first half of January, the month lacked the necessary circulation to keep prices above $40,000. However, on average, the month of January presented a semi-bullish signal after some dip buying and increased activity.

As a bonus, February has started off in bullish circulation territory. It can be concluded that once some other metrics align with the positive circulation divergence, prices can surge in a hurry.

FOMC impact and Bitcoin’s leading indication on S&P

Traders across several different sectors held their breaths for the United States Federal Open Market Committee’s announcement on Jan. 26. and whether or not U.S. interest rates would rise and quantitative easing would be applied. It appears that it will be a foregone conclusion that these rates will be rising about a month from now. With this news, cryptocurrency and equities markets have gradually become a bit less correlated.

Even prior to the FOMC meeting, Bitcoin had already begun its decline. And directly following the meeting, BTC’s price was the first to begin to slide. The S&P 500 has been particularly volatile and polarizing for investors and still appears to be on a notable downswing since the U.S. Federal Reserve’s meeting. Meanwhile, gold has rebounded, and Bitcoin’s price has been choppy. However, according to historical studies by Santiment, BTC price breakouts tend to happen when its price is least correlated with equities markets.

BTC network realized profit/loss spike

One of Bitcoin’s quieter days, Feb. 1 saw the fourth-highest network realized profit spike in the past year. The cumulative spike of 3.65 billion indicated a higher likelihood of a potential correction, but only if traders show disinterest.

The culprit of this massive uptick in realized profit apparently was revealed to be related to Bitcoin that was stolen in the 2016 Bitfinex exchange hack. These coins were moved on the morning of the same day, and the receiving address of these coins contains 94,643 BTC.

Negative funding rates across exchanges

From the third week of January, traders began placing large quantities of short positions, as Bitcoin’s price dropped below $34,000 for the first time since July. Various projects saw an average negative perpetual contract funding rate across multiple exchanges. With funding rates, Santiment calculates the average rates across Binance, Bitfinex, FTX, Deribit and dYdX. In some assets’ cases, a smaller combination of these exchanges is used if they aren’t listed on all five exchanges.