On November 10, 2021, bitcoin hit its all-time high price of $69,000, per the Bitstamp exchange rate. The application of this method seems to be useful not only for long-term analysis but is also excellent for short-term and medium-term analysis as well. It is truly an incredible event that BTC was able to climb so high, increasing the asset’s total market capitalization to $3 trillion, according to CoinGecko. BTC was relatively weak, at least such an impression could have formed for many, and at some point, it even seemed that BTC could test the lower levels of $12,000 to $16,000.
The supply-in-loss metric (on a 21-day moving average) allows us to state surrender zones in which signals to buy BTC are generated . The method of using trend lines is identical to the above example with profitable supply. It should be noted in an example dated July 29, 2021, where the metric’s value didn’t reach the required level of about 50%. There, what I call the “intersection” of the curves of profitable and unprofitable supply occurred, which provided the buy signal because of traders’ capitulation. To know whether a profitable supply is bullish, we need to compare it with BTC exchange reserves, as well as inflow/outflow . This method is more suitable for medium- to long-term understanding of bitcoin price action. Read more about ETH to USD here. After that, trader capitulation often happens , demonstrating the reaching of a local or global bottom.
How To Identify Bitcoin Price Bottoms
Most often, the maximum price of bitcoin and the moment when the supply curve breaks through its support differs by several days. There are also times when the profitable supply curve rises to levels close to 90% to 99% and doesn’t stay there for a long time, after which the trend line is broken, and the BTC price begins to drop. On the example of unprofitable supply, one can see that the significant level for losses is 50%. The supply curve is practically never higher and doesn’t have periods of bright consolidation. When the profitable supply is consistently in a range between 90% Litecoin to Bitcoin and 99%, it means that BTC tends to start parabolic growth. When a profitable supply curve breaks down its trend lines , it suggests that bitcoin has completed its global or local growth and will soon move to a decline. As a basis for this method, I took the net percentage of BTC supply in profit/loss metrics. I applied an additional setting in the form of a 21-day simple moving average to avoid the display’s sawtooth effect and analyze it more conveniently. Anyone can make identical data settings in an account of a blockchain data provider such as Glassnode, CryptoQuant, etc.
After configuring the indicator, it is necessary to apply the technical analysis method, specifically, the trend lines. By the way, I have hardly ever seen traders start using trend lines on the on-chain data. In my opinion, this is a significant oversight, as we can get very effective signals by doing so. In my opinion, the supply metrics have performed well in the current rally, and I think they will continue to generate valuable signals for us, which are suitable for analysis. In conclusion, I would like to say that until now, many professional traders and newbies in the cryptocurrency world keep ignoring the value of blockchain (on-chain) data. It seems that on-chain data deserves more attention and deeper study, since this data has performed well in the current bull rally. From time to time, in the vastness of the cryptocurrency community, I come across the opinion that the percentage of BTC supply in profit being over 90% is a bearish factor. But what the first cryptocurrency has taught us for sure is that price is difficult to predict. There are many great trading strategies out there, but today I propose analyzing bitcoin using on-chain supply metrics.