Everyone and their dog is wondering what is happening to the crypto-currency markets and what the future has in store for Bitcoin in particular. So here are my thoughts, keeping in mind I don't actively trade Bitcoin and I don't have a firm grasp of the blockchain technology.
BitCoin Sentiment Indicators
The first thing I did, to try and understand what is going on with Bitcoin, was to understand whether there are any sentiment indicators at all that can help gauge Bitcoin positioning and market pulse. Here is what I found.
1. Gold/BitCoin Ratio: the Gold/Bitcoin ratio has appeared in various institutional commentaries, because it's the battle between physical Gold and electronic Gold. Both instruments are seen as a hedge against inflation and against government instability. So, technically speaking, I see a recent rotation back into physical Gold with a volatility expansion. Current resistance is around the Jan 2021 highs, and then the Christmas 2020 gap area. Based on last week's close and the daily performance, it appears markets are poised for another shot at the recent spike high.
2. Active Address Indicator
Active Addresses are a signal of money flowing in or out of BitCoin. LookintoBitcoin created a useful sentiment indicator based on active addresses.
Here's how to read it:
Grey lines on the chart show the change in active addresses.
On the outer boundaries of those grey lines are standard deviation bands.
Dotted red line = upper boundary
Dotted green line = lower boundary
Orange line is the 28 day price change (%).
When the orange line reaches the upper boundary (red dotted line) it is indicating that short term market sentiment is overheated. Because the rate of increase in price is outstripping the rate of increase in active addresses.
The opposite is true when the 28 day price change hits the lower boundary (green dotted line). Here market sentiment is overly bearish and we often see $BTC price then increasing thereafter.
We are currently experiencing extended bearish sentiment, which is what you would expect after such a decline. A bounce is possible/probable based on this indicator.
3. BitCoin Whales (ie. wallet sizes > 1000 BTC)
While not always strongly correlated with price action, it is still relevant to analyse whether big money is flowing into BitCoin or out of Bitcoin. While the Active Address Indicator shows all active addresses, independently from the size, here we're just looking at big players.