What is happening with Bitcoin?
The Volatility Index for Bitcoin is down to it’s all time low of 14.1% at the time of writing (refer to Chart 1). For the uninitiated Volatility Index can be used to calculate the average daily fluctuations using the formulae : VIX/((Number of Trading Days in a Year)^(1/2)). This would mean that the current average expected fluctuation in price would be around ((14.1/19.1)%, since Bitcoin is traded 24X7 on all 365 days of the year) 0.73%. And, this uncharacteristically low volatility has been the norm for the last 3 months where the Bitcoin prices have practically remained stationary, trading in a very narrow range (price being the causal factor for volatility which is the effect and not vice-versa).
Same has been true for Ethereum as well, not surprisingly though as it is highly correlated to Bitcoin price movements (0.83 correlation factor to be precise).
The narrowing Bollinger Bands for Bitcoin as a result of this low volatility has made it impossible for the day traders to take any advantage of the market, in my humble opinion. The miner inflows have been low as well (refer to Chart 2b) despite an increased hashrate (refer to Chart 2a), but the total transaction volumes have still been high in this period which suggest whale accumulation activity (refer to Chart 3a).
A big outflow of BTC happened from exchanges around the $25000 and $29000 price for BTC (refer to Chart 4). Further the Chart 5 shows in the money and out of money wallet data, which indicates that the largest number of in-the-money wallet addresses got their BTC in $10,000 to $19,000 price range or $19000 to $26000 price range. We can also see a strong support zone (due to heavy buying each time price falls to this level) in the BTC Price Action shown in Chart 6.
But all the data is as good as we interpret it and all of the interpretation can be subjective and thus constitutes no financial advice, you are advised to do your own research before taking your investment decisions. I don’t claim to be able to foresee the future and no analysis can predict the future with certainty and thus the following interpretation is just my personal assessment to conclude an actionable insight from the data presented.
My interpretation of the data is that there has been big whale buying (read : institutional investors picking up BTC in chunks) by playing the market to keep the price up and down around that mark and get maximum volume before the anticipated BTC ETF approval comes (a decision and subsequent clarity around this subject can be expected in the next couple of months). Till that time, there will be bearish sluggish movement for BTC it seems and the price can be expected to fall to around $25000 in the worst case, which is the next support/buy zone in the worst case (I don’t expect BTC to get any cheaper and I see even the chances for $25000 are low but you can buy in small chunks on price dips).
The only contradiction comes from the fact that there has been relatively very low levels of big transactions (refer to Chart 3b which tracks purchases over $100,000) during the last three months (or is it not a contradiction but a validation that the big investors are manipulating the prices to keep them low for a prolonged time to keep picking up smaller quantities to guise their activity and not to disturb the market equilibrium in a big way?). As per the news, the US govt. had to sell a large chunk of BTC it acquired over a period of time (from illegal businesses like SilkRoad that the govt. caught hold of). Can it be that most of it was sold over-the-counter to the institutional investors willing to buy it at fair price as selling the whole of that $5 billion worth of BTC in the open market via exchanges would have crashed the market?
What worries me though is not the actual stagnation or future short term downward movement that can follow (since eventually the price would inevitably go up) but the fact that with the entry of the institutional players the market would not remain a level playing field and there will be subtle manipulation of the retail investors continuously in the next bull market (and beyond), much like what happens in stocks routinely.
Anyways, tread carefully and dig deep into the data and not buy into anything that is shown to make you believe any particular point-of-view (including mine :D).
P.S. Today (when I am posting), it’s 15th August 2023. Marking this honestly for the readers to be able to see for themselves if my analysis comes true or not. As I said, I am no fortuneteller and thus I often go wrong as an ordinary human being. You will see the admission of my mistaken analysis or the update on how it went right, if and when that happens, here as an update (with dates). Stay tuned :)
