What a weekend…Of course it was a US long weekend that Bitcoin decides to collapse below $20k…only to recover for the US open.
TXMC captures how ridiculous of an event this was, the CME futures didn’t even have a gap to fill!
So what happened? Well, in my opinion, over the weekend, there really only are two assets where any meaningful liquidity can be pulled, BTC and ETH. We actually saw the two majors under-perform shitcoins for this very reason.
Stocks, bonds, and forex were all closed, so the only place traders could express their fear and extract liquidity was from crypto-assets. In many ways, this exemplifies how Bitcoin is trading essentially as the fastest and most reactive smoke alarm in the market. Bitcoin moves first, hardest and biggest.
Couple this with DeFi deleveraging bucket loads of old Maker and AAVE vaults and we have complete chaos. Add in the forced liquidation of hedge funds like Three Arrows Capital, the likely insolvency of Celsius and other sketchy lenders, and we had a perfect storm.
Amazingly, we traded down and perfectly bounced off the difficulty regression model at $17.6k. This is my best estimate of the all-in average cost to mine BTC. As a digital commodity, it appears that Bitcoin needed to retest its cost of production.
With this as the average mined price, that means a bunch of miners are in trouble, mining coin at much higher prices. Indeed we have hash-ribbon and Difficulty ribbon compression, alongside a low Puell multiple. This means that miners income is stresses, AND we can observably see them switching off rigs in the data.
So miners currently have around 50k BTC left in reserves. What could force the sale of these coins?
- Continued and sustained low prices forcing weak miners to capitulate.
- Consolidations as strong miners sell coins to cover costs of acquiring their weaker competition
I actually don’t think we need to see all 50k BTC sold, but it remains a possibility.
This particular sell-off was also pretty historic in that it drove the entire market underwater on average. The MVRV Ratio measures the unrealized profitability of various cohorts. Below we have the MVRV Ratios for:
- Aggregate Market (orange) – The middle ground based on the Realized Price.
- Long-Term Holders (blue) – Note how they have more profit in bulls, but deeper losses in bears.
- Short-Term Holders (red) – smaller profits and smaller losses since their cost basis is closer to price.
All of these cohorts fell into an unrealized loss over the weekend. You may also notice that such events are rare (red zones), but usually correlate with the END of bear markets. This is not a normal event folks, this is what peak pain looks like.
Now we can all put the usual caveat of ‘but macro bro!’
Yes yes yes…macro stinks. It’s shit, the world is in trouble.
But…
What I see are bottom signals for days. Bitcoin just experienced a series of near impossible deviations from the mean:
- Broke last cycles ATH
- Miner capitulation in effect
- Broke below 200 Week MA
- Pushed the entire market below their realized price.
- 100% of TradFi and the media are dancing on Bitcoins grave.
These. Are. Bottom. Things.
So when I see bears dancing on Bitcoins grave, certainty it is going to zero, and 100% of my bottom indicators flashing green…I must ask…
Is this time different?
Because the answer is usually no.
I’m a bull, and the bears are wrong.
(Caveat…macro is shit bro!) But seriously, we could still take some time (6-12mths) to recover. Nevertheless, the bears are wrong.