After a great start this Bitcoin rally is faltering. Of course there are many factors to blame for that: unfavourable macro, negative news cycle… and on-chain data.
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No momentum on-chain
Headwinds
Bitcoin's price is holding up above $20k but its momentum is dead. That's not very surprising given the environment.
Let's quickly recap what has been happening recently.
The crypto space overall is under regulatory attack in the US. For sure Bitcoin is not the main target of this movement but attacks on stable coins definitely affect BTC.
At the same time on the institutional side Silvergate is going under and that's certain to deal a blow to the centralized crypto institutions that manage on-ramp and off-ramp with the US$. For more high level thoughts around the Silvergate story checkout the second half of this newsletter.
Finally on the macro side there are rising rates on the back of inflation probably not being totally under control yet. We have discussed what that means for the Federal Reserve and the macro picture here and here, so refer to that if you want to dig deeper.
Long story short the US Treasury 10-year yield is on a clear trajectory to retest its high of last year. Interest rates at 4%+ don't incentivize investor to throw cash at risk assets.
So far though the stock market and Bitcoin have shrugged off the worries of the bond market. How long is that gonna last I don't know. But if we believe what the bond market is signalling, a recession is likely to start around the end of 2023. Based on that you'd expect another correction for risk assets within the same timeframe.
Participants in the bond market are pretty good at sniffing the direction of the economy. So if I were you I wouldn't ignore those signals.
Regardless, in the short term none of this seem to be affecting Bitcoin's price.
But that's not the same thing as saying that BTC is supported by great fundamentals. Because if you look towards the on-chain accumulation metrics there is literally nothing to see.
On-chain accumulation
We haven't discussed this topic for a while so here is a reminder of how it works.
Take all the Bitcoin addresses and group them based on the amount of coins each address controls:
Addresses controlling less than 1 BTC.
Addresses controlling 1 to 10 BTC.
Addresses controlling 10 to 100 BTC.
And so on.
Think of it as a classification of addresses from the small fish to the whales. The closer an address is to the whales the more firepower they have to move the market in a single transaction.
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