Bitcoin is having a good run. But given the macro conditions there is always the risk that this is nothing but a bear market rally. In trying to figure that out maybe we can look at some hints in the on-chain data.
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Done? Thanks! That’s great! Now let’s dive in.
On-chain support
If you are a regular reader you know that I’m cautious about any kind of rally that takes place before we are in the thick of a recession and before the macro environment has done a full on contraction-to-pivot sequence. We talk about that on a regular basis so just go checkout recent newsletters for the usual warnings.
At the same time I acknowledge that if you are trading on momentum you gotta trust the process and jump on any rally that looks promising. If you entered this particular rally based on the 200 days moving average signal you’ll probably do fine regardless of the outcome. The whole thing with trend following strategies is that while you strike big wins rather infrequently you also don’t lose your shirt on any given trade.
But if you consider deploying cash for a long term position the question is a bit different. Coming back to the framework we discussed here, here and here the question is about getting the best estimated reward to risk ratio for a given investment.
Say you are deciding whether or not to jump on the trend now. Or say you entered recently and you want to figure out if it is time to exit and take profit. In those situations gathering as much information as possible to help you make a call isn’t a bad idea. Some insights are bound to come out of that.
So as I write those lines this Bitcoin rally is up 53% over 70 days. Typical rallies are shorter than that. This one is part of the outliers. Actually if not the largest, this one is the longest bear market rally on record (as measured by how long it took for the top to form). But is there something happening on-chain suggesting this rally has support?
The price is up from the low reached 70 days ago. Is this somehow related to an increase in the on-chain activity over the same period. Let’s have a look.
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