Market crash: good news or bad news first?

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Ibis
Sep 9, 2021

While the market is still reeling from yesterday's crash, everyone's wondering the same thing - where do we go from here?


Is it time for a relief rally, or are we looking at another brutal leg down?


I've seen some TA analysts set $38k as strong support. On the flip side, I've also seen a flood of 'buy the dip' tweets in the hours after the drop.


Looking at the on-chain and social activity of top caps, it's looking like a `good news, bad news` kind of situation for the time being.


(P.S. we also published an in-depth video analysis on the market crash over on our Youtube channel, which you should definitely follow if you don't already)


Starting with network data, yesterday's dump has left some signs of weak hand shakeout, which could be a positive sign for the bulls. For instance, Ethereum's exchange flow balance has surged alongside the price drop, pointing to a strong movement of ETH from individual addresses to known exchange wallets (potential sell pressure):

ETH, exchange flow balance, past 5 months (Source: Sanbase)

In a similar vein, Bitcoin's Network Realized Profit/Loss had dropped to a 2-month low yesterday, suggesting that some holders may be moving/selling their bags at a loss. We have seen similar 'capitulation' dips around several local bottoms for BTC during the May-June correction:

BTC, Network Realized Profit/Loss, past 6 months (Source: Sanbase)

(How NPL works: for each unit of Bitcoin that moves on the blockchain, we take the price at which it last moved and assume this to be its acquisition price. Once it changes addresses again, we assume this to be its sell price. Because of this, dips in Bitcoin’s NPL suggest that the coins currently moving on the blockchain are - on average - being moved (or ‘sold’) at relative loss, and vice versa)


Another notable on-chain spike was in average Ethereum fees, which rose to their second-highest day ever amid the correction:

ETH, Average fees, past 12 months (Source: Sanbase)

We wrote about fee spikes as a potential bottom indicator back in March, as they "may be prompted by panic sell-offs and 'paper hand' capitulation, which - assuming enough 'buy the dip' pressure - ends up marking an interim bottom"


And while there's some precedent to this, it's also clear that Ethereum's fees have been surging for the past few weeks now - courtesy of the NFT hype - so take the above with a grain of salt.


One potential 'bottom marker' that some like to look for is a significant spike in Maker's CDP liquidations. The market always tries deliver the maximum amount of pain to as many investors, and an uptick in CDP liquidations serves as an interesting 'pain' marker for a lot of DeFi participants.


As you can see below, spikes in WETH CDP liquidations have earmarked several local price bottoms for ETH in the past, with yesterday's crash prompting the biggest liquidation spike since the May correction:


WETH, MakerDAO CDP liqudation amounts, past 12 months (Source: Sanbase)

This is all to say that yesteday's crash is showing various signs of weak hand sell-offs and investor pain, which may help support a directional change in days to come.


The social side of things is a bit more disconcerting, however. As you can see using our social trends tool, mentions of 'buy' and 'dip' together have soared with the correction, suggesting a more bullish bias among the retail investors:

Mentions of 'buy' and 'dip' together on crypto social media, past 12 months (Source: Sanbase)

In line with this, we are also seeing an uptick in the average social sentiment towards Bitcoin, based on the messages collected by our servers in the past 24 hours:

Average BTC-related sentiment on 'crypto Twitter', past 12 months (Source: Sanbase)

On the whole, it seems like there's a fair bit of post-dump excitement on the retail side, which could prove to be an issue in the short term. Just look at the previous spikes in 'buy the dip' calls and you'll notice that they've often come early (like back in April and May, respectively), and tend to be accompanied by another leg down before the crowd is finally proven 'right'.


Keep an eye on these social charts in days to come, as an ongoing rise in retail confidence could pose an obstacle to a quick relief pump. And stay safe out there!


Disclaimer: The opinions expressed in the post are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.

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Ibis
Sep 9, 2021

Thanks for reading!

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