New Bitcoin ATH - what does early data say?

Bitcoin has expectedly surged to a new all-time high today, courtesy of Tesla’s freshly-reported $1.5bn investment in the asset and their promise to integrate $BTC as payment option in the future.

Over the last 24 hours, we’ve already seen one sizable dip and an even higher high for the benchmark coin. Here’s a few early thoughts on Bitcoin’s latest foray into price discovery:

1. Sell-offs begin

After breaking the $43k mark, Bitcoin’s exchange inflow surged to a 3-week high, suggesting a rising sell-side pressure as some speculators probably rushed to ‘sell the news’. It didn’t take long for Bitcoin’s price to react to this sell-off wall, retreating to as low as $42.7k before bouncing back quickly.

The amount of BTC moving to exchanges remains relatively high at the time of writing, but it seems like the ‘sell the news’ crowd largely got out already. Keep an eye on exchange inflow in the next few days: elevated levels may suggest another sell-off wave and a short-term correction to boot.

2. Profits go brrrr

Wholesale profit-taking may now be underway, according to Bitcoin’s Network Realized Profit or Loss (NPL for short).

The way NPL works is simple: for each unit of BTC 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. As such, spikes in Bitcoin’s NPL suggest that the coins currently moving on the blockchain are - on average - being moved (or ‘sold’) at significant profit, and vice versa.

We can see a substantial uptick in Bitcoin’s NPL since the Tesla news, suggesting that the coins being moved on-chain are doing so at significant profit, especially relative to weeks prior:

This seems to provide further validation to the idea of ‘sell the news’ effort, as some holders look to reduce their exposure and take profits. No shame in that!

Increased sell-side pressure and profit taking may impact the price of BTC adversely in the short-term, but they tend to be a healthy sign overall, signaling that the market is not overtly bullish and there’s a fair amount of uncertainty and FUD about Bitcoin’s upcoming PA.

As we mentioned in several previous insights, historical data suggests that spikes in Bitcoin’s NPL (i.e. elevated profit-taking) tend to be a normal occurrence through many of its rallies. In fact, it seems like it’s actually the absence of NPL spikes that often earmark strong price corrections, signaling ‘overvalued’ conditions where everyone’s content with HODLing in expectation of even higher profits along the way.

3. HODLers awaken

Bitcoin’s Age Consumed - which tracks renewed activity of previously dormant coins - has also experienced an uptick since the new ATH breach, indicating that some long-term BTC investors are starting to move their coins again.

On the whole, spikes in Bitcoin’s Age Consumed aren’t a de facto top or a bottom indicator - they’re a volatility marker, suggesting risk of turbulent price action up ahead. Though it’s still early, I’d say the price action since the Tesla announcement qualifies.

4. Back in the 'danger zone'

A more concerning factor is Bitcoin’s MVRV ratio, an on-chain indicator that tracks the average profit (or loss) of a certain group of holders. For example, Bitcoin’s 30-day MVRV tracks the average P or L of all addresses that acquired BTC in the past 30 days.

As a rule of thumb, the higher the MVRV ratio, the higher the average profit margins, and hence there’s an increased risk of that group of holders starting to claim those profits and exerting downward pressure on the coin’s price.

At the moment, Bitcoin’s 30-day MVRV ratio stands at +27.3%, the highest it’s been since the January 14th top:

According to MVRV, this would put Bitcoin comfortably in the ‘overvalued’ territory - in fact, Bitcoin’s 30-day MVRV ratio hasn’t been this high throughout the entirety of 2020:

As seen above, we’ve seen Bitcoin’s MVRV jolt even higher during the previous ATH push, but it’s safe to say that current MVRV levels are unorthodox and seldom sustainable, and usually beget a price correction in order to normalize.

Bitcoin’s 365-day MVRV ratio paints a very similar picture (currently at +106%), already getting uncomfortably close to where it was at the previous price ATH (+118%):

5. Crowd goes ballistic

1. Finally, Bitcoin’s social activity has gone predictably bonkers with the Tesla news, with the highest 12-hour social volume since the 2019 high:

Elevated chatter like this - especially while the coin rallies - often suggests we’ve heat ‘peak hype’, the FOMO has erupted and the crowd’s become irrationally confident in the coin’s future price performance. We can see the same thing on the side of Bitcoin-related mood on crypto social media, which has quickly jolted back up over the past 12 hours:

In a word, Bitcoin’s social activity suggests intense bullishness towards the coin, which often lends itself to a short-term correction. Case in point - Bitcoin’s January 29th top:

Ideally, we’d see Bicoin’s social volume begin to drop as the week progresses, otherwise we may see the price - and with it, the crowd - begin to cool down.

Anyway, these are just some early impressions from today’s new ATH. There’s been plenty of sell-side pressure, profit-taking, crowd hype - all local top indicators, so it’s not surprising that we’ve already had a mini price correction earlier in the day.

I’d suggest keeping an eye on these metrics - and especially Bitcoin’s MVRV ratio - in the near term. Extremely overvalued parameters such as this one may stay in the way of a sustained price rally and require a short-term downtrend before we can see another strong leg up.

Watch this space.

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.