Summary Bitcoin's price has rallied 15% in the last few weeks. Some level of excitement has returned to the market. Meanwhile, DAUs are down and exchange supply has slightly increased since the beginning of September. On-chain metrics are giving competing signals from where I sit. If you're a long-term holder, $26k or $28k will make little difference two years from now. When I last covered Bitcoin ( BTC-USD ) for Seeking Alpha in mid-June , Bitcoin had been benefiting from deep corrections in many of the alt-coins that have lost favor over the last two years or so. In the festival of risk that is the crypto market, Bitcoin can be looked at as the "safe haven" asset. With Bitcoin dominance still high, a block reward halving a little over 6 months away, and a dollar index that has rallied over 7% since the July lows, I think it's a good time to reassess the setup for BTC. In this update, we'll look at on-chain metrics, holder data, and the macro setup. Traders Running Wild? Data by YCharts As of the article submission, the price of BTC has pumped more than 15% in a matter of just a few weeks. After crossing under $25k in mid-September, Bitcoin is currently flirting with $28k and even hit $28.6k intraday on October 2nd. The question is why? 24hr Liquidations (CoinGlass) The simple answer might be speculator liquidations. In the last 24 hours, over $61 million in BTC bets have been liquidated, with $45 million of that coming from the short side. Still, I don't think some sort of short squeeze explains the big move higher in the last few sessions. BTC Open Interest (CoinGlass) While still well off the lows from earlier this year, there has been a slight decline in open interest peaks for Bitcoin over the last few months or so. After topping out at just under $15 billion OI in June, BTC options OI has generally stayed in the $9-10 billion range. On Chain Activity From a daily active user's standpoint, we sometimes see moves in the price of Bitcoin that correlate to real network usage. But from where I sit, that doesn't explain what we're seeing in Bitcoin's price to start the month of October, either. In fact, it's been the exact opposite: Bitcoin DAUs, 1 year trend (Token Terminal) At 280k, October 1st was actually the lowest level of daily active users on-chain in the last year per Token Terminal. It was even lower than the 287k DAU figure on May 7th in response to the fee spike due to Ordinals. Ordinals Inscriptions (Dune Analytics) Speaking of which, Ordinals activity has remained solid through the summer. There are currently over 35 million cumulative inscriptions through the Ordinals project. BTC Fees (IntoTheBlock) However, even with robust daily inscriptions via Ordinals, we have not seen NFT usage on Bitcoin generate a meaningful spike in transaction fees the way we did in early May. So this doesn't really explain the drop in usage either. Address Count and Exchange Flow Data Raw holder metrics can give a sense for how Bitcoin's network adoption is developing. While it's far from a perfect growth indicator given the certainty that Bitcoin holders often use multiple different addresses on-chain, the non-zero address figure reached a fresh all-time high of 49.8 million on September 23rd: Non zero addresses (CoinMetrics) Interestingly, since then we've seen a 1.7% decline in the number of non-zero BTC addresses down to 48.9 million. That figure is closer to where it was at the end of August, though still up a little over 12% year to date. Something else to consider however is the flow of BTC between holders and exchanges. BTC Exchange Balance (CoinGlass) Data from CoinGlass currently has a little over 1.82 million BTC on aggregated exchanges. The broad trend is still very much in decline. However, since the low at the end of August, there has been a noticeable uptick in BTC on exchange and a shift in where some of that BTC has been held: Ranking Exchanges Balance 24h Change 7d Change 30d Change 1 Binance 544,333.79 -4,572.05 -2,702.55 -14,183.62 2 Coinbase Pro 432,197.05 483.08 -1,536.48 -5,373.19 3 Bitfinex 373,373.79 2,400.24 4,070.01 1,145.17 4 OKX 123,511.89 860.13 -402.87 -858.4 5 Gemini 100,950.09 -99.7 987.63 3,766.08 6 bitFlyer 51,503.29 31.39 -54.81 -106.32 7 Kraken 48,682.46 297.52 2.78 -164 8 BitMEX 42,959.18 -103.65 -530.89 -804.37 9 Bybit 35,044.79 -702.8 -1,198.28 30,420.71 10 Bithumb 13,867.23 240.84 1,018.15 1,762.9 Source: CoinGlass, values in BTC as of 10/2/23 Binance ( BNB-USD ) has seen the biggest outflow of BTC by far, with over 14k BTC coming off exchange in the last 30 days. Most exchanges have seen negative supply net flow over the last month, with Bybit being one of the larger beneficiaries of positive net flow. It's generally viewed by many in the market that supply coming off exchange is bullish. This can be interpreted as a sign that holders aren't preparing to sell. Balance by time (IntoTheBlock) What is also telling is the holder balance by time data. IntoTheBlock considers funds that haven't moved for a year to be "hodler" funds. Importantly, funds that move around in a month or under are considered to be "trader" funds. At just 5%, traders currently have their lowest share of total BTC supply on record. This could be a sign that the market is gearing up for the halving. Macro & The Halving It is no secret at this point that Bitcoin's block reward will be cut in half from 6.25 BTC per block to 3.125 BTC per block in April 2024. This gives long-term Bitcoin holders a little over 6 months to front-run that event. For me, this is the most likely reason we're seeing declines in usage coupled with a spike in coin price. Miner Rewards (LookIntoBitcoin) As I've said in other Bitcoin and Bitcoin-proxy articles for Seeking Alpha, just because history tells us that BTC is usually higher 6 to 12 months following a halving, it doesn't mean it will happen that way again. We have a much different cost of credit environment than we've ever had during Bitcoin's history up to this point. FRED While I'm as surprised as just about anybody that the Federal Reserve hasn't pivoted yet on interest rates due to a multitude of reasons, the fact of the matter is the central bank has held firm so far. Bitcoin's 2020 post-halving bullish run came during the ZIRP era, but it should be noted that the 2017 bull run happened when Powell was raising rates during the last hiking cycle. Of course, those hikes weren't nearly as aggressive as the hikes we've seen in the last 16 months or so, but it's worth mentioning that there is history of BTC rallying while the Fed has raised. BTC hasn't done much since the Fed started hiking last year, but the coin is still well off lows. Summary For me, there are a lot of competing signals in this data. I think that's probably why Bitcoin hasn't been able to sustain a larger move in either direction outside of $26-28k in recent months. DAUs are down, exchange supply is flat to slightly up in recent weeks, and hodlers are eating supply share. Speculators have largely been getting rinsed in both directions in recent months. Is Bitcoin more attractive on October 2nd at $28k than it was just a few days before at $26k? I can't say yes. Ultimately, buying BTC comes down to your purpose for the purchase and your planned timeline for an exit. Long-term holders that DCA might be able to get a better price later this month. But I suspect 12 to 24 months from now, any buyer under $30k will be very pleased.
