Bitcoin On-Chain Price Analysis: It is the Beginning of a Parabola?
Here myself and Vishal Singh, a data scientist from Indiana University, explore how a combination of positive liquidity in the futures market and on-chain volume results in parabolic runs in Bitcoin.
In the first half of 2019, we saw disbelief among the bulls, with the funding rate turning positive only during the fifth month. Whereas, the increase from January to May was already above 90% before the market turned entirely bullish.
It was only towards the final phase of the bull run from $8,000 to $13,800 that we saw a positive correlation between funding rates and bull markets. Nevertheless, a lot of it was riding on the liquidations of shorts – a rally led by disbelief.
How Come Long-Side Players Missed the Xi-Pump?
The majority traders of BitMEX where bullish during the later half of the year. Still they missed the Xi-Pump on 25th October, when shorts squeeze offered the liquidity of long whale orders.
The bearish sentiments were brought-on by a break below the $8000-$7,800 support level from a head and shoulders break-out pattern to the downside. There was a quickly reversal in price after reached the target ($6750) half-way (at $7360).
A classic example of shake-out of short side liquidity.
So How Does Bull Run Take Shape?
Nevertheless, the beginning of 2020 was starting to see a strong correlation between the long-players and increase in price. Notice the bump in the realized capitalization around February 2020.
It was during this time, Willy Woo, leading on-chain analyst noted, that it was positive on-chain inflection combined by massive liquidity on derivatives exchange that drove the price up to $14,000 and could happen again.
Notice a similar spike was seem in Q1 of 2020, which coincides with the long side liquidity reflected by positive funding rate (chart below). Hence, a combination of two actually seems to drive the parabolic bull runs in price. Lately, the market has been seeing a similar uptrend in the realized market capitalization which it witnessed before the crash in March.
Moreover, the increase in market capitalization during the bull run of 2019 began sometime around May. In a couple of months, the realized cap increased from $77 billion to $100 billion. Most importantly, the final phase of the bull run also began early in May, when positive uptrend in realized capital met with long orders on BitMEX.
The chart below marks the days when the funding rate for XBTUSD was positive on BitMEX.
Are we at the Beginning of a Parabolic Run?
If the current uptrend continues, and as the derivatives market sentiments are looking on the verge of another bullish flip. We are likely to witness a new parabolic run in price. In its history of 11 years, Bitcoin has already seen four parabolic runs.
While one might argue that the Open Interest on Bitmex is small in comparison to last year. However. it is actually at par with the value in May 2019. This might be a positive signal for the organic growth in price, rather than a derivatives induced inflated run.
It was after June that the OI reached a benchmark above $1 billion for the later half of the year and Q1 in 2020. FOMO buying has usually led to parabolas in Bitcoin. However, with the end of the frenzy in markets, the on-chain volume might decrease or stay constant, which would give whales the control of price in the short to medium term. With halving coming to an end, it is highly probable.
The BitMEX funding data was obtained from: https://www.bitmex.com/app/fundingHistory