BTC Price Discovery

Plus: Smart contract platforms’ momentum

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This week we dive into Bitcoin’s all-time high and key metrics to evaluate its path as it goes into price discovery. We do so by looking at Bitcoin from different angles, covering statistical analysis, derivatives and on-chain data as usual.

Then, we look at the market’s renewed interest in smart contract platforms. Native tokens for smart contract platforms have already been top performers in 2021, and investor appetite for them continues to grow as they record high growth across various metrics.

Weekly Fees — Sum of total fees spent to use a particular blockchain in a week. This tracks the willingness to spend and demand to use Bitcoin or Ether.

  • Despite hitting a new high, Bitcoin’s network fees decreased slightly week over week showing an unexpected decline
  • Total fees processed by Ethereum grew for the fifth consecutive week, pointing to high network demand as Ether approaches new highs

Check recent values and more information here.

Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges over the past seven days. Crypto going into exchanges may signal selling pressure, while withdrawals potentially point to accumulation.

  • Both Bitcoin and Ethereum saw net outflows from exchanges, but significantly less than what was recorded the previous week
  • This trend suggests relatively low on-chain activity with most of the Bitcoin and Ether traded remaining within centralized exchanges

Check recent values and more information here.

BTC Price Discovery

As of October 21 through IntoTheBlock’s free Capital Markets Insights

Bitcoin and Ethereum have roughly doubled over the past three months, increasing 44% and 39% in October alone, respectively. Bitcoin managed to surpass its previous all-time high (ATH) of $64,000 going as high as $67,000 before dropping. Meanwhile, Ether slightly surpassed its prior ATH in some exchanges but did not close above them yet. However, both Bitcoin and Ether dropped around 8% from their highs on Thursday.

The path ahead — diving into key indicators we can assess the potential road ahead for Bitcoin and crypto in general over the next few months. First off, we take a look at Bitcoin’s historical performance after reaching a new ATH following a decline lasting 30+ days. Here are a few key stats:

  • Bitcoin on average has increased 145% after breaking a previous high and seeing a 30+ day correction like the one from May to October this year
  • Excluding 2013’s quick run-up from $260 to over $1,000, the average max return after setting new highs remains at 95%
  • The max return after breaking a new high is reached after 38 days on average

Based on IntoThBlock’s Bitcoin price data

While prices did drop significantly on Thursday, it is statistically improbable that the bull market’s high has been set just yet. Following a correction and new ATH, Bitcoin has climbed at least 20% (February 2017) before facing a multi-month downturn. Thus, the odds of having a sustained correction remain low.

The on-chain angle — looking at blockchain data we can observe holders activity to examine how they are positioned in light of the recent volatility. Long-term investors (“hodlers”) who have held for over 1 year are still not eager to sell even after the new highs.

As of October 21 through IntoTheBlock’s Bitcoin ownership indicators

  • The number of addresses “hodling” continues to grow, unfazed by the recent price action
  • Volume held by these addresses did decline slightly, suggesting some large players may have sold partially, though they remain holding most
  • The sustained growth in hodlers demonstrates that the long-term conviction of Bitcoin investors, who are likely targeting prices significantly above $67,000

Derivatives outlook — we would be remiss not to mention derivatives in the week of the launch of the first Bitcoin ETF in American markets ($BITO). Here are a few key insights based on crypto derivatives markets:

  • $BITO broke the record for the fastest ETF to surpass $1B in volume
  • Grayscale confirmed its application to turn GBTC into the first spot-backed Bitcoin ETF, meaning it would lead to inflows in actual BTC rather than futures
  • Funding rates for perpetual swaps remain positive under 0.10%, which shows traders positioning mostly on the long-side, though not yet overexposed as they were in February or April when funding was over 0.20%

As of October 21 through IntoTheBlock’s Bitcoin derivatives indicators

Overall, the derivatives market points to a cautiously optimistic outlook. Similarly, on-chain data signals strength from long-term investors in spite of the recent dip, likely aiming for the higher returns Bitcoin reaches on average after going into price discovery.

Smart Contract Platform Momentum

Many crypto investors were surprised by the strong performance of tokens following Bitcoin’s new highs. This had not been the case last year when Bitcoin broke above $20k nor in October 2017 when it first surpassed $5,000.

This time around, it appears that traders are taking positions in smaller cap crypto-assets in anticipation of the high returns typically coming after a Bitcoin rally. Based on Coingecko, 23 out of the top 100 “alt-coins” recorded double-digit returns over the past seven days, highlighting the risk-on positioning from investors.

Smart contract platforms lead — among the best performing tokens over the past week are native assets to smart contract platforms.

Smart contract platforms have already been some of the best performing assets this year, suggesting that the recent action may be due to investors doubling down on their winners.

Looking into Polygon (MATIC), we observe a significant spike in volume as prices increased. The Ethereum side-chain and scalability hub has already been a top performer appreciating 8,600% in 2021 and is seeing renewed interest.

As of October 22 through IntoTheBlock’s Bitcoin derivatives indicators

As can be seen above, large transactions volume in MATIC reached a 3-month high with over $1.1B being transferred in amounts of over $100,000. This points to institutional capital being deployed into Polygon’s native token.

Moreover, DraftKings, the largest American fantasy sports site, recently announced it will be using Polygon as the base layer for its NFT platform. In part, this contributed too MATIC’s increase of over 20% this week.

As crypto transitions into a multi-chain universe, smart contract platforms have benefitted from increased traction, propelling them to higher valuations. One of the leading sectors within smart contract platforms has been decentralized finance (DeFi). Here the total value locked (TVL) within DeFi has grown over 10x from $21B to nearly $240B throughout 2021.

As of October 21 through DeFi Llama

Currently 13 different blockchains have over $1 billion in TVL, as opposed to just Ethereum at the beginning of the year. As activity has spread to other chains and continued to grow in Ethereum, smart contract platforms are showing signs of real traction perhaps like no other blockchain products.

The fact that many of their tokens were able to outperform Bitcoin on the week it set a new high points to increased demand for them. While it’s unclear how long this trend will continue, the momentum smart contract platforms have built this year is undeniable.

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The Evolution of DeFi — New Applications & The Multi-Chain Universe

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In this webinar we explore this evolution DeFi experienced, covering some of the newer protocols often classified as “DeFi 2.0”. We analyze the validity of that label in context of the DeFi bluechips that made a name for themselves during the summer of 2020. Finally, we explore the expansion to a multi-chain universe as DeFi leaps closer to mainstream adoption.

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BTC Price Discovery was originally published in IntoTheBlock on Medium, where people are continuing the conversation by highlighting and responding to this story.

Publication date: 
10/22/2021 - 15:27
Disclaimer

The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.