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To investors,

The response to Will Clemente’s on-chain analysis last week was great. We are going to turn this into a weekly column that will be published every Friday. Below is this week’s analysis.

Happy Friday everyone! Welcome back to the newsletter’s weekly on-chain update. At the time of writing, Bitcoin sits at $63,500 following a long-awaited breakout above $60,000 on Wednesday, which had served as a major price resistance over the last few weeks. This comes as no surprise, with last week’s letter describing a very bullish setup on-chain and was just a waiting game until price broke out of consolidation. Let us take a look at some of the current on-chain trends worth noting, both short and long term. Let us first start by looking at where we are in the broader macro cycle and then zoom in to current trends towards the end of the newsletter. As always, the data used in this writing is derived from Glassnode, one of the leading data providers in the Bitcoin industry. Hope you enjoy.

Long Term Metrics

One of the most useful ways to analyze where Bitcoin price is in the broader bull/bear cycle is by looking at the behavior of long-term holders. At the end of bull cycles, we see long-term holders (smart money) begin to sell off into strength during the final parabolic pushes of the run. The data shows that we are no where near that stage. One of the best metrics to illustrate this is dormancy. In on-chain terms, older coins (coins that have not moved) hold more dormancy. The dormancy metric illustrates the amount of dormancy in the coins being sold onto the market. In bear markets we see lower dormancy, as long-term investors scoop up cheap coins without selling. However, higher prices incentivize those holders to sell, and as the bull market goes higher, dormancy rises. In the chart below you can see the historical peaks of dormancy that Bitcoin has reached in previous bull cycles. In comparison, the current trend still has a lot of room to run upwards.

Another metric that can be used to follow holding behavior is HODL Waves, a metric that analyzes the behavior of different “aged” coins. Each colored band shows the percentage of Bitcoin in existence that was last moved within a specific time period. In bear markets, short-term speculators leave, and long-term holders (smart money) take up a larger portion of supply as they accumulate. In bull market, particularly as they come to an end, short-term holders (retail) take up a larger portion of supply as long-term holders sell off. In comparison to Bitcoin’s history, HODL Waves also shows a lot of room upwards for this bull cycle.

To close out with long-term metrics, let us take a look at illiquid supply. According to Glassnode, illiquid supply is considered supply in wallet addresses that has not been moved for at least 6 months. This means that the huge down draw we are currently seeing is representative of coins purchased back in November/December, as they cross the “illiquid” threshold now. Aside from the current massive down draw, supply has consistently become illiquid throughout the entire bull market. In other words, throughout the entire bull market coins continue to be scooped up by strong hand wallets with no intention of selling for short term gains. These levels of illiquidity are unprecedented in terms of Bitcoin’s historical data.

Short-Term Metrics

One metric we touched on last week was long-term holder net position change. Since that time, the metric has actually flipped green, a very bullish sign. This metric uses a 155 day threshold to consider supply “long-term”. According to Glassnode, the metric flips green when more coins mature across the 155-day age threshold than old coins being spent. Although we did see some selling following ATH around $27k-$32k (to be expected), this flip green suggests long-term holders are now expecting more upside to come.

Another metric that has caught my eye lately is accumulation addresses. This measures the number of Bitcoin addresses that have received at least two transactions but have never spent funds. (filters out major entities such as exchanges) This illustrates a large number of new Bitcoin holders that have emerged through the year, as we saw the metric go parabolic in mid-February.

In conclusion, a lot of metrics do point to further upside, but here are two to keep in mind: funding rates and SOPR. Funding rates can be used to gage sentiment from traders in the market. Prolonged high funding rates are a bearish sign, as there is excessive leverage in the market and therefore is very fragile and subject to a cascade of liquidations. SOPR measures profit taking and is mostly used to time bottoms of corrections but can also serve as a rough gage of how overheated price rallies are. SOPR shows some more room for price to rally from here but will definitely be something to keep a close eye on in coming weeks along with funding rates.

Will keep an eye on all of these trends and update you guys on market structure next week. I really hope you enjoy and gain some value from these. Till next time, Cheers.

- Will

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THE RUNDOWN:

Brevan Howard’s Hedge Fund to Start Buying Cryptocurrencies: Brevan Howard Asset Management is preparing to start investing in digital assets, becoming the latest money manager seeking to exploit the cryptocurrency boom. The firm led by Aron Landy will begin by investing up to 1.5% of its $5.6 billion main hedge fund in digital assets, according to a person with knowledge of the matter. The initial allocation will be overseen by Johnny Steindorff and Tucker Waterman, co-founders of crypto investment firm Distributed Global, the person said, asking not to be identified because the information is private. Read more.

Ark Investment Boosts Coinbase Holdings While Cutting Stake in Square: New York-based Ark Investment Management has upped its holdings in the shares of cryptocurrency exchange Coinbase, which debuted in Nasdaq trading on April 14. Headed by well-known crypto bull Cathie Wood, ARK Investment purchased 341,186 shares, worth about $110 million on Thursday, having bought 749,205 shares the day before, the firm's daily trade summary shows. Read more.

Bitcoin Price Drops as Turkey Bans Crypto Payments Amid Currency Crisis: Billionaire investor Ray Dalio’s fears of governments outlawing bitcoin to preserve their monopoly over currencies have come partly true in Turkey. The currency crisis-riddled country announced a ban on cryptocurrencies as a means of payment early Friday, souring the mood in the bitcoin market. The ban is to take effect April 30.Read more.

Reddit Forum WallStreetBets Allows Crypto Conversation, Immediately Re-Bans It: The Reddit forum famous for making GameStop’s stock price a household topic has banned all discussion of cryptocurrencies less than 24 hours after tentatively allowing a daily discussion thread, with restrictions. Read more.

Wouter Witvoet is the CEO at DeFi Technologies (NEO.DEFI) and previously founded SecFi. I really enjoyed this conversation with Wouter. Hopefully you enjoy it too.

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The Pomp Letter

The Bull Run Has More Room To Run