Bitcoin Fundamentals Paint Bullish Picture Despite Latest Pullback

In November, the Bitcoin network witnessed higher profit-booking tendencies after its price increased by 42.5%, reaching a peak value of $19,860.

New buyers and derivatives traders have been apprehensive of a bullish trend reversal. However, the growth of mining hashrate and the market’s liquidity points to a bullish continuation. 

Bitcoin’s Supply-Side Story 

Hash ribbons are a supply-side indicator developed by Charles Edwards, the founder of Capriole Investments. It plots the 30-and 60-day moving average of the network’s total hashrate. 

This indicator is now confirming the complete recovery of Bitcoin’s hashrate along with positive momentum in price, signaling a buy. 

After the end of the wet season in China, the recent miner capitulation caused a 35% drop in the hashrate. Every year, retail miners move from Southwest China to tap cheaper sources of electrical energy. The migration of miners usually takes about a month. 

BTC/USD daily price chart with hash ribbon indicator. Source: TradingView 

Historically, buying during miner capitulations has yielded positive returns. 

Large mining farms can hold Bitcoin during capitulations, forming an accumulation band allowing “price to stabilize and then climb,” according to leading on-chain analyst Willy Woo.

BTC Exchange Flows 

As the price lingers around all-time highs, concern around profit-booking has kept traders on edge.

Bitcoin’s blockchain reveals older BTC wallets moving tokens to sell at the resistance near the all-time high.

The number of coin days destroyed (CDD) is a metric that measures old wallets’ movement. CDD measures the amount of BTC moved in transactions and the number of days since it moved last. The movement of Bitcoin from old addresses or large value transactions pushes this metric up. 

In November, the monthly sum reached an 18-month high, signaling profit-booking by holders. 

Bitcoin monthly coin days destroyed. Source: Glassnode

Nevertheless, the percentage of BTC spends from addresses that haven’t moved their BTC for over a year is minuscule. It only makes up 4.1% of the overall Bitcoin spend in November. 

Bitcoin held for more than one year is increasingly on the move as the price climbs higher, but it is still a small % of overall bitcoin sent, at 1.3% this year and 4.1% in November (much of which was the movement of DoJ-seized Silk Road bitcoin) pic.twitter.com/GM82whkiZq

— Philip Gradwell (@philip_gradwell) December 1, 2020

Another Warning Signal 

The Network Value Transfer (NVT) ratio is another robust indicator for assessing overbought or oversold market conditions. It measures the total value of transactions to BTC’s total market capitalization. 

Bitcoin price with NVT signal. Source: Woobull 

A lower ratio signals an under-priced situation where the network is handling more transactions relative to its market value. A higher ratio, on the other hand, points to over-priced conditions. 

Currently, the NVT represents over-priced conditions. Nevertheless, crypto analyst, David Puell, said: “NVT should be taken with a grain of salt.” He told Crypto Briefing: 

“The lack of velocity seen there may be misleading. A lot of the transactions are now shifting into off-chain mechanisms, and a lot of the supply is being held in large entities (such as exchanges) that hold a lot of the supply changing hands in the market.”

Momentum Indicator 

The Spent Output Profit Ratio (SOPR) is an oscillating indicator that gauges the market’s momentum. It is computed by dividing BTC’s realized price by the price it was last added to an address. Virtually, the paid/purchase price. 

The ratio pivots around one, signaling bearish or bullish momentum accordingly. 

In an uptrend, investors are reluctant to sell at a loss or even at break-even prices, reducing the selling pressure at pullbacks and pushing the price up—the SOPR trends above one in a bull market, which BTC has been in since May. 

Bitcoin SOPR indicator. Source: Glassnode

When entities spend a large number of Bitcoin, the SOPR ratio records spikes on those days. 

So far, there hasn’t been a significant spike in that metric, suggesting that the buying interest is equally strong. 

Lastly, analysts are also reporting a slow down in exchange outflows, signaling short-term pain. The exchange outflows have been the most sought out metric this year. More than 500,000 Bitcoin have left exchanges, pointing towards a hugely positive signal in the long-term. 

There is evidence to show the market sentiments are highly optimistic. The strong recovery in price after the recent pullback shows that “buy the dip” psychology is in play. At the same, the resistance at $20,000 still poses a significant psychological barrier. 

Bitcoin is changing hands at $18,984 at press time.