My hypothesis is that all markets are efficient over longer period of time but do become inefficient in shorter time frames. These inefficiencies are further enhanced by predictably irrational behaviour of market participants. Knowing these extreme shifts in behaviour of market participants is valuable to decide whether to go long or take a short call on the market.
The availability and accuracy of data for conventional market is always a problem but same is not true in case of crypto market as all the information is irrevocably encoded onto respective blockchains.
We now have multiple sources to obtain onchain data for major blockchains e.g. Santiment, glassnode, intotheblock etc. I use santiment and some of my personal computations to evaluate state of the crypto market and where it is expected to head. Below is my analysis for the market at present:
Stable Coins
Increase in liquidity increases asset prices. I have published a post analyzing that - Tether Supply is leading indicator for major ups and downs in crypto market
. The supply of stable coins provides us very good apprx, as we do not know how much actual fiat is available in crypto space, measure of liquidity. Below graph shows the supply of stable coins for last one year:
The liquidity is continuously increasing -indicating that crypto prices will keep moving up.
DEFI
I consider defi to be a liquidity generator and supplier for the crypto market. Therefore, major parameters that I track is Total Value Locked (TVL). TVL is consistently increasing except last 2-3 days which is expected and good for overall health of the market and defi ecosystem. Increasing TVL is good indicator of that upward move will continue.
Bitcoin
Bitcoin is bellwether for crypto market. The major crypto trend is dictated by Bitcoin. To understand what holders and traders are doing - I use BTC onchain data and F&O data respectively.
Onchain Analysis
For onchain analysis I use Token Supply on exchanges and HODL waves. I normally use token supply on exchanges from Santiment as well as my own computations from bitinfocharts. Today for some reason Santiment is not showing data for this feature so I can not show that. Below chart shows difference of active BTC token supply in exchanges and outside exchanges since 26 July 2020 as computed by me:
It is clear that since the recent high on 18th August -there is huge inflow of BTC into exchanges. There was good support to prices despite this inflow but due to global stock market corrections on 3rd and 4th September -the bitcoin prices have corrected apprx 25%.
And below chart shows Scaled HODL waves, as described in my post BTC Halving Fractals Analysis of Price and HODL Waves
Scaled HODL waves are below one and 7d scaled hodl wave is significantly below one - indicating upward price moves in future based on abovementioned analysis.
Bitcoin price history evolution over different halvenings, as described in BTC Halving Fractals Analysis of Price and HODL Waves, is another important feature that I use. Below graph shows the same till date
Scaled Price comparison shows that scaled price has come back to the level where it was during last halvening cycle post halvening. Therefore, not any significant drop is expected from here based on abovementioned analysis.
F&O Analysis
Skew is a good source for F&O analysis of crypto market. I look at that for overall trends but I fetch data from deribit for my own analysis for - Future Open Interest and Put Call Ratio of open interest & implied volatility. Below charts show these parameters since 26th July:
Normally Open interest of futures trends with prices with some +/- lags. The open interest of futures was stable over last two days and has started increasing today - indicating possible upward move from here.
PutCall Ratio of open interest (PCoiR) and PutCall Ratio of Implied Volatility (PCivR) can be used to judge if traders are greedy or in fear. A detailed analysys about this is posted by me in My work in the field of Artificial Intelligence - Episode 4 (2015-2017). High and above 1 PCoiR and PCivR means traders are in fear and low and below 1 PCoiR and PCivR means traders are greedy. Currently high PCoiR and PCivR suggest that traders are in fear - indicating upward move.
Global Markets
All the markets are interconnected as participants are invested in all of them. Significant movements, particularly negative movements, in big brother conventional markets can have large impact on crypto markets. Therefore, it is also important to keep track of what is happening in conventional market. And US stock market, being the largest, is bellwether for global conventional markets. I keep track of US markets e.g. DOW, Nasdaq, S&P500 to take hints from global conventional markets. Below Graph shows Dow Index for last month
Last week - Tech stocks have corrected significantly. These were the stocks that helped fuel this rally post covid crash in March' 2020. In short term direction of stock market, when there are large negative corrections, can significantly put downward pressure on bitcoin and entire crypto market.
Outlook
Except Global Stock market and to some extent bitcoin flow into exchanges, which is also driven by negative global stock market movements, all other parameters suggest that this correction of 25% from recent top in expected crypto bull market, based on predictions from Industry Champions including from Stock-toFlow model and many other models as described in detail in my post UNDERSTANDING CRYPTO ECONOMIC CYCLES USING BLOCKCHAIN DATA FROM SANTIMENT, was healthy and crypto should start moving up from here.
Note - I do this analysis out of my interest and take no responsibility if anybody incurs any losses based on this. This is a volatile market and so I suggest DYOR.