The Daily Dive #107 - Macro Selloff And Bitcoin Price Action

Virus Fears Spark Macro Selloff 

The Associated Press @AP

Stocks are opening sharply lower on Wall Street after a fast-spreading coronavirus variant was found in South Africa and the European Union proposed suspending air travel from southern Africa.

apne.wsStocks sink on new COVID variant; Dow loses 905 points | AP NewsNEW YORK (AP) — Stocks are closing sharply lower on Wall Street Friday, after a coronavirus variant from South Africa appeared to be spreading across the globe and the European Union proposed suspending air travel from southern Africa.

 Fears of a new coronavirus variant that could lead to more economic lockdowns across the global economy led to markets to sell off across the board this morning. 

U.S. equities opened sharply lower, with the S&P 500 down 2.36% at the time of writing. 

The VIX, which is a volatility index of the S&P 500 and is often used as a measure of financial market stability, saw a sharp rise to an intraday of 28.5. 

Commodities also got hit, with West Texas Intermediate (WTI U.S. Crude Oil) getting clobbered to the tune of down12.48% intraday, as investors have begun to fear more economic slowdowns/lockdowns globally. 

With the response in various macro asset classes across the board, bitcoin has also faced downside pressure. The latest macro selloff, especially for risk-on assets, takes bitcoin price down 21% from it's all-time high. Most long-term holders are now well-experienced in bitcoin price drawdowns from all-time highs with the latest price move being right around the average drawdown percentage for the year. For context, bitcoin has shown to be much less volatile this year relative to a lifetime average price drawdown from all-time highs of 49%. 

Currently the bitcoin price sits right above a critical support, the current short-term holder cost basis, that we highlighted in The Daily Dive #105. Almost a quarter of bitcoin supply has last exchanged hands above the $50,000 range which signals increased demand for bitcoin at this psychological level and higher prices. Yet, it does leave a smaller amount of supply to support bitcoin price if price starts to fall below the short-term holder cost basis of $53,244. This is a key price area to keep an eye on over the next few days. The next largest area of support that we can see on-chain is above $47,000.

Looking at a couple of different on-chain holder metrics, we can see the defensive positioning being taken by investors. Long-term holder supply declined, unfolding by 76,633 BTC day over day. 

Similarly, looking at coin days destroyed (CDD), a large spike can be seen over the last day with 40.8 million coin days destroyed. 

While there is undoubtedly some variance in the metric, it is not surprising to see a spike in coin days destroyed (this can be thought of as a profit-taking move of sorts).

While it is true that not every UTXO being spent on-chain has to be an “economic sell,” when looking at broad trends across, coin days destroyed provides great signal, and despite the recent large spike yesterday, looking at a 90-day rolling sum, bitcoin is still clearly in an accumulation trend. 

The same zoomed out view can be helpful for looking at long-term holder supply, which despite the recent downtrend, is nowhere near the levels it was at in the summer. 

Final Note

Despite the recent downwards price action, our outlook remains firmly bullish. The recent volatility and price action should serve as a reminder to all market participants that excessive leverage is something to avoid at all costs. The worst thing that you can do as a market participant is be directionally 100% with your investment thesis, but miss out/lose everything due to excessive leverage and/or risk taking. 

Use the recent pullback as an opportunity to increase your share in the only absolutely scarce monetary asset the world has ever seen. It’s that simple.