Bitcoin Market Health
Week after week, BTC continues to make impressive gains, reaching yet another all-time high this past week as it shot over $40k for the first time ever. After starting the week at $32,780, it climbed consistently until it reached a high of over $41,900 on Friday, before dropping slightly to end the week at $40,730.
Early on Monday morning (European time), BTC and the rest of the market dipped suddenly, with bitcoin losing over 10% of its value in just 2 hours. It quickly bounced back, recovering most of its value as the dip was rapidly bought up by eager investors, but has since continued to decline, dropping below $32k.
For the Bulls
As BTC continues to rise in price, its adoption and usage are also growing, with the number of active addresses reaching a new all-time high for the first time since the late 2017 bull market top.
At its highest point last week, over 1.3 million Bitcoin addresses were active in a single day. This continued spike indicates an impressive level of new adoption and activity for BTC, and suggests that the number of market participants in the network may be higher than ever before.
For the Bears
Bitcoin’s aSOPR (Adjusted SOPR) is extremely high, and hasn’t reset back to zero in over 3 months, as it periodically does on the way up. In 2017, aSOPR surged without resetting for 3 months as well – until BTC reached the top.
While on-chain indicators remain macro bullish, this extreme spike in profit-taking suggests that some kind of correction may be imminent.
A Bullish Comment from Willy Woo
Woo’s Take: Investor activity continues to be strongly bullish.
Bullish capital flows continue to be strong, keeping the speculative price premium above the estimated fundamental valuation in check. This rally while warming up is no more overheated than late November when the price topped $17k consolidated and continued onwards very quickly.
Meanwhile, looking into the shorter term investment flows happening on spot exchanges, investors are strongly buying this all-time-high.
Read more from Willy Woo in his newsletter, The Bitcoin Forecast.
Altcoin Feature: MKR’s Comeback and Bull Run
After languishing behind the rest of the DeFi token market and failing to maker significant price gains for the past year, MKR (the native governance token of MakerDAO) suddenly shot up last week from below $600 to an all-time high of $1973.29, which it reached early on Sunday.
However, it has quickly fallen back down after hitting this high, losing over a third of its value in less than 24 hours.
News outlets credited «DeFi growth» for the surge in MKR’s price, but that doesn’t explain why this relatively stable token has suddenly bucked its previous trend to catch up with the rest of the DeFi market. Rather, the increase in the token’s price can more likely be attributed to a massive increase in demand for DAI, the stablecoin generated by the MakerDAO protocol.
With demand for stablecoins increasing, and the interest rate for borrowing DAI now sitting above zero, yield seekers have more of an incentive to hold MKR, as it can generate revenue in the form of interest repayments. Whether or not it continues to hold this price remains to be seen, but it is clear that the MKR token was well overdue to regain some of its lost ground against the rest of the DeFi market.
Which altcoins would you like to see us cover in future editions of The Week On-Chain? Let us know on Twitter.
Weekly Feature: Ethereum Flips Bitcoin in Terms of Network Fees
2020 was the first year ever during which more fees were spent on the Ethereum blockchain than on Bitcoin; users spent almost $600 million in fees on Ethereum transactions last year – 83% more than on Bitcoin. This shows an interesting trend in the evolution of competition among different chains.
This change can be interpreted in a number of ways. It could be seen as illustrating that ETH is capturing more value than BTC, and is therefore poised to flip bitcoin in terms of market cap in the future. However, some may also interpret this as a sign that Ethereum’s infrastructure is underdeveloped, and that it is not capable of competing with BTC when it comes to cost of transacting.
Either way, with ETH2.0 in the pipeline, it is entirely possible that this trend will flip back in the coming years, with Bitcoin consuming more fees once again. However, if Ethereum continues to capture more value in terms of overall usage, its valuation could continue to creep closer to BTC.
Metrics and Assets
- Entity-Adjusted Dormancy Flow (BTC) — A new metric used to time market lows and assess whether the bull market remains in relatively normal conditions.
- Supply Liquidity Metrics (BTC) — Liquid and Illiquid Supply, Liquid Supply Change, Illiquid Supply Change.
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