Are Cryptos Bound to Retrace Amid Recent Pump?

What a much needed month for traders and patient crypto hodlers who spent the lion’s share of 2022 getting punished for every dip buy effort. Whether Bitcoin’s +40% rise was a simple regression to the mean, or a result of Fed hawkishness finally easing, is highly up for debate. But regardless, prices across crypto have finally jumped back to pre-FTX collapse levels.

As we can see, there were a ton of assets that more than doubled their market caps after the majority of altcoins slid 80% or more from April to December of 2022. Solana was the big story for the first half of January before cooling off. But take a look at the incredible ascensions from Aptos and the sudden new arrival into the top 100 market cap assets, T-mac DAO.

With all of the price surges across the crypto landscape, it’s not a big surprise that altcoins are still receiving heavy attention. As a result, one of the key indicators for market health still looks a bit shaky. Below is the social dominance of Bitcoin, adjusted for how close social platforms are to discussing it at a 20% rate:

The consistent rise of Bitcoin, back to the $23k mark at the time of this writing, has occurred in spite of a lack of social discourse on the top asset in comparison to altcoins. Typically, this is a bit of a yellow flag, and does indicate that there has been a bit of greed in the air. This is understandable with traders waiting so long for a viable pump to take advantage of.

At the same time, this lack of interest in Bitcoin and consistent favoring of altcoins means that our NVT chart for BTC still shows a bearish divergence:

The amount of unique Bitcoin moving around the network on a daily basis is still underwhelming at these current market cap levels. We have seen the occasional pump in spite of low circulation in the past, but probabilities say that a viable long-lasting price rise can’t occur until a justified amount of utility begins.

It’s also worth noting that we saw a historic amount of profit taking on the BTC network just two days ago on January 30th:

Unsurprisingly, this massive spike in profit transactions compared to loss transactions ended up resulting in an immediate price correction. The $23k level seems to be looking more and more like a key resistance level for prices to begin creeping back to $30k and beyond. And one of the big factors will be when enough profit takers have sold at this level to make room for a more sustained rally.

Average trading returns for active 30-day traders point to a nice +10.6% return, and this does keep it below the key danger zone of +15% or beyond, where pullbacks typically occur:

And what about sharks and whales? Are they supporting the massive rally that kicked off on December 30th? Well, yes and no:

As we can see, the addresses holding 10-10,000 BTC really began accumulating on January 3rd and started taking profit once again on January 17th. In spite of the profit taking, prices continued to rise. As of now, these sharks and whales hold more or less about the same that they did at the end of the year. Considering prices have jumped up as the sharks and whales have just ranged and not supported the surge, we have to be cautious and temper our excitement that a new bull market may be upon us.

The amount of addresses in each of these tiers tell a similar story:

• Addresses holding 10-100 BTC (red) undoubtedly grew up until late December. But they have stagnated over the past month.
• Addresses holding 100-1,000 BTC (yellow) have behaved the same way, plateauing in late December.
• Addresses holding 1,000-10,000 BTC (pink) have actually decreased quite massively over the past 3 months.

Perhaps stablecoins are faring a bit better, and we’re seeing some significant increases in shark and whale buying power as prices have increased? Well actually, this looks pretty favorable, at least for Tether and USD Coin:

• The percentage of USDT supply held by 100K to 10M addresses (red) foreshadowed that something was brewing when this line took off on January 7th.
• The percentage of USDC supply held by 100K to 10M addresses (blue) has ranged up and down throughout January, but a late push just in the past 3 days is looking like sharks and whales are continuing to stock up and can buy significantly more crypto at any given time.

As for how traders are putting their money where their mouths are right now, it looks like after all the dust has settled and market caps have significantly increased, there is now a mild long bias once again:

Despite most assets on our Funding Rate model above are showing red bars (indicating longs more than shorts) right now, it is still very slight. Markets can really move either way under these conditions, and the only downside is that we no longer see the sea of green short funding rates that were evident when sentiment was at its lowest at the very end of 2022.

Whatever you have planned for February, it may very well be shaped by the FOMC meetings that will be concluding today. If they begin to get aggressively hawkish again after a nice January performance from equities (just like crypto), then the cryptocurrency sector could potentially see a bit of a drop.

What remains to be seen is a high level of euphoria that is normally quite evident when crypto markets see one of its 5% best performing months in its 12-year history. Until it is seeing some FOMO sentiment that resembles the kind of euphoria we saw in 2020 and 2021, we may have a bit more room to run here.