Bitcoin (BTC)’s desperate buying frenzy seems to have come to an end as institutional investors that pumped the price begin to take profit. Retail bulls are still expecting a rally to $10,000 and the whales know that which means it is very unlikely to happen. The daily chart for BTC/USD shows the weakness in the price action as the rally has come to a halt after a parabolic run up. This rally is now very similar to the parabolic rally we saw during 2017-18. We all know how that turned out so there is no reason to assume otherwise in this case. There is however more reason to be bearish this time as the sentiment is too positive and the NVT ratio is higher than it has ever been in Bitcoin (BTC)’s entire trading history.
The network value to transaction ratio for Bitcoin (BTC) is like the profit to earnings ratio for stocks. It is a good indicator of how overbought or oversold the price is at a certain level. The NVT ratio peaked out at 213, the highest it has ever been. This is a very bearish development in the face of all the optimism as it shows that there is a lack of real interest in Bitcoin (BTC). Even most bulls would agree that the recent pumps in the price of Bitcoin (BTC) had anything to do with retail buying interest. It was a few big players that propped up the price to sucker in desperate buyers and to liquidate ambitious short positions. So, why then does everybody expect the price to rise to $10,000 and beyond? This is because most people believe we are in the late stages of the 2014-15 cycle which is as misleading as this whole situation could get.
In a recent analysis, I discussed how BTC/USD has not even capitulated yet because we are in the 2014 part of the cycle and not the 2015 one. The ongoing market cycle has to be longer than the previous one, not shorter. All of these factors point to one conclusion and that is a bearish reversal after the short lived bullish euphoria. The upcoming bear trend is likely to inflict maximum pain on the market and wipe out a lot of fraudulent blockchain projects. In an interesting turn of events, Bitcoin (BTC) shorts have fallen more than 38% today but the price has continued to decline. Now, most might wonder why that would be because if the number of margined shorts drops or are liquidated in case of a short squeeze, that should mean the price has to rise, right? Well, yes but there is something on Bitfinex called “claiming”.
This is when you convert a margin position into an exchange position without the trade showing on the order books. It is very likely that this drop was orchestrated by a single or a few big players who “claimed” their short positions. Those who have been following this chart for the past few days might have noticed how the number of shorts remained unaffected for the most part even as BTC/USD pumped through critical resistance levels. Now, all of a sudden the number of margined shorts has dropped more than 38% with the price dropping at the same time. If this can be pulled off so easily, what does it say about BTCUSDShorts? It says that this chart has now just become a tool to influence retail buying and selling. The manner in which the price rallied the past few weeks has made it clear that there is a lack of real buying interest in the market and it is going to end in more blood when the whales pull the plugs.