How to sense BTC rising or falling by stablecoin flow (Part I)
Original author of this article is Phyre Ni, a Chinese analyst who is keen to onchain data analysis, you can refer here for original text.
Many friends know that I have always said that funding flow is the most important factor and the only criterion to determine the price rising or falling, other factors, like policy, situation, consensus, or news, are all for the service of funding flow, everything is to influence the inbound and outbound of funds. As long as we can clearly grasp the flow of funds and the pulse of funds, we can predict BTC’s next trend, at least to some extent. First of all, let’s look at the movement of funds on the chain in the last three months.
From this simple USDT moving trend, we can clearly find that the amount of capital at the end of January is relatively massive, oscillating around $8 billion averagely, even during weekend, capital flow keeps in a very high level, but from the beginning of February, funding volume performs obvious downhill, so what does the downhill of funding mean?
Above two charts base on same underlying graph, one marks funding level and the other overlaps with BTC price. With these two charts we notice a very important piece of period, at the red light column, when the funding volume is at the highest, at the same time BTC price falls to the lowest position of 2022. No need to give a conclusion firstly, let us go further.
Still same chart, just add three more marks, and with the newly added light bars we can further find that not only around $35,000, but around $38,000 (purple bars) there area relatively high amount funding flow. But the only time that BTC price in rising trend is during the yellow bar, while at the other high-funding-flow periods, BTC drops. From the yellow light bar area, we can conclude that:
When main funds perceived BTC could be hard to down drop below $35,000 again (yellow bar), they temporarily chose to increase funding inflow to take a bottom fishing around $38,000. Same thing happened twice at purple bar, when the main funds was not sure where the bottom is, they step in the market at the relative low, i.e. below $40,000, and put more money when below $39,000 to near $38,000. While during uptrend, the main funds seem to be not interested to build at all.
This is the first conclusion we draw, and one of the possibilities we can find for why the amount of funding is decreasing now, is that the next bottoming level for the main funds to choose after 35,000 is around 38,000, as 40,000 is not the best bottoming point for the main funds, at least not now.
When we switch to the amount of funding transferred to the exchange, we can see that it overlaps perfectly with the trend of on-chain flow, which means that not only the main funds on the exchange was bottom-fishing at the mentioned stages, but also funds on chain or OTC behaved in the same way. So conclusion one holds true.
So then comes the next most important point in this article, whether the current amount of funding is enough for BTC to continue its upward push, or how much money is enough to push BTC to a new high. Let’s read on.
With the previous basis, I won’t break down the layers. This chart, we start from November 2020 to today 8 pm. Because November 2020 is when the latest bull market starts, it is a ideal starting point to measure the funding flow. Here, there are two data that we need to remember clearly, the first is the initial money flow onchain is $1.5 billion, which corresponds to exactly $15,000 of BTC price. Then the undoubted bull run starts in 2021, throughout which I have divided the bull market into two phases by green and red (ignore yellow for now), each phase includes a green and a red zone, the green representing the upward phase of BTC and the red representing the downward phase of BTC.
In the first phase it is very clear to see that the amount of money on chain fluctuated from $1.5 billion to $12.5 billion (mean) dollar, and reached an ATH, while BTC price pulled up from $15,000 to $63,000. Indeed total fund flow of $10 billion can pulled BTC to $63000, its first ATH in 2021, while later on a larger amount of money was just to “taking over or bottoming out”.
You can see that the highest point of money corresponds to the time when BTC fell to $40,000 or even below, while at the period from $40,000 to $30,000, average bottoming money reached $6.5 billion, and came out for a second upward rush when BTC touched below $30,000.
In the second round, it is clear to see that the funds rose directly from $6.5 billion to $9.5 billion, when the real amount of funds was actually close to $10 billion (short-term), BTC reached new ATH high of $67,000. While $9.5 billion was the high flow during decline. So we can clearly see that the first round peak is round $10 billion when it reached $65,000, and the second ATH was nearly $10 billion AGAIN, the biggest reason might be the dumping during the big drop (5.12) at first zone reduces the upward pressure of second phase, as the two major phases gave the market less than six months to executive chip cleaning.
The introduction of latest $10 billion is precisely because of the approval of BTC ETF. So let’s assume if the news of BTC ETF had not been leaked by the market one month earlier in September (no doubt, I knew it at the beginning of September that the ETF would be approved in October), what would happened? I don’t even need to model it, you will know the result, because the level of funding in July and August 2021 was almost same as January and February of 2022, which means that without approval of BTC ETF, there would not be a second bull run and it would not have pushed BTC to a new high of 67,000, because there was not enough money.
The amount of money that was available in July and August 2021 was at same level when BTC hovering at the current 40,000, there is still a good chance that the bottoming price of 30,000 can be held once the interest rate hike is ordered, since this would have truly completed an bull-bear alternation round, while the second bull run was the product of man-made positive news which squeezed funds into market. That is why from December 2021 onward, onchain data is still thriving while BTC is falling all the way down.
And then with the second price drop ended the bull market (which should not have existed), the peak of funds appeared after BTC fell back to $35,000. You can see that the amount of funds was the biggest burst of funds in 2022 from the beginning of the year to now, although not as much as the two peaks of 2021, but only slightly less, total volume of funds has reached the third highest in the history, and we can speculate after the second bull market ends, the bottom fishing price of main funds is some level below $40,000.
The next yellow bar is not green because it is not an “uptrend”, but a “bottom fishing trend”. At this stage, the first bottom fishing after two markets phases is done at $35,000. From then on only when BTC price falls below $40,000, or even 38000, onchain fund volume could reaches $6.5 billion or more. And above that level, main funds slow down its pace.
So when BTC price went back up to $38,000, there was no more $6.5 billion on the chain. And we know from the two phases of onchain capital fluctuations in 2021 that if we want push BTC price to $60,000 or above, we need at least $9 billion. Even if we want it go above $50,000 again, we need at least $8 billion onchain capital flow. Now we only have $4.5 billion, current amount can only allow BTC hold on its current price range, with little possibility of an upward move.
The above chart is a more advanced version, although, BTC price move will not be achieved directly through OTC, CEX can act as a “Miracle” to transmit price information. Comparing to the funds flow on chain, the amount of funds transferred to the exchange is more important.
I don’t need to explain it carefully after reading the previous section, let’s talk about the results, when the amount of money transferred to CEXs was around $350 million, it can keep BTC price to $15,000, while around $600 million is to keep the price at present level, if you want BTC price to rise to $60,000, at least $1.8 billion of USDT have to be transferred to CEXs. If BTC price rises to $60,000, minimum $1.8 billion would be needed, and to rise BTC price above $50,000, minimum $1.2 billion would be required, while there is only $600 million nowadays.
The final, is it true that BTC can only break above $50,000 if capital flow reaches $8 billion or more on chain or $1.2 billion or more in CEXs? Not actually.
We all know that funds flow actually includes both buying and selling, and not all of them is to bought in upwards, there is also a large amount of funds used to buy user sell-offs. So if the selling pressure is low enough, either from above (loss-making chips) or below (profit-making chips), then the funding flow which is needed to pull BTC up will be relatively less.
Conclusion 2, more oscillations to eliminate as many uncommitted chips as possible will reduce the pressure on the main funds, and relatively less money will achieve the push. So in the current situation, repeated oscillations may not be a bad thing, there is still a chance to move up, while repeated cleaning to reduce weight of BTC may be still. Possible pull up may happen not only when multiplied amount of funds is rush in, but when a large number of BTC do not intend to sell.
The final conclusion is if BTC is going to rise, more money and less selling pressure are needed. Although this statement sounds like nonsense, at least we know approximately how much USDT is needed to pull BTC up, and to what level. But is that really enough? No, because main counter party is not just USDT, but also USDC. Combining USDT and USDC together is the true volume in the market, and we’ll talk about USDC next time.
