On-Chain Analysis of Bitcoin, And Why It’s Still Not at the Bottom?
The on-chain analysis is a topic that piques everyone’s interest. It can only be found on the blockchain and nowhere else. It isn’t easy to differentiate between indicators that are just coincidental and those that have actual value for a currency that has only been existing for around ten years. On the other hand, jumping on-chain may provide us with useful information on the state of the market and the movement of prices when we finally decide to buy bitcoin. Then, if it makes you happy, it’s all worth it.
The Amount of Profit Relative to the Amount of Supply
Currently, a fantastic social media account to follow for anybody interested in on-chain studies published an intriguing indicator. When the market is doing well, they evaluate the number of bitcoins that have turned a profit. According to the records kept by bitcoin’s past, this has been a reliable predictor for determining the beginning and ending points of bear markets for the cryptocurrency. And at this very moment, the bands are getting very close to crossing one another.
When it comes to the percentage of supply in the profit figure, for those unfamiliar with what it refers to, it is the proportion of existing bitcoins whose price is higher than the price at which they were originally purchased. A powerful signal exists if the supply-to-profit ratio is more than 50 percent. This is a sign that we have reached rock bottom when the proportion falls below fifty percent. At the very least, one might say that. The same social media graphed it by showing both the percentage of supply in profit (green) and the percentage of supply in loss (red) on the chart, in addition to the percentage of supply in profit (green). A sign would be placed at the intersection of these two lines to function as a signal.
It is not hard to observe that this path has only been taken four times in the past. In March 2020, when COVID-19 initially made its appearance, it caused shockwaves to spread across the financial markets. From our perspective, it was a terrifying moment in the history of cryptography since it poses an existential danger (to be honest, it felt like it was an existential crisis for the world as a whole). If you wish to take the position of the devil’s proponent, you might write this off as a case of a black swan and overlook the remarkable recovery that took place following the crossover. Either way, you wouldn’t be breaking any rules by doing so.
On the other hand, if we consider 2011, 2014, and 2019, we can see that the ability to anticipate is still present. That’s completely satisfactory to everyone. However, what are the most recent signs from the market? One may claim that the profit margin on the supply side has not yet overtaken the profit margin on the demand side just yet. If this pattern continues, there may be a significant distance still to go before any relief from the pain is experienced.
Why it’s important to keep up to date of the prices of cryptocurrencies
An Overview of Technical Analysis
Technical analysis is the art of predicting future price movements for various assets by studying historical price charts. Patterns are discovered. These patterns are compared to previously observed patterns. The assumption is that previous patterns will repeat in the future, supplying speculations and a great chance to profit.
On a broader scale, there are two types of Bitcoin investors:
- HODLers – People that buy Bitcoin intending to hold on to it for several years.
- Traders – People who buy Bitcoin quickly sell it for a profit. If you want to develop your money faster than the traditional by investing in Bitcoin, you must first improve your technical analysis skills.
Technical analysis analyzes charts and predicts future price movements using the concept of market prices from the past and technical indicators. This applies to any market, such as cryptocurrencies like Bitcoin (BTC).
When done correctly, technical analysis can help you predict the lows and highs of Bitcoin prices over various periods. Such forecasts will assist you in making informed and data-driven decisions about buying Bitcoin at a great price to selling at a profit.