99% of Bitcoin / Crypto Traders Do NOT KNOW THIS

99% of Bitcoin / Crypto Traders Do NOT KNOW THIS

👇1-14) Many believe Bitcoin's price follows a predictable four-year cycle driven by its halving event, expecting a steady price rise as if on a schedule. Yet, unlike the predictable change of seasons, Bitcoin’s market behavior is far more volatile, often skyrocketing into rapid, parabolic gains when demand shifts suddenly.

👇2-14) Though supply (halving) is often perceived as the primary driver, Bitcoin's price movements are fundamentally demand-driven. Contrary to the perception of irrational or uninformed trading, Bitcoin frequently reflects deeper market fundamentals. Only a few investors understand these intricacies, but the "whales" — major market players with significant influence — are well-acquainted with these factors and shape their strategies around them.

👇3-14) A single metric does not define fundamentals; it combines various data points determining whether Bitcoin and other token prices rise or fall. Since March and April, certain data points have shifted (see our webinar from May), prompting well-informed investors to adjust their portfolios accordingly. While retail traders and memecoin enthusiasts have been loudly pushing for higher prices, these shifting fundamentals signaled to larger investors that it was time to reposition. This change in demand is now influencing Bitcoin's price movement.

👇4-14) Monitoring and analyzing these data points requires far more effort than simply following a motivating tweet, but it distinguishes professionals from amateurs. When market activity slows due to weaker demand, revenue drops, and profits decline. When Ethereum’s revenues sharply decreased in April and May, we cautioned that Ether was overvalued, and prices have since undergone a significant correction.

99% fail to monitor fundamental protocol revenues to assess the financial health.

👇5-14) As suggested by August data, a similar "revenue cliff" could now be approaching for Solana, albeit with a four-month lag compared to Ethereum. Solana’s on-chain volumes on decentralized exchanges (DEX) are in steep decline, which may prompt market makers to withdraw SOL from liquidity pools where yields are also falling. These withdrawn SOL tokens will likely be sold, decreasing Solana's dominance ratio.

Solana monthly fees (RHS, $mln) vs. SOL-USDT token (LHS)

👇6-14) Among the 112 leading tokens we track, 79% have fallen in 2024. While Bitcoin has risen by 38%, Ether is up only 8%, and just 10% of these tokens have outperformed Bitcoin this year. Without a fundamental solid narrative, the much-anticipated "altcoin season" remains elusive, despite months of predictions suggesting an imminent rally by crypto Twitter.

99% overlook the fundamental drivers behind the prevailing market narrative.

👇7-14) The altcoin boom of 2020/2021 gained momentum following issuing the second and third COVID-19 relief stimulus checks on December 27, 2020, and March 11, 2021. The groundwork for this surge was laid even earlier, in October 2020, when Fed Chair Jerome Powell cautioned about the risks of insufficient fiscal stimulus and emphasized the need for additional government intervention. With the Federal Reserve already providing maximum liquidity, fiscal stimulus efforts intensified, fueling an explosion in retail trading activity. This enthusiasm has yet to be replicated in the current market cycle.

👇8-14) Many predict that a new liquidity cycle is imminent, expecting lower interest rates to boost all asset prices, as they traditionally have. However, the critical issue is timing. Instead of taking a broad view, savvy investors focus on the details, which reveal that interest rate cuts could initially cause significant market pain.

2019 Fed Rate cut analog, Bitcoin initially rallied but then sold off

👇9-14) Although there are few historical examples, the 2018/2019 period provides a notable precedent: Bitcoin sold off in the weeks following previous rate cuts while prices rallied during the pause in rate changes.

99% do not track fundamental macroeconomic drivers.

👇10-14) For the past two months, we have cautioned that the weakness reflected in the ISM Manufacturing Index could indicate broader economic challenges ahead. In our August 3 report, we specifically warned that Bitcoin could drop to $50,000, which occurred two days later during the flash crash.

SP500 YoY (LHS) vs. ISM Mfg PMI - one of them is mispriced.

👇11-14) Last night's ISM Manufacturing Index release was another disappointing report, suggesting that U.S. stocks are currently overvalued by around 20%. Moreover, this index undermines the popular narrative of an impending liquidity cycle, as an actual improvement in liquidity would likely cause the index to rise rather than continue its decline.

99% do not understand who the marginal buyer is at any given time.

👇12-14) There is often a disconnect between news—which is inherently backward-looking, focusing on events or announcements that have already occurred—and real-time data allowing forward-looking analysis. While most research firms opt for the safer reporting route on past events, we take a different approach. As traders, we use our analysis to anticipate where prices might be headed, and as far as we know, this approach is unique in the crypto space. For example, the lack of buying activity in March (ETFs) and April (stablecoins) led to consolidation for Bitcoin prices.

99% don't invest in on-chain analytics, which is essential for detecting whale sentiment.

👇13-14) Peaks in the supply held by short-term holders signaled the end of the 2017 and 2021 bull markets, and with this indicator peaking again in April 2024, on-chain data suggests this bull market has also peaked. When the supply held by long-term holders—whales and early investors—rises sharply, as in March 2024, they sell into rallies, stifling demand. Instead of prices rising, Bitcoin consolidates as early investors transfer coins to short-term holders. When these short-term holders stop buying, sensing something is amiss, Bitcoin declines.

👇14-14) Trading Bitcoin and crypto is complex but can be rewarding when supported by fundamental data. In the current challenging market, preserving capital is crucial. While better opportunities will come, U.S. political uncertainties and a persistently weak Manufacturing PMI signal potential declines for risk assets. Interest rate cuts do not ensure higher Bitcoin prices, particularly when protocol revenues sharply decline, signaling reduced usage. These are troubling indicators, but 99% of traders remain unaware. A Bitcoin drop below $50,000 is inevitable.