by Jay Hao,
When I woke up earlier this week, I received many messages from my friends, who told me, “Stocks have skyrocketed. Can we short Bitcoin?” Then I opened my Bloomberg and saw the following chart. The Shanghai Shenzhen CSI 300 Index has reached its highest level in nearly a year. And the economic recovery in mainland China has driven Hong Kong stocks to rise, with the Hong Kong Hang Seng Index reaching a new high since April. Even Nasdaq has reached a record high. This is really crazy, right?
So back to our question, should we short Bitcoin now? I think we can find answers from the data. First, let’s look at the trading volume on exchanges. The data from Cryptocompare shows that spot trading volume has reached a new low for half a year. Especially since the beginning of May, it can be clearly seen that the trading volume has continued to decline.
Spot Exchange Total Volume
This is not only the case when it comes to spot trading volume. Examining data from Skew shows that Bitcoin futures trading volume is continuing to decline too, this decline also began in May.
BTC Futures – Aggregated Daily Volumes
The value of Bitcoin derivatives is mainly reflected in hedging market risks. Whether it is Bitcoin futures or Bitcoin options, there is a strong trading demand during periods of high volatility. The decline in bitcoin futures trading volume is mainly due to the continued decline in Bitcoin volatility. Data from Coinmetrics shows that Bitcoin’s 30-day volatility reached its lowest level in a year.
Bitcoin 30D Volatility vs Bitcoin Price
The downturn in Bitcoin spot and futures trading volumes seems to suggest that we could short Bitcoin. But, not so fast. Let’s continue to look at more data.
In addition to trading volume on exchanges, over-the-counter (OTC) trading is also a very important indicator in the crypto market. This is because the trading volume on exchanges can be fraudulent, making OTC trading volume more trustworthy. Data from Coin.dance shows that volume on the two major OTC trading platforms, Paxful and Localbitcoins, has not decreased significantly. Even on Paxful, due to the impact of the epidemic and the fluctuation of the fiat currency Exrates, the OTC trading volume has increased significantly.
Weekly LocalBitcoins Volume (Global)
Weekly Paxful Volume(Global)
After talking about exchanges and OTC trading data, let’s take a look at the on-chain trading data. Unlike the previous two, on-chain data often represents the needs of more rational groups. To a certain extent, the on-chain data represents the underlying support of Bitcoin prices. The data from Glassnode clearly shows that the number of Bitcoin on-chain transactions has remained at an average level for nearly a year.
Bitcoin: Transaction Count
This would suggest that the status quo of Bitcoin is not as bad as you think. There is also one more indicator that may give you more confidence, and that is the Stablecoin Supply Ratio (SSR). The Stablecoin Supply Ratio (SSR) is the ratio between Bitcoin supply and stablecoins supply, or: Bitcoin Marketcap/Stablecoin Marketcap. When the SSR is low, the current stablecoin supply has more “buying power” to purchase BTC. Data from Glassnode shows that the SSR indicator has refreshed its minimum since last year.
Bitcoin: Stablecoin Supply Ratio (SSR)
Overall, the surge in the stock markets may indeed lead to the loss of funds in the crypto market and be behind the decline in trading activity. However, from the OTC and on-chain trading perspective, Bitcoin’s popularity has not decreased. And from the SSR, Bitcoin even has its strongest upward momentum in a year. The shift of attention caused by the rise of other investment products is only temporary and, as an individual investor, I am still very optimistic about the return of Bitcoin as a healthy investment.
Also published on Medium.