How to use capital flow to determine the rise and fall of BTC

Many of my friends know that I have always said that funds are the most important and the only criterion for determining price fluctuations. Whether it is policy, situation, consensus, or information, all are for the service of funds. Everything is an inducement that affects the inflow and outflow of funds. Therefore, as long as we can clearly grasp the flow and context of funds, we can predict the next trend of BTC to a certain extent.

First, let’s take a look at the changes in funds on the chain in the past three months.

From this simple USDT fund trend, we can clearly see that the amount of funds at the end of January was relatively large, fluctuating around 8 billion US dollars on average, and even on weekends the amount of funds was maintained at a very high level. However, since February, funds have begun to decline significantly. So what does the decline in funds represent?

Let’s continue watching

Both pictures are the same, but one focuses on the capital level and the other focuses on the BTC price. Through these two pictures, we can find a very important data, which is the red light column. That is to say, the place where the amount of funds is the heaviest is actually the lowest position so far in 2022. There is no need to draw a conclusion yet.

Let’s continue watching.

This picture is exactly the same as the previous two. I just added three more marks. Through the newly added light column, we further discovered that there is not only a large amount of funds around 35,000 US dollars, but also relatively high funds around 38,000 US dollars. Only when the yellow light column is the BTC price rising, and the other large funds are when the price falls. From the yellow light column, we can draw a conclusion that -

When it was discovered that the price of BTC could not return to 35,000 USD, the funds temporarily increased the amount to buy the bottom at around 38,000 USD. The next two times were actually the same, but when the main funds were not sure about the bottom, they started to make arrangements at a relatively low point, that is, below 40,000 USD, and when it was below 39,000 and close to 38,000 USD, they would invest more funds. The main funds had no interest in the upward trend.

This is the first conclusion we have drawn, and it is also one of the possibilities why the amount of funds is decreasing now. The next bottoming point chosen by the main force after 35,000 is 38,000 US dollars. As for 40,000 US dollars, it is not the best bottoming point chosen by the main force, at least not now.

When we switch the data to the amount of funds transferred to the exchange, we can find that it perfectly coincides with the on-chain fluctuation trend. That is, at this stage, not only are the main funds in the exchange bottom-fishing, but they are also bottom-fishing on the chain or through OTC methods, so Conclusion 1 is valid.

Then the next is the most important part of this article. Is the current amount of funds sufficient for BTC to continue to rise, or how much amount of funds is needed for BTC to break a new high?

Let’s continue watching.

With the previous foundation, I will not break down the layers. Through this picture, we can clearly see that the capital data selected is from November 2020 to 8 o'clock this morning. Because November 2020 is when the entire market officially started, it is very suitable as the starting point for measuring capital. Here, there are two data that everyone needs to remember. The first is that the initial amount of on-chain fluctuations of funds is 1.5 billion US dollars, which corresponds to exactly 15,000 US dollars of BTC.

Then began the undoubted bull market of 2021. During the entire bull market, I used green and red (not talking about yellow for now) to divide the bull market into two parts. Each part is one green and one red. Green represents the rising stage of BTC price, and red represents the falling stage of BTC.

In the first stage, it can be seen very clearly that the fluctuation of funds on the chain has reached an all-time high of 12.5 billion (average) US dollars, and the price of BTC has risen from 15,000 US dollars to 63,000 US dollars. However, in fact, BTC has already reached its highest point at around 10 billion US dollars, and larger funds are in a process of "taking over or bottom fishing".

Those who watch with confidence can find that the highest point of funds corresponds to when BTC falls to US$40,000 or even below, and the average bottom-fishing funds in the stage of US$40,000 to US$30,000 also reached US$6.5 billion, and when BTC touched below 30,000, there was a second upward surge of funds.

In the second round of capital surge, we can clearly see that it rose directly from 6.5 billion US dollars to 9.5 billion US dollars. When BTC reached its historical high of 67,000 US dollars, the actual amount of capital was close to 10 billion US dollars (short-term), and 9.5 billion US dollars was just the high point reached during the decline. Therefore, we can clearly know that the peak of capital when it reached 65,000 US dollars in the last round was about 10 billion US dollars, and the second ATH was close to 10 billion US dollars. The biggest reason for this is that there was a reduction in holdings during the first stage of the decline, which reduced the pressure of rising, because in these two major stages, the time given to the market to clean up the chips was even less than half a year, and the introduction of nearly 10 billion US dollars was due to the approval of BTC's ETF.

So let's assume that if the news of BTC's ETF approval was not captured by the market a month in advance in September (no doubt, I knew in early September that the ETF would be approved in October), what would the next trend be like? I don't even need to make a model, everyone knows it, because the funding level in July and August is almost the same as that in January and February 2022, that is to say, if BTC's ETF is not approved, there will be no second market, and BTC will not be pushed to a new high of 67,000, because there is not enough funding.

The amount of funds at that time could only allow BTC to hover around the current 40,000, and once the interest rate hike is reached, there is still a great possibility that the bottom price of 30,000 can be maintained, because this will truly complete a round of alternation, and the second round is the product of funds being squeezed out due to favorable conditions. This is why since December 2021, the on-chain data still shows a thriving scene, while the price of BTC has been falling all the way.

Then, with the second price drop, the market that should not have existed ended. This time, the peak of funds appeared after BTC fell back to US$35,000. It can be seen that the amount of funds at that time was the largest capital outbreak from the beginning of 2022 to now. Although it is not as good as the two peak funds in 2021, it is only slightly inferior. The total capital volume has reached the third highest level in history, and we can emotionally find that with the end of the second market, the bottom-fishing of the main funds is still below US$40,000 as the largest node.

The reason why the next yellow light column is not green is that it does not bring an "upward trend" but a "bottom-fishing trend". It is also the first bottom after two market rallies since this time, 35,000 US dollars. After this, only when the price of BTC falls below 40,000 or even reaches 38,000 US dollars, the fluctuation of funds on the chain will reach 6.5 billion US dollars or above. When it is higher than this price, there is no interest.

Therefore, since the price of BTC rose back to 38,000 USD, the funds on the chain have never exceeded 6.5 billion USD. From the two historical fluctuations of funds on the chain, we can know that if we want to make the price of BTC rise above 60,000 USD, the fluctuation of funds on the chain must be at least around 9 billion USD. Even if we want to return to above 50,000 USD, the fluctuation of funds on the chain must be at least above 8 billion USD. At present, there are only 4.5 billion USD. Therefore, the current amount of funds can only keep BTC at the current price, and there is almost no possibility of upward movement.

The above picture is a more advanced version. After all, compared to BTC, the price increase will not be achieved directly through OTC. If you want to increase the price, you still need the exchange as an "oracle" to transmit information. Therefore, compared with the capital fluctuations on the chain, the amount of funds transferred to the exchange is more important.

Friends who have read the previous article do not need me to explain in detail here. As we said, when the amount of funds transferred into the exchange was around 350 million US dollars, the BTC price was maintained at 15,000 US dollars, and around 600 million US dollars maintained the previous price. If the price of BTC is to rise back to 60,000 US dollars, at least 1.8 billion US dollars of USDT must be transferred to the exchange. If the price of BTC is to rise above 50,000 US dollars, at least 1.2 billion US dollars of funds are required, and currently there are only 600 million.

The final more advanced content is below.

Does it mean that only when the on-chain fluctuation reaches more than 8 billion US dollars and the amount of funds transferred into the exchange reaches more than 1.2 billion US dollars, can the price of BTC break through 50,000 US dollars? Actually, it is not.

We all know that the fluctuation of funds actually includes both buying and selling, and the amount of funds transferred in is not all for upward consumption, and a large amount of funds are used to buy users' selling pressure. Therefore, if the selling pressure from above (losing chips) or below (profitable chips) is low enough, the funds needed to pull up BTC will be relatively reduced.

Conclusion 2: More fluctuations can eliminate as many unsteady chips as possible, which will reduce the pressure on the main funds, and relatively less funds will be used to achieve the action of pulling up the market. Therefore, as far as the current situation is concerned, repeated fluctuations are not necessarily a bad thing, and still leave BTC with a chance to rise. Through repeated cleaning, the current burden of BTC can be reduced. Therefore, it is not necessary to pull up the market only when the funds increase at least exponentially. When a large number of BTC are not sold, the same effect can be achieved.

Combining Conclusions 1 and 2, the final conclusion is that if BTC wants to rise, it needs more funds and less selling pressure. Although this sentence seems to be unsaid, we at least know how much USDT is needed to raise BTC to a certain level.

But is this really enough?

It is not enough, because the main purchase volume is not only USDT, but also USDC. Only when USDT and USDC are combined together, it is the final capital volume. We will talk about the USDC part next time.

The last

This article took me four hours to write and two days to organize my thoughts, so I want to give it a try. If you think this article is valuable and can help you judge the future trend or inspire your trading ideas, please buy an NFT of this article. Yes, I have issued this article as an NFT through Mirror. The lowest support only requires 0.01ETH, but the current gas fee is relatively low, so I will not force it, and I will not stop writing because no one buys it this time. Just treat it as an attempt. It also explores a different way of survival for the output of on-chain data.

Thank you for your support.