With the first anniversary of 312 approaching, will the "bad March" of cryptocurrency happen again?

Wu Shuo Author | Liu Quankai

Editor of this issue | Colin Wu

In the last week of February, Bitcoin experienced a sharp correction, falling by more than 25% at one point, and mainstream and altcoins collapsed. At that time, the market was shrouded in bullish sentiment. Once the correction occurred, hundreds of thousands of futures investors were liquidated, with the amount of liquidation reaching tens of billions, exceeding last year's "312".

At the beginning of March, Bitcoin rebounded, but the price is still struggling below $50,000. With less than ten days left before the "312" incident, will BTC repeat the bad market in March? Historical data shows that the monthly investment returns of BTC in March are mostly negative, which is the most consistent seasonal pattern of BTC in a year.

This seasonal pattern has too few statistical targets and does not necessarily have universal significance. Sometimes it is more like a social emotion without any special reason. So, will the situation this year be different? Liu Quankai, the author of Wu said blockchain, will interpret it from the perspective of large cycles, relevant on-chain indicators and other possible factors.

Big Cycle

From the historical data chart, without considering other factors of the market environment, each round of Bitcoin bull and bear market cycle has the following characteristics:

1. The Bitcoin bull market started with the Bitcoin halving;

2. The Bitcoin bull market will experience three peaks, with each peak higher than the previous one;

3. There will be a large correction between each peak;

4. After the third peak, the decline was much greater than any previous correction, indicating the end of the bull market;

5. There can also be sharp pullbacks or sharp rises during bear markets.

From the Bitcoin bull-bear market cycle chart, we are currently in the position after the first peak and before the second peak, so it can be judged that the big correction at the end of February is reasonable. Let's compare it with last year's "312", when the position was after the third peak in 2017 and before the halving, and the corresponding cycle was a long bear market. On March 12 and 13, there was a maximum correction of more than 50%. The market cycle at this time is completely different from the same period last year. Therefore, without considering external factors, it can be basically judged that even if there is a large correction in March, it will not be aborted.

On-chain metrics

By understanding the current position of BTC through on-chain indicators and comparing it with the indicator anomalies in "312", we can help distinguish market signals from smoke bombs.

1. BTC-SOPR

The Bitcoin Expenditure Output Profit Ratio (BTC-SOPR) helps investors measure where the BTC price is in the cycle by observing when BTC is sold for profit. When SOPR>1, it means that all users who spend BTC on that day are generally in a profit stage; otherwise, they are in a loss state.

According to the qkl123 chart data, it has been moving above the 1 axis since October last year, and only slightly below 1 around February 27. When SOPR reaches 1 or below 1, it can be seen as a signal of seller exhaustion, and the stage bottom may be emerging. Of course, a bad signal on a certain day is not enough to represent a period of time or as a signal of an upcoming change.

By comparing the SOPR during the "312" incident, the lowest point of price and SOPR consistency was reached on March 13. However, before the low point appeared, SOPR had been running below the 1 axis for nearly two weeks, and the low point of SOPR was constantly decreasing. At this time, the indicator has shown abnormal conditions. When SOPR drops below the 1 axis and hits a new low several times, it indicates that more and more investors have sold their stocks for profit over a period of time, which may indicate the upcoming huge risks.

Even though we experienced a horrible correction in the last week of February, SOPR has only been below the 1 axis once in the past long period of time, which shows that we are still in a good market environment. From what SOPR currently shows, March may not repeat the "312" incident, but we should still pay close attention to whether SOPR will hit new lows below the 1 axis multiple times.

2. BTC MVRV Z-Score

The MVRV Z-Score uses blockchain analysis to identify periods of time when Bitcoin has been extremely overvalued or undervalued relative to its "fair value." These periods are highlighted by z-scores entering pink boxes and indicate the tops of market cycles; market value is below realized value, highlighted by z-scores entering green boxes.

According to lookintobitcoin data, since March, the Z score has been running between the green and red zones, which shows that the market price and realized price of Bitcoin are relatively balanced, and the current market price is reasonable.

On March 12 last year, the z-score experienced a vertical drop in a short period of time, falling to -0.2, which was in the green undervalued area. Even after a large correction, the z-score is 5.41, which is still in the healthy area and far away from the undervalued area. The current Z-score indicates that the market environment is improving, but we should still pay close attention to the fluctuations that may be caused by extreme situations.

3. BTC: Active Address Sentiment Indicator

The Bitcoin Active Address Sentiment Indicator measures short-term market sentiment by comparing Bitcoin's 28-day price with the 28-day change in active addresses. When the orange line (28-day price change) reaches the upper limit of the red dashed line, it indicates that the price growth rate exceeds the growth rate of active addresses, and the market's short-term bullish sentiment is overheated; conversely, when it is below the lower limit of the green dashed line, the market sentiment is overly bearish. If the orange line breaks through the red or green dashed line range, it usually occurs in a major market crash or in the late stage of a bull market.

According to the data from lookintobitcoin, the current 28-day price change rate is 48%, while the reasonable range is -7%-15%, and the market sentiment is overly bullish. However, with the recent two callbacks, the 28-day price change rate has been repaired and is gradually moving closer to the reasonable range.

During March 12 last year, the 28-day price change rate was -52%, and market sentiment was overly bearish, so we saw the BTC price rise accordingly; similarly, although the current 28-day price change rate has been repaired, it is still higher than the reasonable range, and the market is at risk of continuing to pull back in the short term.

Other possible factors

In the "312" incident last year, there was a view that the reason for the Bitcoin crash was the result of the high leverage of the cryptocurrency market. In the cryptocurrency market, many short-term price fluctuations are caused by a series of long or short contracts being liquidated in futures trading. If large investors buy or sell in the market, it will force many investors in the opposite direction to abandon their positions.

Traders who use high leverage in extreme market conditions will be forced to close their positions by the exchange if their losses exceed their actual capital to ensure that they can repay their losses. In the callback last week, a similar situation also occurred. The ratio of longs to shorts was unreasonable, and the proportion of longs was much higher than that of shorts. A large number of liquidations will lead to further price declines. Therefore, the short-term market risks brought by futures liquidation are also worthy of special attention, and bargain hunters can also seize opportunities in due course.