Raoul Pal’s assertion that margin calls in the Crypto market prolong the Crypto winter has been confirmed. According to the Director of Global Macro at Fidelity, Jurrien Timmer, Bitcoin is technically oversold. Timmer adds that the margin calls are at levels that reminisce the 2011 market cycle where BTC plunged to historic lows.
The leading Crypto touched a monthly low of $20,231 on June 15. This has raised speculations that BTC is about to breach its short-term support level of $20,000. Understanding the factors that underpin the bear cycle is therefore critical in enabling investors to understand the trends. The Dormancy Flow analytical technique is the most efficient tool that measures the magnitude of margin calls.
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Understanding the BTC Dormancy Flow Concept
Dormancy measures the number of days that an investor has hodled a digital asset being liquidated. In a transaction scenario, investors can come across terms such as the Coin Days Destroyed (CDD). A CDD aggregates the number of days held and divided it by the number of tokens to get a CDD metric. The technic is further graduated to compute the entity-adjusted dormancy flow ratio, which compares the market capitalization to the annual CDD. In bull cycles, the CDD usually peaks concurrently with sale orders, and vice versa is observed in bear cycles.
Interpreting the BTC Dormancy Flow Analytics
The Bitcoin dormancy flow chart, as illustrated by Jurrien Timmer, indicates that the real BTC price as of June 15th is $48,896. Compared to the current price of $23,210 at the commencement of the week, Bitcoin is vastly undervalued. Hence, current investors will be investing at a bargain since it is a buyer’s market.
The entity-adjusted dormancy flow is now at 178, almost breaching the 2011 low of 173. This means that CDD and the margin calls are so high, and the market is technically flooded with sale orders. In 2014, and 2018, the ratio fell below 200. However, the Crypto market has come of age and has been relatively stable because of its adoption by institutional investors.
Is BTC Undervalued?
One of the best indicators of the real value of a stock is the Price/Earning ratio. The Crypto market is referred to as the Price/Value ratio. According to Timmer, the P/V ratio of BTC has hit lows only seen in 2013 and 2017. This is even though the current low prices only compare to the 2020 Crypto winter. Therefore, it means that the fair price of the Crypto is much higher. The Fidelity review of the current bear cycles lends credence to the analysis of Nikolaos Panigirtzoglou- a strategist at JPMorgan. Undoubtedly, BTC is undervalued!