Fundamental Metric Suggests Bitcoin Is In A Massive Accumulation Zone, According to On-Chain Analytics

Over the last few months, Bitcoin and the broader cryptocurrency market have underperformed. With an increasing number of retail investors leaving the market, uncertain macroeconomic conditions and boring sideways price action, it is clear that the hype has definitely wavered since late 2021.

 

Despite this, multiple fundamental metrics indicate that Bitcoin could be in a massive accumulation zone. This data could suggest that the market could be near capitulation, signaling a strong buy zone for long-term investors.

 

BTC Is In An Accumulation Phase

 

An accumulation phase refers to a period of consolidation that follows a downtrend but precedes an uptrend. In theory, it takes some time for the market to shake out all the sellers and weak hands –– this phase can take weeks and months to complete. Historically speaking, a longer period of consolidation has often meant that it is more likely that the market bottom is in.

Talking about longs and whales, the mean amount of BTC sent to derivative exchanges has been steadily increasing as seen in the graph below. In most cases when these wallets transfer funds to derivative exchanges, they accumulate large amounts of BTC, which leads to future price spikes down the line.

 

Mean BTC inflows to Derivative Exchanges:

 

Source - DeFire Academy

This positive sign means that whales are in long positions, and the market is still in an accumulation range despite the BTC price being higher than a few weeks ago. Interestingly, the mean BTC inflows to derivative exchanges value is approaching a prior high last seen when the crypto market reversed in the 2021 bear market.

 

The Taker Buy Sell-Ratio as a MACD Wave:

 

Source - DeFire Academy

 

On a macro timeframe, the taker buy sell ratio also indicates a large accumulation zone. Namely, the MACD wave (blue), which represents the taker buy sell ratio, is in the range where buying prevails. The last time the taker buy sell ratio was in a buying zone was during the 2021 bear market, which in hindsight, provided exceptional returns for investors.

 

As a result, it is reasonable to assume that smart money is buying the current dip yet again in anticipation of higher prices in the near future. Disciplined investors may dollar cost average these dips to take advantage of prices; however, it is important to note that further downside is still plausible.

When Should You Start Buying?

 

Patience is pivotal when waiting for the ideal entry during an accumulation zone. The figure below highlights the percentage of BTC holders in a loss and profit at different stages in the market.

 

BTC Loss and Profit Percentages:

 

 

Generally speaking, a good area to buy BTC and altcoins is when the loss percentage increases to prior highs. Historically, the closer it is, the higher the chance will be that your buy will be profitable in the long term. This strategy is based on the principle of buying when others are irrationally fearful and to take advantage of undervalued prices for both BTC and other altcoins.

Prudent investors may wait for the loss percent to reach 35% to 40%; however, it is important to note that such levels are not necessarily going to be reached before Bitcoin and the broader cryptocurrency market enter in the next bullish rally.

Crypto Market Outlook

Overall, it is important to acknowledge that cryptocurrencies are inherently risky. Negative macroeconomic events that impact the broader crypto market and the U.S. technology sector may exacerbate the current crypto bear market.

While many investors hope that the crypto market reverses in the near future, the harsh truth is that at the moment, the crypto industry lacks the fuel to deliver a rapid reversal. In the meantime, it may be appropriate to dollar cost average the dips if you believe in the long-term value of Bitcoin.