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First Mover: As Bitcoin Tops $13K, Analyst Explains How Blockchain Gives Clues on Next Move

Chainalysis Chief Economist Philip Gradwell tips his five favorite blockchain data points for analyzing cryptocurrency markets.

Bitcoiners are celebrating the largest cryptocurrency's longest winning streak in six months.
Bitcoiners are celebrating the largest cryptocurrency's longest winning streak in six months.

Bitcoin was higher, just above $13,000 and rising for a seventh straight day – the longest winning streak in six months.

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“A continuation would probably require more positive news,” Matt Blom, head of sales and trading for the publicly traded cryptocurrency firm Diginex, wrote Thursday in a note to clients.

In traditional markets, European indexes rose on positive corporate earnings and strong German manufacturing data, and U.S. stock futures pointed to a higher open. Gold strengthened to $1,911 an ounce.

Market moves

A hallmark of the blockchain analysis is that there's all sorts of data on the distributed computing networks available publicly to anyone with a browser.

So for crypto traders, why not use the data to get an edge?

CoinDesk's Omkar Godbole talked to Philip Gradwell, chief economist at blockchain intelligence firm Chainalysis, about the data points he thinks are most important for crypto traders.

Below is a condensed list, though Godbole's full article includes a link to a video of the original interview.

1) Exchange inflows. A surge in a rising market might indicate looming selling pressure, a sign of feeble investor confidence.

2) Trade intensity. The metric, which measures the number of times an inflowing coin is traded, "tells us how many people are willing to buy bitcoins sent to exchanges," according to Gradwell. So an uptick is a sign of trend strength.

3) Interexchange flows. Net flow from crypto-to-fiat exchanges to crypto-to-crypto exchanges suggests the market is dominated by stablecoin traders. In this scenario, a rise in the stablecoin's issuance could be considered a leading indicator of an impending price rally.

4) Liquidity. A sustained rise in the number of illiquid entities – defined as those that send less than 25% of the assets it receives – is a sign of a strong long-term holding sentiment, and thus a bullish indicator.

5) Value transfers across blockchains. The metric represents usage of the blockchain and is typically accompanied by a rise in the transaction count. "When there's greater usage of a cryptocurrency there's more demand, and that drives the price up," Gradwell said.

- Omkar Godbole

Read More: Five On-Chain Indicators Investors Should Follow

Bitcoin's liquidity, as measured by Chainalysis, is as low as it was in mid-2017, just before the cryptocurrency went on a meteoric run from $5,000 to $20,000.
Bitcoin's liquidity, as measured by Chainalysis, is as low as it was in mid-2017, just before the cryptocurrency went on a meteoric run from $5,000 to $20,000.

Bitcoin watch

Bitcoin weekly price chart.
Bitcoin weekly price chart.

Bitcoin is eyeing its biggest weekly gain in six months.

The cryptocurrency is currently trading near $13,000, representing a 13% appreciation on a week-to-date basis, the most since April.

The Chicago Mercantile Exchange’s share of bitcoin’s futures market has increased alongside the price rally.

As of Thursday, bitcoin futures contracts worth $790 million were open on the CME, according to data source Skew. That's 15.8% of the global open interest tally of $5 billion – the second highest contribution among major exchanges.

The exchange's contribution to global open positions has jumped from 10% to 15.8% this month alone, indicating increased institutional participation.

From a technical analysis perspective, the focus is on the weekly close (Sunday, 23:59 UTC). If the cryptocurrency finishes above $12,476 (August high), a bullish breakout would be confirmed on the weekly chart.

That looks likely, as demand for the cryptocurrency is strong. A breakout would strengthen the case for a rally to $14,000 before the year-end.

- Omkar Godbole

Read More: CME’s Rise in Bitcoin Futures Rankings Signals Growing Institutional Interest

Token watch

Bitcoin (BTC): Hedge fund billionaire Paul Tudor Jones II tells CNBC that bitcoin rally is only in "first inning."

Tether (USDT): Chinese authorities crack down on gambling sites using dollar-linked stablecoin.

Ripple (XRP): CEO Brad Garlinghouse says blockchain payments company might move to London amid lingering uncertainty over XRP token's legal and regulatory classification.

What's hot

PayPal (ticker: PYPL) is exploring purchases of cryptocurrency companies including bitcoin custodian BitGo (CoinDesk)

BitMEX, under scrutiny from U.S. officials, proceeds to list new futures contract on Yearn.Finance's YFI token, says contracts for polkadot (DOT) and Binance coin (BNB) are on the way. (CoinDesk)

Bitstamp, European cryptocurrency exchange, names Gemini alum Julian Sawyer as CEO (CoinDesk)

Spanish national police arrest operator of cryptocurrency arbitrage firm that some investors alleged to be a Ponzi scheme (CoinDesk)

PayPal's push into digital currencies could benefit mass crypto adoption, Morgan Stanley says (CoinDesk)

Analogs

The latest on the economy and traditional finance

Turkish lira weakens toward eight per dollar after central bank declines to raise interest rates to tamp down inflation expectations (FT)

Goldman Sachs agrees to pay $2.9 billion to resolve probes into 1MDB debacle involving Malaysian financier (CNBC)

The number of employees globally that permanently work from home is set to double by 2021 (Reuters)

The U.S. Consumer Financial Protection Bureau is seeking to change rules governing the access and use of consumer financial data (Reuters)

Singapore and Germany are setting up a "green lane" enabling travel for business or official reasons amid coronavirus restrictions (Bloomberg)

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Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team based in Mumbai, holds a masters degree in Finance and a Chartered Market Technician (CMT) member. Omkar previously worked at FXStreet, writing research on currency markets and as fundamental analyst at currency and commodities desk at Mumbai-based brokerage houses. Omkar holds small amounts of bitcoin, ether, BitTorrent, tron and dot.

Omkar Godbole
Bradley Keoun

Bradley Keoun is CoinDesk's managing editor of tech & protocols, where he oversees a team of reporters covering blockchain technology, and previously ran the global crypto markets team. A two-time Loeb Awards finalist, he previously was chief global finance and economic correspondent for TheStreet and before that worked as an editor and reporter for Bloomberg News in New York and Mexico City, reporting on Wall Street, emerging markets and the energy industry. He started out as a police-beat reporter for the Gainesville Sun in Florida and later worked as a general-assignment reporter for the Chicago Tribune. Originally from Fort Wayne, Indiana, he double-majored in electrical engineering and classical studies as an undergraduate at Duke University and later obtained a master's in journalism from the University of Florida. He is currently based in Austin, Texas, and in his spare time plays guitar, sings in a choir and hikes in the Texas Hill Country. He owns less than $1,000 each of several cryptocurrencies.

Bradley Keoun
Sebastian Sinclair

Sebastian Sinclair is the market and news reporter for CoinDesk operating in the South East Asia timezone. He has experience trading in the cryptocurrency markets, providing technical analysis and covering news developments affecting the movements on bitcoin and the industry as a whole. He currently holds no cryptocurrencies.

Sebastian Sinclair