Bitcoin bull and Morgan Creek Digital co-founder Anthony Pompliano says on-chain metrics are indicating that the Bitcoin correction that drove the leading cryptocurrency from its all-time high of $64,863 to below $50,000 is nearing its conclusion.
In a new edition of The Pomp Letter, the big Bitcoin advocate uses data provided by on-chain analyst Will Clemente to explain and illustrate his bullish stance on BTC amid the market correction.
Pompliano looks at the funding rates which he says have turned bullish as the pullback liquidated over one million trader accounts and flushed out greed and leverage.
“To peg the perpetual swap contract to Bitcoin spot price, funding rates are used. When the majority of traders go long, it becomes profitable to go short, and vice versa. During the event, funding rates flipped negative, meaning it became profitable for traders to take the long side of the trade. This has shown to be a buy signal in the previous two times this happened during this bull market.”
Next up, Pompliano highlights that the SOPR (Spent Output Profit Ratio), an indicator that measures the net profit or loss of market participants, is starting to approach a level where buyers tend to come in.
“Any dips below 1 have historically been great buy opportunities. In January’s correction, SOPR reset to just above 1 and in February’s correction, SOPR did a full reset below 1. Currently, SOPR is approaching the full reset mark, meaning price has either reached, or is very closing to reaching, the bottom of the current correction.”
Another on-chain metric that Pompliano has his eye on is the miner net position, which he says is currently indicating that miners are heavily accumulating Bitcoin in the midst of the dip.
“Accumulation from miners has clearly become a trend over the last few weeks. This indicates two things: miners are expecting higher prices to come and are reluctant to sell their stack now, and also the fact that they are able to cover their CAPEX (capital expenditures) without having to dump coins onto the market.”
Pompliano adds that miners are now able to borrow against their BTC holdings using decentralized finance (DeFi) lending protocols to pay for their day-to-day expenses.
Pompliano is also keeping watch on the growth of the number of wallets holding 100 to 1,000 BTC, which he says has meteorically risen this year.
“The pink line, addresses with 0.1-1 BTC, have accumulated steadily throughout the last few years. However, the green line, addresses with balances of 100-1,000 BTC, have gone parabolic throughout 2021. These wallets are indicative of high-net-worth individuals and new institutions coming onto the blockchain and taking significant positions.”
All in all, Pompliano says the on-chain metrics show that a BTC reversal is on the horizon.
“In conclusion, we are approaching a bottom in the short-mid-term for this current correction and are just waiting for profit taking to reset and a general shift of coins from weak to strong hands.”
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