1. Market Psychology Moves from Hope to Optimism

The Net Unrealised Profit/Loss (NUPL) indicator for bitcoin moved above 0.25 on April 24th, which has historically described a move from the ‘hope’ phase to the ‘optimism’ phase.

With the NUPL moving above 0.25, it suggests we are entering the ‘optimism’ phase. Notice how almost every time the NUPL indicator has risen from 0 to above 0.25, it has always tested the next threshold at 0.50 (apart from one instance in 2011).

NUPL can be calculated as: (Market Cap — Realised Cap)/Market Cap. Source: CoinMetrics

Also, in four out of the six times the NUPL indicator has crossed above 0.25 it would’ve been profitable to buy bitcoin, and sell once the NUPL indicator reached 0.50. For example, the last time the NUPL indicator crossed above 0.25 was in 2019. On May 8th, 2019, the NUPL indicator broke above 0.25 after being below this level. The closing price on this day was $5,931.80.

Just over a month later on June 21st, 2019, the NUPL indicator moved above 0.50 for the first time since entering the optimism phase — the closing price on this day was $10,083.49.

Therefore, in mid-2019 the NUPL indicator allowed traders to catch a gain of just over $4,000.

A similar strategy could be used this time round — buy at or near the price from April 23rd, 2020, (~$7,488) and wait for the NUPL indicator to move above 0.50 to exit the long position.

Read more about the Net Unrealised Profit/Loss indicator here.

2. Bitcoin Hash Ribbons Flashes Buy Signal

With the fall of BTC-USD during ‘Black Thursday’ (March 12th), it has hurt the pockets of miners who will have earned less $’s in BTC but their electricity costs are in fiat currency.

We saw a drop in hash rate suggesting that some inefficient miners have been forced off the network. When miners leave the network and the hash rate falls, this is known as miner capitulation. Once difficulty adjusts and the hash rate recovers, the remaining miners will be in better shape and there will be a price increase as their earnings start to improve.

One way to assess whether miners are in capitulation is by using the Hash Ribbons indicator, which is based on the 1-month and 2-month moving averages of Bitcoin’s hash rate. Buying during miner capitulation has historically produced an average return of 5,378% with a maximum drawdown of -11%.

Going one step further, buying only once the hash rate starts to recover AND the price momentum has turned positive improves the maximum drawdown slightly while it increases the average return to 5,520%. Price momentum turns positive when the 10-day simple moving average of the price of bitcoin crosses above the 20-day simple moving average.

Bitcoin produced its tenth Hash Ribbons signal on April 25th, 2020, shown by the chart below. This signal suggests it’s a good opportunity to buy bitcoin for long-term HODLing.

Each buy signal produced by the Hash Ribbons indicator since 2014. Source: TradingView.

However, timing the top is left to the trader as this indicator only gives an entry point.

A few tools you could use to time the top are:

the Mayer Multiple (i.e., sell when above 2.4),

(i.e., sell when above 2.4), the Puell Multiple ,

, the Pi Cycle Top indicator ,

, the NUPL indicator (i.e., sell once it reaches 0.75 or above, which has historically aligned with major tops in the markets).

Read more about using hash ribbons to pick bottoms in bitcoin here.

3. Active Addresses Approaching 2019's High

Active addresses and bitcoin’s price action are closely linked. In particular, the 30-day moving average of active addresses is an on-chain fundamental indicator that closely follows the price action.

Active addresses on the Bitcoin network peaked at ~1.04 million on June 14th, 2019. So far in 2020, we’ve seen a strong uptrend in active addresses which has reached a peak of 938,000 during April 2020. If the current trend continues, active addresses could break the 2019 high and this would be a positive sign for bitcoin’s price going forward.

For instance, the chart below shows how active addresses and the price have risen and fallen in tandem over the past two years. If the 30-day moving average of active addresses pushes past its previous high and the price has yet to hit higher highs for the year, then this could be a signal that bitcoin is still undervalued.

4. Reduction in Sell Pressure from the Halving (due May 11th/12th)

A key fundamental for bitcoin is its relative scarcity to other assets and currencies.

Estimated to occur on May 11th/12th, the block reward halving means that miners will only earn 6.25 BTC per block instead of 12.5 BTC. Effectively, the production cost of a single bitcoin doubles overnight.

When looking at the current estimated production cost of 1 BTC, it is roughly $4,700 in electricity alone (assuming miners are paying $0.05 per kW/h). After the halving, this will double to around $9,487.

Looking at previous halvings, bitcoin has not stayed below the production cost for too long. Taking the last block reward halving in 2016 as a guide, we should look for bitcoin to find support around the electricity cost of one bitcoin or perhaps it could even trade below this value for a few weeks.

But the point is that bitcoin’s price needs to rise above this level, $9,487, by the end of June. When it does, this will mark a breakout moment for bitcoin, surviving its third block reward halving and most of the remaining miners will become profitable.

The total cost of production of a single bitcoin is estimated to be $14,812 after the halving, so we could end up seeing a slow drift towards this level until late 2020/early 2021.

An Important Signal to Watch Out For

While all four reasons above are purely fundamental, another potential signal I think that will provide further confirmation is a technical one.

A clear sign of a reversal will be given by the weekly Renko chart (the Renko chart is already bullish on the daily and 4-hour timeframe).

Once the weekly close is above $9,291.80, we’ll have a clear signal that a long-term uptrend has begun.

Learn how to use Renko charts here.

The value may change from week to week (as the average true range will change, which affects how the Renkos are displayed). But the point is that once a green Renko brick is formed, we’ll have confirmation of a new bullish phase for bitcoin.

If you are new to bitcoin, I would start scaling using dollar cost averaging to build exposure. If you’re a trader, you can go long (or short) bitcoin here.

What do you think about bitcoin’s path going forward? Are you bullish or bearish? Let me know in the comments below!