Weekly Review
After making a strong recovery from $3,775 to $6,450, Bitcoin’s (BTC) price traded in a tight range as the coin struggled to push above $6,400 and $6,850 resistance levels. Despite the pullback, technical indicators like the Stock-to-Flow model and the network’s consistent growth in hash rate show that investors have regained a small amount of confidence.
Bitcoin’s price retraced its footsteps and is back on an upwards trend. The 14 days average line has been on the verge of overtaking 56 days, gaining support at USD$5,600. Long indicators appeared between USD$5,800 and USD$6,000 to reflect increasing investor confidence, pushing the price further up.
COVID-19 outbreaks in Europe and North America countries have dragged down stock and FX markets, causing lower than performance across debt and gold markets. It will be interesting to see how Bitcoin’s halving mid-May will play into this.
Cryptocurrency in relation to other markets
We selected some alternative investment markets to determine to what extent they correlate with the crypto markets. As we can tell, there was no significant correlation between BTC and other alternative investments. Correlation between BTC and stock market volatility is moderately low this week.
Cryptocurrency Market Panic Index
Instead of using social media panic factors that are difficult to quantify, we calculate the BTC market panic index completely based on volatility. Based on the CBOE calculation method for the S&P VIX index, we use the near- and next-term put and call BTC options to calculate the VIX trend chart (The lower the VIX, the lower the market panic). As shown on both graphs, the correlation between BTC and ETH panic indexes is extremely low this week.
Digital currency prices (2020-03-30 UTC 12:00)
News of the week
Bitcoin On The Go – Is Bitcoin Price Inversely Proportional To Size Of Mempool?
The Mempool is where all the unconfirmed Bitcoin transactions wait until all confirmations are released to conclude each transaction. The higher the Mempool size, the longer it takes for transactions to be confirmed since more blocks have to be confirmed (more power input).
If a jam occurs in the memory pool due to an abnormal size of transaction waiting to be confirmed, the higher the probability to incur in a higher transaction fee to expedite it promptly.
Bitcoin’s Mempool size reached a record-high value at over 130MB/block in January 2018, days after the Bitcoin price reached its all-time high at $20,000.
This could suggest a relationship between the number of transactions waiting to be confirmed and Bitcoin’s price. If that is the case, the relationships would be inverse in times of corrections such as the one investors are facing now.
2020 shows an inverse relationship in Bitcoin mempool size and price
Considering the period from Feb. 19 until March 13, when Bitcoin lost 60%, we find that the correlation between the Bitcoin mempool size and its price is negative at -41.2%. This is a very high relationship considering that this correlation for the entire 2020 period available is almost non-significant at 2.34%.
A correlation of 100% means that the Bitcoin price and the mempool size move completely in the same direction, while -100% correlation means they are inversely related. A correlation of 0% means that the variables are not related in any way.
Positive correlation in full-year periods
When considering the relationship during each year instead of only analyzing the corrective periods, we find a clear trend and a positive correlation between the mempool size and Bitcoin’s price.
Moreover, a high correlation is seen in 2017 (80.8%) and 2018 (72.2%), despite not being able to draw a conclusive trend when analyzing the correction periods within those years. The positive trend, although small in magnitude, is also seen between both variables in 2016 (26.3%) and 2019 (9.5%). While in 2020, the relationship is practically non-existent (2.34%).
“There is so much BTC in transit”
Last week, there has been an increase in the mempool size even as Bitcoin’s price went down. Looking forward, we may see the continuation of this inverse relationship at play.
As Cointelegraph markets analyst filbfilb recently pointed out:
“I just can’t be long while I know there is so much BTC in transit.”
