Is this really the Bottom for Bitcoin? On-Chain Outlook, Edition #22 (14/01/2022)
Cryptocurrency markets rebound 🚀 Read on for ZK Rollups, Layer 1, and the latest analysis on-chain from Qluster Data Labs 👇
Q hopes you enjoy tonight’s complimentary research 😍 To receive new posts and support the Qluster Research team, consider becoming a free or paid subscriber.
Sentiment at lowest levels since correction in May 2021
Markets clock in the second week of the New Year.
The cryptocurrency market looks eager to celebrate the weekend with miraculous rebounds. This follows Bitcoin’s plummet to lows in the region of US$ 39-40K on Tuesday.
Despite the correction, several Layer 1 cryptocurrencies have seemingly broken through their all-time high values—e.g. NEAR Protocol, $NEAR.
What is a Layer 1 Crypto?
Layer 1 refers to the underlying architecture of a blockchain. The Layer 1 blockchain protocols provide security and decentralisation while contributing to the network’s overall scalability.
Layer 1 vs Layer 2: What’s the difference?
With the rapid increases in network activity and higher transaction demand, certain deficiencies in Layer 1 became apparent—specifically, transaction cost and efficiency of the blockchain.
As such, Layer 2 networks aim to better serve the market’s changing needs.
Layer 2 is a network that lies on top of the main blockchain architecture (i.e. Layer 1) that handles complex protocols or the ‘hard work’. For example, Ethereum Mainnet is Layer 1 and Immutable X is the Layer 2 network.
Scalability is a challenge that is addressed by Layer 2 solutions. However, the Scalability Trilemma presented by Ethereum founder Vitalik Buterin still remains a major obstacle to mainstream adoption.
Above: Adaptation of Buterin’s Scalability Trilemma
Now, returning to the On-Chain review…
Interestingly, other token’s such as Cosmos ($ATOM), Harmony ($ONE) and Fantom ($FTM) all appear to hold steadfast. This Four Musketeer-Esque group of digital currencies have been referred to by the acronym ‘FOAN’.
Hsaka @HsakaTradesThis is a safe space. Orange coin can't hurt you here. https://t.co/6bLJ5xv4Kl https://t.co/KmG07Pk3WE
Qluster Data Labs first conducts a check for signs that warrant concern in Bitcoin and Ethereum’s supply metrics.
From a macro-level perspective, supply metrics suggest the outlook remains bullish for both Bitcoin and Ethereum at this time.
Following on from coverage in On-Chain Outlook, Edition #20, with regards to the increasing supply on exchanges for Ethereum, this excess supply appears to have been negated with supply falling back to previous lows.
MVRV 7 Day Ratio
The MVRV 7 day ratio for Bitcoin has jumped briefly into the positive, which indicates that buyers who have purchased BTC recently were also in positive.
Definition: MVRV or Market-Value-to-Realised-Value shows the average profit or loss of all digital asset holders based on the price when each token was last moved.
This has now been neutralised during the recent drop from US$ 44.5K to US$ 42.5K that occurred earlier today and alludes to some profit realisation.
Learning how to trade with technical analysis?
Stay at the forefront with market due diligence and receive our next trader’s report straight to your email each day.
Here’s a 7-day free trial to Qluster Research Premium so you can access our full research and education archives straight away 👇
Despite the choppy downtrend by Bitcoin over the last few months, it is clear that narrative-driven Altcoins appear as strong contenders in the market.
In addition, the Layer 1 and ZK narrative remains strong. Should sentiment remain accomodating, it may be wise to continue to look for opportunities within these coins.
ZK Rollups or Zero-Knowledge Rollups are smart contracts that aim to solve scalability challenges in the Ethereum network.
The ZK Rollup functions by processing a number of individual transactions outside of Layer 1—main blockchain—and ‘rolls’ them up together for validation. Combining the transactions into one allows Rollups to offer users faster and cheaper transactions by reducing the accompanying data burden.
Did you learn something new in tonight’s research? Let us know in the comments 👇
Further, note the relative strength of ALT/BTC cross pairs.
Considering this relative strength when their respective US dollar pairs undergo corrective action. Referencing both the crypto cross and fiat pairs can complement technical charting principles—such as support (demand) and resistance (supply).
See you again for the next update.
Exploring the markets doesn’t need to be a lonely adventure.
Help us on our mission to share the gift of Trading Made Social to more explorers. Check out the links below 👇
🚀 Join our Facebook group and connect with likeminded traders 🚀
📣 Like and Follow our Facebook page for activity updates 📣
🤝 Connect with us on LinkedIn for future updates 🤝
The information on this website is for general information purposes only. It is not intended as legal, financial and/or investment advice and should not be construed and/or relied on as such. Before making any commitment of a legal and/or financial nature you should seek advice from a qualified and registered legal practitioner and/or financial and/or investment adviser. No material contained within this website should be construed or relied upon as providing recommendations in relation to any legal and/or financial product. Qluster does not recommend and/or endorse products and does not receive remuneration based upon investment and/or other decisions