I know how frustrating it is to see all the profitable trader screenshots on crypto Twitter while you are struggling to keep up.

That was definitely me in 2020.

It’s frustrating, right?

What if we can massively increase the probability of confirming Wyckoff patterns by looking at relevant Bitcoin on-chain data? 

That sounds extremely useful and is information I wish I had back in 2021.

I first heard about Wyckoff patterns after the first peak and before the first crash of the 2021 bullrun.

Someone I knew sent me a video about Wyckoff. Unfortunately, I didn’t really know how to confirm the pattern using onchain.

What you will learn in this newsletter:

My name is Kierin (Onchain Edge) I write weekly, data-driven insights for crypto investors. I will try my best to make sure you don’t f*ck this rally up. Join 800+ savvy investors.

BTC Onchain Edge Index (current value: 37 Medium Risk)

How Wyckoff Patterns Reveal BTC's Next Move (and How to Profit)

I won’t dive too deep into the technical aspect of wyckoff patterns.

But it is important that you understand a bit of base theory so you can see how large players can manipulate the market. Here’s a quick overview:

The four Wyckoff phases and important key points for each phase:

1. Accumulation: Preliminary Support (PS), Selling Climax (SC), Automatic Rally (AR), Secondary Test (ST), and Spring

2. Markup: Sign of Strength (SOS), Backup, and continued upward movement

3. Distribution:  Preliminary Supply (PSY), Buying Climax (BC), Automatic Reaction (AR), Secondary Test (ST), and Upthrust

4. Markdown: Sign of Weakness (SOW), Rally, and continued downward movement

I don’t expect you to learn everything there is about Wyckoff, as it’s a massive topic. However, if you want to read and learn more I recommend reading these blog posts:

• The Wyckoff Method: A Tutorial by chartschool

• Wyckoff Trading Course Part 1 (Analysis)

• YouTube video: The WYCKOFF Method a Beginners Guide

Here are some great historical Bitcoin wyckoff pattern analysis to give you a more practical example

Bitcoin $430 by Wyckoffmode

Example of Accumulation $BTC 43k by Vace117

I like how well he focuses on the volume as that is a very important aspect of the wyckoff accumulation pattern.

Example of Distribution $BTC 68k by Vace117

Key On-Chain Metrics to use with Wyckoff

1. MVRV Ratio (Market Value to Realized Value):

   • An MVRV ratio between 1.5 - 2.0 indicates the market is relatively overvalued, signalling potential distribution or early markdown phases.

2. Exchange Inflows/Outflows:

   • Decreasing inflows and outflows suggest accumulation, as BTC moves off exchanges, consistent with the reaccumulation phase.

3. aSOPR (Adjusted Spent Output Profit Ratio):

   • Values around 1.0 indicate a balance between profits taken and losses incurred, typical of reaccumulation phases where neither buyers nor sellers dominate.

4. SOPR Ratio (LTH-SOPR/STH-SOPR):

   • Compares the profit-taking behaviour of long-term holders (LTH) to short-term holders (STH).

   • Low values suggest reduced profit-taking by long-term holders, indicating potential bottoming and alignment with accumulation or reaccumulation phases.

5. Exchange Reserves:

   • Decreasing reserves indicate accumulation as BTC is moved off exchanges, showing confidence among holders.

6. Taker Buy & Sell Volume:

   • Measures the volume of buy and sell orders executed on exchanges.

   • Why It's Useful: Decreasing volumes, with buy volume slightly higher than sell volume, suggest low volatility and possible accumulation.

Pro Tip: Volume analysis is crucial here. Decreasing volume during a trading range suggests accumulation, while volume spikes can indicate climaxes.

Analyzing the Current Bitcoin Market using Wyckoff and Onchain Data

For charting and more in-depth analysis, consider using TradingView.

Bitcoin looks like it’s in a reaccumulation phase:

The current Bitcoin price chart matches the Wyckoff reaccumulation phase, with a consolidation range evident from recent price movements.

Key features include price bouncing between horizontal support (around 57,178) and resistance (around 71,587), indicating sideways movement typical of reaccumulation.

BTC Price with On-Chain Data

MVRV Ratio: Is 1.97, indicating the market is still above the realized price and hence in a relatively overvalued state.

Market participants have significant unrealized profits, typical of a distribution or early markdown phase. In my opinion, this alright for the reaccumulation phase. For the accumulation phase, we would want much lower mvrv values.

Exchange Inflow & Outflow: The current trend show decreasing inflow and outflow volumes.

Decreasing exchange reserves suggests accumulation as BTC moves off exchanges. This is consistent with the reaccumulation phase.

aSOPR: Hovering around 1.0. which means the market is balanced between profits taken and losses incurred, consistent with a reaccumulation phase where neither buyers nor sellers dominate.

SOPR Ratio (LTH-SOPR/STH-SOPR): Relatively low values, suggesting reduced profit-taking by long-term holders compared to short-term holders. This is a good sign of bottoming which aligns with the accumulation or reacumulation phase.

Exchange Reserves: The exchange reserves have been decreasing for a while. This means BTC is being moved off of exchanges which indicates confidence among holders.

Taker Buy & Sell Volume: Decreasing volumes, with buy volume slightly higher than sell volume. Suggests a period of low volatility and possible accumulation.

Insert a chart showing BTC price with on-chain data overlays.

Takeway

Based on the combined analysis of Wyckoff logic and on-chain data.

The market appears to be in a reaccumulation phase. The price chart shows consolidation within a defined range, and the on-chain data support this by indicating accumulation behaviors (decreasing exchange reserves, balanced SOPR around 1).

In the short term, Bitcoin is likely to wick down to $57k and even $51k. That would be phase C. When that happens, I want to see strong taker buy volume and large Bitcoin exchange outflows.

• If the reaccumulation phase continues, we could expect a breakout upwards (markup phase) as the next step in the Wyckoff cycle. However, careful monitoring of on-chain metrics like exchange inflows, MVRV, and SOPR will be crucial to confirm this transition.

The onchain edge index is actually just 1.74 points away from being in the good time-to-buy range.

The beta version of the onchain edge index alert bot is live and working. You can get access to it by referring this newsletter to a friend.

This method isn’t foolproof, but it offers a significant edge by providing a clearer view of market phases. Use multiple indicators, stay informed, and refine your strategies for higher probability trading.

Support Me: If you find this information helpful and want to support me, please consider using my referral links if you trade on Binance, Kraken, or Bybit. Happy trading! This Ai tool is also really good: Perplexity is a great tool for quick market insights and data.