In the latest episode of The Pomp Letter, the huge Bitcoin supporter utilizes data offered by on-chain analyst Will Clemente to detail his bullish view of Bitcoin against the backdrop of price correction in the market.
Pointing to the the funding rates, Pompliano states that rebound will happen soon as the price retracement caused liquidation of more than one million trader positions that were primarily built on leverage and greed.
“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.”
Further, Pompliano underlines that the SOPR (Spent Output Profit Ratio), an indicator reflecting the net profit or loss of market participants, is beginning to reach a stage where buyers entry happens usually.
“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.”
One more on-chain measure that is being watched by Pompliano is the net position of miner. According to Pompliano, the measure is currently reflecting huge accumulation of Bitcoins by miner amid the price decline.
“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 further states that miners will be able to lend against their Bitcoin holdings utilizing decentralized finance (DeFi) lending covenant to settle their day-to-day expenditures. Pompliano is monitoring the rise in the count of wallets possessing 100-1,000 Bitcoins, which has seen exponential rise in 2021.
“The pink line – addresses with 0.1-1 BTC – has accumulated steadily throughout the last few years. However, the green line – addresses with balances of 100-1,000 BTC – has gone parabolic throughout 2021. These wallets are indicative of high-net-worth individuals and new institutions coming onto the blockchain and taking significant positions.”
Overall, Pompliano states that on-chain metrics indicate that a Bitcoin price reversal is imminent.
“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.”