On-Chain Analysis of Bitcoin (BTC) – The Dawn of a New Era?

BTC staggers on the $30,000

The price of Bitcoin (BTC) oscillates in a price range between $28,000 and $30,000. This stabilization of the market, a lull whose outcome remains uncertain, gives hope to certain participants who now claim that the market has bottomed out.

Figure 1: Daily price of Bitcoin (BTC)

However, nothing is less certain. In effect, since its genesis, Bitcoin (BTC) has evolved in a quantitative easing environment (QE) resulting from expansionary monetary policies and benefits from massive capital inflows from the traditional financial ecosystem.

This trend now seems to be reversing as Western central banks are adopting a quantitative tightening (QT) strategy, raising key rates to contain the inflation they cause.

While the macroeconomic, geopolitical and energy components of our societies are deterioratingthe fundamental dynamics influencing the traditional markets and those of cryptocurrencies offer us today an unprecedented context widening the field of possibilities towards the extremes.

It’s a safe bet that the models built by many market analysts over the past few years will be invalidated in the coming months, as we enter uncharted territory in terms of the global economic and financial context.

This week, we will discuss a wide spectrum of metrics in order to take a step back on the state of the market and the network. To do this, we will study:

  • The financial situation of long-term investors (LTH);
  • The reconciliation of the spot price and the realized market price;
  • Investor behavior according to different geographical areas;

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Long-term investors on the brink

Complementing the observations established over the last two weeks, the metrics relating to long-term investors (LTH) describe calm behavior although a significant part of the cohort is approaching a decisive tipping point.

Entities holding BTC over a period of more than 155 days, they are statistically more prone to HODLing than their short-term counterparts (STH) and have a high insensitivity to price volatility.

The mass of bitcoins held by this cohort today amounts to 13.47 million BTC, or 70.74% of the circulating supplyshowing a visible decline in their holdings of 103,000 BTC since May 8.

Offer of LTH 240522

Figure 2: Supply of BTC held by long-term investors

This drop in LTH supply results from a moderate selling wave of a magnitude similar to the following events (in orange):

  • February 24, 2021: Early exit from the market
  • November 03, 2021: Profit taking at the ATH
  • November 25, 2021: Late market exit
  • February 1, 2022: Exit from the market on the rebound

Although the last two weeks have been very trying, this stress test will not have been enough to move the cohort as a whole, even if some participants who have accumulated since November have experienced a sharp decline in the profitability of their holdings.

Indeed, more than 4 million bitcoins are held at a loss by LTHs, representing almost a third (29.7%) of their holdings.

LTH offer in loss 040522

Figure 3: Supply of BTC held at a loss by long-term investors

This pattern is typical of bear markets, during which long-term investors who have accumulated during sharp corrections are seeing growing unrealized lossessometimes pushing them to part with some of their bitcoins to reduce their exposure to risk.

Here we can observe a gradual increase in the supply of LTHs in a state of loss since November 2021, a sign that‘a significant part of the cohort has bought the correction and is now in a strong state of loss.

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The market is approaching its overall cost base

Let’s continue this study by highlighting a salient fact: the spot price of Bitcoin is getting closer and closer to its realized price and signals thata generational buying opportunity looms on the horizon.

The realized price of BTC (in green) is obtained by dividing the realized capitalization by the total number of coins in circulation and corresponds to the price of BTC at the time of the creation of a UTXO.

Basically, it aggregates the price at which all UTXOs were last spent. Founding component of many on-chain indicators, it represents the overall market base cost.

BTC Realized Price 240522

Figure 4: Realized Price of Bitcoin

Historically, breaking below this level signals a rare buying opportunity. Indeed, the realized price symbolizing the overall purchase price of the market and the spot price corresponding to the selling price, when the first plunges below the second, the market is in a state of global loss.

Differences in economic engagement between East and West

Now let’s turn to a combination of metrics, recently released by Glassnode, tracking the cumulative 30-day price action during trading hours in the US, Europe and Asia.

These measurements give a overview of market geographies that are leading or lagging in terms of buying or selling pressureparticularly in response to fundamental changes in market structure.

The graph below shows the monthly price changes recorded in Europe (blue) and the United States (yellow).

BTC EU & US Price Change 240522

Figure 5: Monthly price changes for Europe and the United States

Several notable observations can be drawn from this study:

  • Europe precedes buying pressure at the top of March – April 2021;
  • US dominates sales in May sellout;
  • They then massively re-accumulate on the late 2021 rebound and then sell again on the January 2022 -20% drop;
  • More recently, Europe and the United States dominate the selling pressure during the capitulation bringing the price of BTC to the $30,000 level.

BTC Asia Price Change 240522

Figure 6: Monthly price change for Asia

On another side, the Asian market (in purple) behaves relatively independently compared to its Western counterparts.

This time we can observe the following facts:

  • Asia participates very little in the bull market of 2021 and then succumbs to the long correction of July 2021;
  • The Orient dominates the buying pressure at the peak of November 2021 before capitulating during the correction during the beginning of 2022;
  • Over the past few weeks, Asia is preempting buying pressure in a modest way.

It emerges from the study of these metrics that East and West have in recent years adopted different, even opposing buying and selling decisionswhich we will not fail to follow during our next analyzes in order to detect indications of behavior potentially rich in meaning.

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Summary of this on-chain analysis

In sum, the Bitcoin (BTC) market is at a critical pivot pointboth in terms of its price action and its fundamentals.

While long-term investors are starting to realize small losses, the cohort as a whole does not seem ready to begin a distribution of the supply accumulated over the past few years given current price levels. The conviction and HODLing behavior of LTHs are today under severe test and have the potential to influence the market trend over the next few months.

Realized price analysis indicates that‘a rare buying opportunity looms on the horizonalthough the context of global macroeconomic uncertainty does not allow us to estimate a rough price target regarding the potential market bottom to come.

A new set of metrics informs us of the divergences in economic engagement of different geographies involved in the cryptocurrency market. Recently, it appears that Europe and the United States dominate the selling pressure and capitulate while Asian markets slowly accumulate by taking advantage of the current sales.

Sources – Figures 1 to 6: Glassnode

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About the Author : Teacher. Chain

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On-chain analyst, fervent fighter of informational asymmetry.

My goal is to inform everyone about the state of Bitcoin (as an asset and a distributed network) through the prism of on-chain analysis.
All articles by Prof. Chain.

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