Bitcoin prices fell 26.1 percent last week as the market reacted to a series of tweets posted by Elon Musk. Musk’s tweets expressed concerns about the energy consumption of Bitcoin’s proof-of-work (PoW) mining, and as his tweets went viral, Bitcoin fell to $43,963 from $59,463 last Monday.
In addition, Musk claimed that dogcoin could be 10 times faster and that larger blocks were a viable option. Unfortunately, this has led to confusion in the market.
On the chain, we can observe a clear divergence in reactions, with new market participants panic selling their coins and suffering losses as a result, while long-term holders seem relatively unaffected by the news. There are many supply and demand dynamics that look similar to the macro highs of 2017, but with unique differences that will challenge the beliefs of longs and shorts.
First, we will assess the size of the pullbacks in the 2017 and 2021 bull markets. The current price of Bitcoin is down over 28% from its April 13 high of $63,600, which is the largest pullback in the current bull market, but is in line with the magnitude of the five major pullbacks during the 2017 bull market.
In terms of bull market duration, the main bull phase of 2021 (after the record highs) has lasted approximately 200 days, a relatively short time frame compared to the 2017 bull market.
Drawdown from ATH Live Chart
The current number of profitable entities provides insight into a cross-section of the underwater market. We can observe that this pullback has resulted in over 23% of on-chain entities (standalone wallets) being in the red, while there have been three comparable uptrend periods since 2016. Note that all these comparable pullbacks are associated with relatively extreme events.
The first major rally occurred in 2016 after a two-year bear market.
The first major rally emerged in 2019 after a 1.5-year bear market, primarily due to a squeeze on leveraged short sellers.
2020 after the big sell-off caused by the new crown epidemic scare on March 12, 2020.
Percent Entities in Profit Live Chart
Panic Selling by New Entrants
Newer market entrants have panic sold and realized that they have lost a lot of money on their tokens, with both the aSOPR and STH-SOPR indicators falling below 1.0 again. Both indicators indicate the degree of profit realized when moving coins on the chain, with higher values indicating that profitable coins are moving, while values below 1.0 indicate that most coins recently bought at high prices are moving.
The aSOPR indicator considers the entire market and also filters out all coins that are less than 1 hour old (usually temporary and therefore not economically significant). aSTH-SOPR filters only coins that are less than 155 days old and therefore represents entities that have purchased coins during the current bull cycle.
Both indicators have dropped below 1.0, which indicates that coins moving on the chain are losing money overall, which is most evident in the STH-SOPR indicator. This is the second time the STH-SOPR indicator has fallen below 1.0 during this correction, indicating widespread panic selling by new holders.
aSOPR and STH-SOPR Live Chart
The total number of addresses with non-zero BTC balances also dropped 2.8% from the recent all-time high of 38.7 million addresses, with a total of 1.1 million addresses exiting all their holdings during this pullback, again providing evidence of the panic sell-off currently being experienced.
Non-Zero Addresses Live Chart
If we look at the cyclical pattern of total supply held by Short Term Holders (STH), we can also see a pattern of panic selling playing out, similar to what was observed during the macro peak in 2017. What this chart shows is that the Bitcoin market tends to experience local or macro peaks when new holders have a relatively large percentage of the total supply. However, it is worth noting that the peak in coins owned by short-term holders is substantially lower than in 2017 in terms of the number of coins as well as the percentage of supply in circulation. Coins from new holders recently reached 28% of the circulating supply (5.3 million BTC), 9% lower compared to the peak level in 2017.
Given that Bitcoin is trading at a much larger market cap, this may reflect the large capital inflows required to gain market cap size. It also suggests that this may be a pullback in a larger timeframe of the bull cycle, during which weak hands (WEAKER hands) capitulate and stronger hands (STRONGER hands) start accumulating cheaper coins again.
Supply Held by Short Term Holders Live Chart
Also supporting our conclusion of a panic sell-off is the recent record volume of BTC flows to exchanges, where we observed a net inflow of 27.5k BTC before the start of the latest pullback. this size of inflow has only been seen historically during the March 2020 sell-off and the 2019 PlusToken Ponzi scheme sell-off.
All exchanges Net Flows Live Chart
However, if we refine this observation to the two largest exchanges, Binance and Coinbase, then we can see two different scenarios.
Binance has largely captured the non-US entities, which are the preferred venue for retail speculators and investors, and it is also the largest recipient of this net influx of BTC. It can also be seen that both inflows and outflows have increased over the past few months, indicating the fluctuating macro sentiment of Coin users. This further suggests that the recent inflows may have been driven by new market entrants (panic sellers) or may be due to capital shifting to other crypto assets.
Binance Net-flows Live Chart
Conversely, Coinbase has been experiencing net outflows of BTC since Bitcoin broke above the previous cycle’s $20,000 high, a trend that continued this week. coinbase is the preferred place for U.S. institutions to accumulate BTC, and given the typical daily withdrawal size (10,000 to 20,000 BTC per day), this suggests that larger buyers are still actively accumulating BTC during this pullback. BTC.
Coinbase Net-flows Live Chart
Long-term holders are bottoming out
Long-term holders seem to be bottoming out to accumulate cheaper coins as opposed to the panic selling by new entrants. While the number of non-zero addresses has declined during this pullback, the number of addresses being accumulated has increased by 1.1% since the recent lows. And accumulated addresses are defined as those that have at least two incoming transactions but have never spent any coins.
Accumulation Addresses Live Chart
Similarly, the supply of Long Term Holders (LTH) holdings has returned to an accumulation pattern that again resembles the macro tops of 2017. This chart largely reflects buyers who purchased coins in late 2020/January 2021 but have not spent any coins. As the supply of long-term holdings (LTH) begins to increase, this suggests that the number of expiring coins that have been dormant for more than 5 months exceeds the number of older coins used to realize profits.
The current supply of bitcoins held by LTH exceeds 2.4 million BTC (8% of the circulating supply), a number that exceeds the peak in 2017. This indicates that a significant amount of coins have been moved to illiquid cold storage wallets and that this trend continues.
Long-Term Holder Supply Live Chart
Overall, the Bitcoin market is currently in the midst of a major pullback of historic proportions. There are strong signals that panic selling by short-term holders is currently taking over, while long-term holders are opting to bottom on the lows and their confidence is largely unshaken. The narrative of PoW energy consumption is subtle, to say the least, and what follows will be a test of faith in the Bitcoin market as a whole.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/data-on-the-chain-details%e4%b8%a8bitcoin-plunges-26-in-a-week-as-bulls-and-bears-diverge/
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