Down nearly 50% in a week, what are the Bitcoin Hodlers doing?

The old leeks are neither panic selling nor rushing to exit.

Note: The original article was written by CHECKMATE, a glassnode data analyst.

The bitcoin market just experienced the largest deleveraging event since the March 2020 sell-off wave, with the BTC market price falling more than 47% from a one-week high of $59,463 to a low of $31,327, while the price range of the decline reached a new all-time record of $28,136.

Down nearly 50% in a week, what are the Bitcoin Hodlers doing?

The dramatic change in price, driven largely by something called FUD, was a sell-off so severe that many began to wonder if the 2021 bull market was still in place. This week we will review the magnitude of this pullback and the reactions of the various entities observable in the chain.

Down nearly 50% in a week, what are the Bitcoin Hodlers doing?

Historical capitulation events
The size of realized on-chain losses this week exceeds all previous capitulation events, including the sell-off waves in March 2020, November 2018, and January-February 2018 (at the end of the last bull market).

The chart below shows the dollar losses incurred by transferring coins and shows a new high value of $4.53 billion in losses on May 19, which is more than 300% higher than the peaks seen in March 2020 and before February/April 2021, and a peak of $14.2 billion in total realized losses per week.

Down nearly 50% in a week, what are the Bitcoin Hodlers doing?

Even taking into account the coins that made profits during this sell-off, this capitulation event is still the largest in history, with a net loss on the chain of more than $2.56 billion on May 19, which is 185% higher than the sell-off during the Great New Crown Panic of March 2020. The chart below shows that this capitulation followed a period of strong net profit realization (green spike), so it can be considered the opposite reaction to the downward trend.

This suggests that a large part of the market was surprised by this event.

Down nearly 50% in a week, what are the Bitcoin Hodlers doing?

These net losses on the chain have led to a decline in Bitcoin’s Realised Cap. This week, Bitcoin’s Realised Cap has fallen by $7 billion (-1.8%) from an all-time high of $377 billion.

Down nearly 50% in a week, what are the Bitcoin Hodlers doing?

Looking at the current number of profitable on-chain independent entities, we can see that the current FUD fiasco has led to a reduction in profitable entities to 76%, which means that 24% of on-chain entities are currently holding underwater UTXO. In the context of a bull market, this can be compared to three periods in 2011, 2013 and 2016. This metric also highlights the percentage of the market that is buying overpriced coins (which could become panic sellers).

Down nearly 50% in a week, what are the Bitcoin Hodlers doing?

Analysis on sellers
There are three main categories of major sell-side entities in this sell-off.

Holders who have bought BTC in the last 3-4 months and are in a losing position.

Holders who believe that Bitcoin has reached the top of the cycle and are in a profitable position.

Miners who need to sell BTC to cover their costs, or are forced to sell BTC due to new regulatory moves in China.

There is no doubt that a large portion of the recent selling activity has been driven by short-term holders who own bitcoins purchased within the last 6 months. The spent input coin age bands show that the 1-3 month and 3-6 month coin age band peaks, in particular, are significantly higher than the typical baseline before and during the sell-off.

Down nearly 50% in a week, what are the Bitcoin Hodlers doing?

If we compare this to the situation of long-term investors, especially those holding 1-3 year old BTC (buyers from the previous cycle), we see the opposite. 1-3 year old coin holders actually moved their coins much earlier, most likely rotating capital to capture the price performance of ETH at the time.

However, in this wave of capitulation selling, older coins in the 1-3 year old age bracket actually spent significantly less, and the percentage of total activity in these coins is declining. This suggests that old leeks are neither panic selling nor rushing to exit.

Down nearly 50% in a week, what are the Bitcoin Hodlers doing?

A major question that remains is how large are the unrealized losses, or in other words, how many more coins that are underwater may panic sell off? We examined the Relative Unrealised Losses metric, which represents the ratio between the total value underwater and the current market cap.

Using this metric, we can see that about 9.0% to 9.5% of the current BTC market cap ($700 billion) is in unrealized losses, which equates to about $65 billion in underwater value. While this is a historic capitulation event, the value of underwater positions on the chain is actually relatively small relative to the size of the market. We can compare this to the 44% relative unrealized loss in March 2020 and the over 114% relative unrealized loss in November 2018.

Note that prior to the massive sell-off, coins with higher purchase prices essentially had a “stored value” of higher market capitalization. After the sell-off, the new market cap is lower and therefore it is possible to realize a relative unrealized loss of more than 100%.

Down nearly 50% in a week, what are the Bitcoin Hodlers doing?

Throughout the Bitcoin market, the Net Unrealized Profits and Losses indicator (NUPL) has fallen back to a level just below 0.5, which has served as support for the previous three bull cycles, effectively marking the first bottom for the market in 2021.

Down nearly 50% in a week, what are the Bitcoin Hodlers doing?

However, if we filter out the short-term holders, we can see that a major capitulation has taken place. Short-term holders currently hold a total unrealized loss of -33.8% of their coin’s market cap, a value that can be compared to some of the most extreme time periods in Bitcoin’s history, which include

The top of the first bull market in 2013.

The three times of the 2014-2015 bear market.

The four times of the 2018 bear market.

The capitulation wave of March 2020.

Down nearly 50% in a week, what are the Bitcoin Hodlers doing?

In the mining sector, anecdotal evidence suggests that mining selling pressure may increase in the short term due to changes in the Chinese mining industry.

Down nearly 50% in a week, what are the Bitcoin Hodlers doing?

A look at miner coin consumption shows that while there has been an uptick in the amount of miners transferring coins to exchanges (from 100 BTC/day to 300 BTC/day), this is still a relatively small fraction of the approximately 900 BTC/day issue volume.

Down nearly 50% in a week, what are the Bitcoin Hodlers doing?

This is confirmed by the miners’ net position change indicator. We can see that the total accumulation dropped slightly this week, but the percentage of “mined and held” coins is still larger compared to “mined and sold” coins. It remains to be seen if miners will start spending more coins as these regulatory changes unfold.

Down nearly 50% in a week, what are the Bitcoin Hodlers doing?

Exchanges and Derivatives
Finally, we investigated the changes in exchange inflows, balances and the leveraged derivatives market during the week.

Exchange net deposits increased significantly both in the weeks leading up to and during the sell-off. on May 17, peak net inflows spiked to over +30,000 BTC per day. Meanwhile, the size of the outflows has been steadily increasing as the price of BTC has fallen, suggesting that even with a broader market decline, there will still be buyers stepping in.

Down nearly 50% in a week, what are the Bitcoin Hodlers doing?

An interesting observation is that a divergence in the exchange market is occurring, with some exchanges showing increases in BTC balances while most are relatively flat or even showing declines. Aside from a small increase in this week’s sell-off, these exchanges have effectively maintained an uninterrupted trend of declining balances since March 2020.

Down nearly 50% in a week, what are the Bitcoin Hodlers doing?

However, there are three exchanges that are essentially in net inflows – Binance, Bittrex, and Bitfinex – which have been increasing their balances in 2021 (with CoinA having the highest percentage of inflows). All three exchanges have seen a significant increase in the balance of BTC held by them during this sell-off wave.

Given that all three of these exchanges serve customers outside of the United States, this could mean that markets in different jurisdictions are reacting differently. An alternative explanation is that CoinA occupies a large share of the trading market with derivatives and that it is the gateway to the CoinA smart chain, its the preferred venue for recent retail speculation.

Down nearly 50% in a week, what are the Bitcoin Hodlers doing?

Finally, in the derivatives market, open positions in bitcoin futures fell sharply from their new highs in April. Open positions in all futures markets fell by more than $16.4 billion (down 60%) from their peak and have now recovered to February 2021 levels.

Down nearly 50% in a week, what are the Bitcoin Hodlers doing?

The options market has seen a similarly sharp decline, with total outstanding contracts down 52% from their peak and now down to $6.4 billion, back to February levels again.

Overall, this flush of speculation and leverage is a healthy and necessary process, and its eliminating excessive speculation.

Down nearly 50% in a week, what are the Bitcoin Hodlers doing?

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/down-nearly-50-in-a-week-what-are-the-bitcoin-hodlers-doing/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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