Summary: In the chain, we can observe a clear bifurcated reaction, with new entrants to the market panicking and selling off to suffer losses, while long-term holders seem relatively unaffected by the news
The bitcoin price traded down over 26.1% this week due to a series of tweets from Elon Musk that caused the market to express concern about the power consumption of mining. The week opened at a high of $59,463 before being weighed down by the tweets, which saw the bitcoin price slide to $43,963. Musk’s tweet laid out the negative externalities of energy consumption and presented the hypothesis that a 10x expansion rate and larger blocks on Dogecoin is a viable alternative. Unfortunately, this has led to widespread market disruption, although for many Bitcoin HODLers, it’s just another day of calm. On the chain, we can observe a clear bifurcation reaction, with new entrants to the market panicking and selling off suffering losses, while long term holders seem relatively unaffected by the news. There are many supply and demand dynamics similar to the macro tops of 2017, but there are some particular differences that will challenge the beliefs of bulls and bears.
Measuring the size of the correction
First, we will assess the size of this correction compared to the 2017 and 2021 bull markets. The current correction is 28% lower than the April 13 ATH of $63.6k. This is the deepest correction in the current bull market, yet it is consistent with the five major retracements in the 2017 bull market.
In terms of bull market duration, the primary bull market in 2021 has lasted about 200 days, which is relatively short compared to the year-long bull run in 2017.
The number of addresses currently in a profitable state provides a perspective on the market below the equilibrium line. We can observe that this correction has resulted in over 23% of on-chain addresses being in the red, compared to only three uptrend periods since 2016. All these comparative pullbacks are associated with relatively extreme events.
In 2016, after a 2-year bear market, the pullback after the rally left the bottom.
In 2019, after a 1.5 year bear market, the pullback after the rally was driven primarily by a squeeze on leveraged short sellers.
2020, consolidation after global uncertainty following the March 12 COVID sell-off.
Panic Selling by New Entrants Panic selling by new entrants to the market has caused them significant losses, with both aSOPR and STH-SOPR falling below 1.0 again. both metrics take into account the degree of profit realized by cryptocurrencies moving on the chain, with higher values indicating that profitable coins are moving, while values below 1.0 indicate that most coins end up moving at a higher price . The aSOPR indicator considers the entire market while also filtering out all coins with a lifespan of less than 1 hour (these coins are usually temporary jumps and therefore not economically significant). aSTH-SOPR only filters out cryptocurrencies that are less than 155 days old and therefore represents entities that have purchased cryptocurrencies during the current bull cycle. Both metrics have fallen below 1.0, indicating that overall losses have been realized on the chain, and this effect is most pronounced in STH-SOPR. This is the second time STH-SOPR has fallen below 1.0 in this correction, indicating a panic sell-off by a wide range of new holders.
The total number of addresses holding non-zero BTC balances has also retreated 2.8% from its recent all-time high of 38.7 million addresses. In total, 1.1 million addresses sold all of their cryptocurrency holdings in this correction, providing evidence that panic selling is currently underway.
If we look at the cyclical pattern of total supply held by short-term holders (STH), we can also see that a pattern of panic selling is playing out, similar to what was observed during the macro peak in 2017. What this chart shows is that the Bitcoin market tends to find a local or macro peak when new holders own a relatively large percentage of the total supply (i.e. a larger supply of cryptocurrency held by newer addresses).
However, it is important to note that the current peak in cryptocurrencies owned by STH is significantly lower in both the number of cryptocurrencies and the percentage of circulating supply than it was in 2017. New holders of cryptocurrencies recently reached 28% of the circulating supply (5.3M BTC), 9% less than at its peak in 2017. Given that Bitcoin trades at a larger market valuation, this may reflect greater capital inflows, which would require an advantage in market cap size. It may also provide an indication that this may be a retracement of a larger timeframe in the bull cycle as the weak capitulate and the strong start accumulating cheaper cryptocurrencies again.
Exchange Flow Dynamics Given our observations of the panic sell-off, it was found that total exchange BTC inflows reached a notable high, with a net inflow of 27.5k BTC observed at the start of this latest correction phase. This is second in size only to the March 2020 sell-off and the 2019 PlusToken Ponzi scheme.
However, if we break this observation down into the two largest exchanges, Binance and Coinbase, we can see two different statuses.
Binance, whose main users are non-US citizens, is the preferred venue for retail investors and is the main recipient of this net inflow. We can also see that both inflows and outflows have increased in size over the past few months, suggesting that macro sentiment among Binance users is volatile. This further suggests that the recent inflows may be driven by new market entrants (panic sellers) or may be due to a shift of capital to other crypto assets.
Conversely, Coinbase has seen an almost complete net outflow of BTC since breaking the last cycle’s $20K ATH, a trend that continued this week. coinbase is a preferred venue for US institutions, which, given the typical daily withdrawal size (10K to 20K BTC/day), suggests that larger buyers are still actively accumulating cryptocurrency during this correction.
Long-term holders buying on this dip In almost complete contrast to the panic selling by new entrants, long-term holders appear to be buying this dip and accumulating cheaper cryptocurrencies. While the number of non-zero addresses has declined in this correction, the number of addresses in accumulation has increased by 1.1% since the recent lows. Accumulating addresses are defined as those with at least two buy transactions, but never sold any cryptocurrency.
Similarly, cryptocurrencies held by long-term holders (LTH) have returned to a growth pattern that is once again similar to the macro tops of 2017. This chart primarily reflects buyers who purchased cryptocurrencies in late 2020/January 2021, but have not yet sold any. As the supply of LTH begins to rise, this indicates that the amount of cryptocurrency maturing over the 5-month dormancy period exceeds the amount of old coins sold to realize profits. LTH currently holds a supply of over 2.4 million more BTC (8% of circulation) than it did at its peak in 2017. This suggests that a significant amount of cryptocurrency has moved to and remains in illiquid cold wallets, and this trend is continuing.
Overall, the bitcoin market is in the midst of a major correction of historic proportions. There are strong signals that short term holders are leading with panic selling, however long term holders are stepping in to buy the dip and their confidence is largely unshaken. To say the least, the PoW energy consumption narrative is not having much of an impact on the market and the next step will be a test of faith in the Bitcoin market as a whole.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/hodler-still-adding-to-positions-amid-btc-panic-fall/
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