Bitcoin (BTC) remains subject to the uncertainty of traditional financial markets and struggles to stand alone in a deleterious macroeconomic and geopolitical context. Testing the $30,000 support, a powerful selling wave is testing the spot markets. As the STHs gradually exhaust their selling pressure, the LTHs begin to panic. On-chain analysis of the situation.

BTC drops slowly… then suddenly

Bitcoin (BTC) price is pushing down the $36,000 support with vigor and testing the $30,000 level, causing a powerful sell-off in the spot markets overnight.

Back on an essential technical support, representing an important area of ​​liquidity, the BTC is now caught between the dominant selling pressure and the pragmatism of investors seeing in this drop a rare buying opportunity.

Despite the encouraging fundamental dynamics identified over the past few weeks, the price of BTC remains subject to uncertainty in traditional financial markets and struggles to stand on its own amidst a deleterious macroeconomic and geopolitical backdrop.

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Figure 1: Daily price of Bitcoin (BTC)

Given the recent price drop, this week’s analysis provides a holistic view of the behavior of different cohorts of investors , which will be underpinned next week with a particular focus on LTH’s response to unfolding events.

The goal is not to overreact to current events and to maintain an objective bias, devoid of emotion or urgency regarding the vagaries of the market. Let’s allow time for movements to form and for events to settle in order to better understand the underlying dynamics.

Thus, today we will study the behavior of short-term (STH) and long-term (LTH) investors in the face of ambient uncertainty before observing the recent dynamics of exchange flows and the solicitation of the Bitcoin network by participants in the market.

Long-term investors close to capitulation

The state of profitability of the network is an essential aspect to study if we want to inquire about the extent of the buying or selling pressures at play in the market.

Visualizing the percentages of circulating supply, existing addresses and unique entities in profit status, the graph below presents their average variation over the last 30 days in the form of an oscillator.

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Figure 2: Profitability of the Bitcoin network

With nearly 60% of the Bitcoin network in a state of profit today , the ongoing decline exceeds the May 2021 and January 2022 capitulations in terms of perceived pain.

Although the 50% threshold reached during the flash crack of March 2020 has not yet been reached, this eventuality is plausible in the short or medium term.

Plunging more than a hundredth of the network under water every day for the past week, the price of BTC is pushing the profitability of all cohorts down to relatively low levels and testing investor conviction.

The following graph models the variation in profitability over 90 days of the STH and LTH cohorts.

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Figure 3: Variation of STH and LTH profitability over 90 days

What matters here, and which we will elaborate on in more detail next week, is the fact that long-term investors are currently experiencing a significant drop in their overall profitability, compared to short-term investors.

This discrepancy can be explained by several reasons:

  1. STHs have been under water and slowly capitulating since January 2022, slowly exhausting their average selling pressure.
  2. Previously profitable LTHs are now finding themselves below their break-even point and liquidating some of their holdings, abandoning their position as HODLers insensitive to bearish volatility.
  3. Other LTHs already in loss after accumulating many BTCs around $40,000 are embracing short-term defensive behavior, reselling the supply accumulated over the past few months.

Knowing that short-term investors have largely capitulated over the past few weeks, tonight’s decline comes to finish them off and test long-term investors’ conviction.

Indeed, the supply held by STHs is down, reflecting a seller bias and defensive behavior since last month. Comprising 15.44% of the circulating supply (2.94 million BTC) today , the cohort is loose ballast in response to BTC’s short-term price action.

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Figure 4: Variation in supply held by STHs (%)

Similarly, the supply of coins older than 155 days is beginning to dive, a sign that some of the LTHs are bad enough to prefer spending to saving . While their overall cohort behavior is still bullish on a month-to-month basis, the reaction of LTHs over the next few days will merit special attention.

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Figure 5: Variation in supply held by LTHs (%)

It is now clear that we are entering the advanced phase of the downward movement initiated at the end of 2021 and that the behavior of the LTHs will determine the sequence of events , directing the market towards a final capitulation involving all the cohorts present or towards a consolidation potentially leading to a bullish reversal after making the $30,000 level the new local low.

A large wave of deposits on the exchanges

It is common to see capital flowing into the exchanges during strong bearish movements, indicating a willingness to sell on the part of certain participants.

In this sense, the short-term response of the market overnight is clearly visible on the inflow metrics of the exchanges and allows us to gauge the extent of the overall selling sentiment.

With an influx of around 90,000 BTC over the past few hours, exchange reserves are seeing increasing deposit spikes , indicating that this bearish move has caused a significant number of entities to panic.

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Figure 6: Incoming flows from exchanges

Note, however, that overnight, the Luna Foundation Guard proceeded to the total liquidation of its BTC reserves in order to deploy the capital necessary to stabilize the algorithmic stablecoin UST, adding to the selling pressure by displacing several tens of thousands of BTC to Gemini then to Binance.

Causing a significant 3.56% rise in BTC reserves , these inflows confirm the market’s entry into an advanced capitulation phase and the sustained state of suffering among investors.

While spending behavior prevails in the short term and provides the most stubborn with rare buying opportunities, its reversal and the relapse of exchange reserves will indicate a return of the buying bias that we will identify when the time comes.

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Figure 7: BTC reserves of exchanges

In response to this wave of inflows, the transaction fees collected by exchanges have increased modestly but significantly given the current context.

Showing an exacerbated dominance of deposit fees (in pink), this metric confirms the strong will to sell of some investors, ready to pay high fees to see the assets deposited (and probably sold) as quickly as possible.

This behavior is symptomatic of the state of panic currently felt by the market: many investors rush to the exchanges in search of sales and rush to spend their assets even if it means paying a high price .

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Figure 8: Exchange transaction fees

Although the cohort of miners did not panic last night, it is relevant to notice a notable growth in flows out of their wallets since the end of 2021.

Indeed, following the continuous fall in the price of BTC, the reward in USD per Exahash provided has also fallen, pushing miners to spend more BTC in order to cover their CAPEX and OPEX expenses.

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Figure 9: Net flows from wallets associated with miners

In doing so, miners have also participated in a modest but not inconsiderable way in the selling pressure and inflows on the exchanges over the past few months, although overnight’s drop hasn’t fazed them so far.

It is instructive to see that, in stark contrast to the May capitulation, miners are holding their own and are not yet being forced to unplug their machines for the sake of profitability.

Despite palpable market pain, the Bitcoin network maintains a stable fundamental to this day, showing encouraging resilience.

The long-term growth of economic activity on Bitcoin

Indeed, despite a serious lack of economic engagement and chain demand, the long-term growth of on-chain activity provides a constructive fundamental argument for the months to come.

The graph below represents the number of active unique entities over time as well as the number of new entities appearing for the first time on the Bitcoin network.

Added in white dots is a growth channel supporting the network’s long-term on-chain activity trend and serving as a benchmark for average investor engagement.

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Figure 10: Number of active entities and new entities

After a quick reading, we can notice a notable weakness in the number of active entities making up the economic fabric of the network and a lack of growth in the number of new entities.

Reflecting participants’ lack of interest in Bitcoin, the current state of the network is approaching earlier bear market phases such as those preceding the final December 2019 capitulation and March 2020.

The long-term growth channel still acts as a support for on-chain activity today and suggests that a local bottom in the price of BTC could be reached in the coming weeks.

This observation is corroborated by the evolution of the number of transactions. With around 227,000 transactions settled daily, the Bitcoin network is seeing activity today equivalent to November 2021, at the ATH of $69,000.

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Figure 11: Number of daily transactions

The ongoing structural uptrend on these metrics indicates that, despite relatively weak on-chain activity compared to bullish periods, the upward momentum in long-term commitment remains valid to date .

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However, it is clear that the transfer volume settled on the chain has been declining since the end of 2021 and that there is no indication of a reversal of this trend at the moment.

Figure 12: Daily transfer volume by transaction size

With 5.7 billion dollars transferred daily by the network, of which 40% represent transactions of more than 10 million dollars, it seems that individual users are gradually deserting the network in favor of companies or individuals with large sums of BTC.

Summary of this on-chain analysis

The recent fall in the price of bitcoin (BTC) has caused panic among many investors. As the STHs gradually exhaust their selling pressure, the LTHs begin selling in a panic . The drop in place since the end of 2021 is entering its final phase and testing the conviction of HODLers.

In response to the test of the $30,00 level, a large deposit wave indicates investors are racing to sell as the Luna Foundation Guard liquidates its holdings in Gemini and Binance. The miners are participating in a small but noticeable way in the selling pressure without showing any significant signs of weakness.

Finally, despite a period of relatively low on-chain activity, the upward momentum in long-term engagement remains valid to date and gives us confidence in the resilience of the network and the market over a horizon of several months to several years. .

Sources – Figure 1: Coinigy  ; Figure 2 to 12: Glassnode

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