December 4, 2021

Let's measure the correction parameters: on-chain pulse | May 18, 2021

On-chain metrics show that new market participants sell their bitcoins in panic, fixing losses, while long term hodlers seemrelatively calm amid the latest news and the current correction, continuing to accumulate BTC at lower prices. In many ways, the current supply and demand dynamics is reminiscent of the 2017 macro peak, but with significant differences that challenge the confidence of both bulls and bears.

We will begin by assessing the scale of thiscorrections versus bull markets in 2017 and 2021 So far, the current correction has made ~ 31% of the price high just below $ 65K, set on April 14. This is the deepest retracement in the current bull market, however, it is quite consistent with the five major retracements of the 2017 bull cycle.

In terms of the length of the bullish cycle,The main bull market (in which new record highs are often set) in 2021 lasts about 200 days, which is relatively short compared to the annual bull market in 2017.

Drawdown from the all-time high in price (link to updated source)

Number of network entities currently locatedin profit, gives an idea of ​​which segment of the market is at a loss. The following graph shows that as a result of this correction, more than 23% of on-chain entities (unique individual wallets) were at a loss, which is comparable to only three periods of uptrends since 2016. Note that all of these comparative price pullbacks were associated with relatively extreme events:

  • 2016 - the first correction in the negative rally from the bottom set after a two-year bear market;
  • 2019 - the first correction in the rally of negation (largely driven by short squeeze) upon exiting the 1.5-year bear market;
  • 2020 - Consolidation amid global uncertainty following the March COVID sale.

Percentage of on-chain entities in profit (link to updated source)

New members sell in panic

New market participants sold theircoins, fixing significant losses. At the same time, both aSOPR (Adjusted Exit Spent Profitability Ratio) and STH-SOPR (SOPR for short-term holders) dropped below (1.0) again. Both of these metrics take into account the profit generated by moving coins on-chain. Values ​​greater than 1 indicate that the coins, on average, moved at a profit for the previous owner, values ​​below 1 - that the coins were mainly sold at a loss.

ASOPR metric takes into account the entire market, as well asfilters out all coins with "age" less than 1 hour (as a rule, these are just temporary movements with no economic weight). STH-SOPR only filters out coins younger than 155 days old and is therefore representative of network entities who bought BTC during the current bull market.

Both indicators fell below 1.0, indicating thaton average, the realization of losses on-chain, and to a greater extent this is expressed in STH-SOPR. This is the second fall in STH-SOPR below the 1.0 threshold in the current correction, indicating widespread panic selling among new owners.

aSOPR and STH-SOPR (link to updated source)

Total number of addresses with non-zero BTC balancealso fell 2.8% from a recent all-time high of 38.7 million addresses. A total of 1.1 million addresses have spent all their coins in the current correction, which, again, is a sign of panic selling.

The number of addresses with non-zero balance (link to updated source)

In the total supply heldby short-term owners, it is possible to recognize a panic selling pattern similar to that observed in the 2017 macro. The chart below shows that Bitcoin tends to peak locally or trend top at a time when new holders own a relatively large share of the total BTC supply (i.e., the maximum number of coins is held by new, less stable holders).

However, it is important to note that the current peakthe number of coins in the hands of short-term owners is significantly lower than in 2017, both in terms of the volume of coins and as a percentage of the circulating supply. The share of coins in the hands of new owners recently reached 28% of the number of coins in circulation (₿5.3 million), which is 9% below the values ​​at the top of the 2017 bull market.

Considering that Bitcoin is trading much morehigh, this could be a reflection of the larger capital inflows required to grow market capitalization. It could also be a sign of a longer retracement within a bull cycle, as weaker hands capitulate and stronger hands resume accumulation at lower prices.

Offer held by short-term owners (link to updated source)

Dynamics of cash flows on exchange wallets

Supporting our observation of panic selling,the total inflow of BTC to exchanges reached significant values ​​with a peak of ₿27.5 thousand at the beginning of the last wave of correction. This is only comparable in scale with the March 2020 sale and the Plustoken ponzi distribution in 2019.

The ratio of inflow / outflow of funds at exchange addresses (link to updated source)

However, if we single out the two largest exchanges, Binance and Coinbase, from the total cash flows, then we see two different realities.

Binance largely coversnon-US companies and is the first choice platform for retail speculators and investors. She is also the recipient of the lion's share of the total net inflow of BTC to exchanges. It can also be seen that the magnitude of both inflow and outflow values ​​has increased over the past few months, indicating the volatility of Binance user sentiment. This is an additional sign that the influx of funds to exchanges in recent years may be caused by both panic sales of new participants and a potential rotation of capital to other crypto assets.

The ratio of inflow / outflow of funds on Binance addresses (link to updated source)

In contrast, on Coinbase, on average, you couldobserve an almost net outflow of BTC since the breakdown of $ 20 thousand, and this trend continued last week. Coinbase is the most popular platform among US institutional investors, and given the scale of daily withdrawals (10-20 thousand BTC / day), this suggests that large buyers continue to accumulate BTC during the current decline.

The ratio of inflow / outflow of funds on Coinbase addresses (link to updated source)

Long-term investors are buying back this drop

In near perfect opposition to panic sellingnew entrants, long-term investors, seem to be buying back this drop and continue to accumulate cheaper coins. With the number of non-zero addresses declining during this correction, the number of addresses accumulating BTC increased 1.1% from the recent low. Accumulating addresses here are those that have had at least two incoming transactions, but have never consumed the held coins.

Accumulating addresses (link to updated source)

Likewise, the offer heldlong-term owners, also returned to accumulation mode, which, again, resembles the situation at the top of the 2017 bull market. The graph below largely reflects the general behavior of buyers who purchased BTC at the end of 2020 - January 2021 and did not spend it. As the share of supply held by long-term owners continues to grow, this suggests that the volume of coins maturing for more than 5 months of inactivity exceeds the volume of old coins that are spent to lock in profits.

Current long-term held supplyis more than ₿2.4 million (8% of the total issued coins) - more than in the 2017 macro. That is, a large volume of coins was put into cold storage and remains in this state, and this trend continues.

The number of long-term held coins (link to updated source)

In general, the bitcoin market is in historicallysignificant correction. There are strong signals of panic sell-off from predominantly short-term owners, however long-term investors seem to be using this situation to buy dips and show no significant signs of declining confidence. The topic of PoW coin power consumption that has come to the fore recently is nuanced, to put it mildly, and what happens next will be a test of confidence for the entire Bitcoin market.

The article does not contain investment recommendations,all the opinions expressed express exclusively the personal opinions of the author and the respondents. Any activity related to investing and trading in the markets carries risks. Make your own decisions responsibly and independently.

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