December 2, 2021

Approaching Pain Threshold: On-Chain Pulse | June 1, 2021

The Bitcoin market is now best characterized as a battleground between bulls and bears. Let's analyze sentiment of short-term and long-term BTC holders according to on-chain metrics.

Last week, the BTC price consolidated in the range of $ 31,327 - 40,757. A consolidation period is quite expected after a strong sell-off of the previous weeks.

The main question that worries nowinvestors, is whether this fall means a bearish trend or the market has returned to a re-accumulation range. In this issue, we will look at the behavior of short-term and long-term BTC holders using available on-chain data in order to try to assess the relative sentiment of market participants.

Approaching pain threshold

The current market structure is quiteintriguing as the price of BTC five months ago (in line with our threshold for long-term owners, 155 days) was only slightly below current values. Thus, the long-term owners own more or less all the coins in profit (accumulated until 2021), and the buyers of December - early January are now near the break-even level. Conversely, short-term owners today account for virtually all of the unrealized loss.

Using statistical methods, we have determined these two classes of coin holders based on when their coins were last moved on-chain:

  • short-term owners (STH) are generally viewed as relatively new market entrants holding coins under 155 days;
  • long-term owners (LTH) are commonly seen as hodlers, smart money, and buyers of last resort holding coins over 155 days.

Based on this classification, we determine whichthe share of the supply is held by short-term versus long-term owners, and how much of those coins is currently in profit or loss. Since the current price range is very close to the prices of 155 days ago, you can see that a small proportion of long-term owners are also at a loss today (light blue area in the chart below).

The relative profit and loss of short-term BTC owners versus long-term (link to updated source)

Key statistics on the current supply dynamics shown in the graph above:

  • Long-term owners in profit (dark blue area) hold 69% of the total BTC supply. Basically, everyone who bought BTC before 2021 falls into this category.
  • Long-term owners at a loss (light blue area) hold 0.5% of the total BTC supply.This includes buyers from the last days of December - early January. If the BTC price continues to fluctuate in this range, say for another month (or falls below), the thickness of this light blue area will indicate how many ~ January buyers continue to hold on to their coins.
  • Long-term owners in general (white area) returned to accumulating coins.This suggests that early bull market buyers (BTC <$ 30K) are holding on to substantial supply, and if this trend continues, this could indicate a longer-term supply squeeze.
  • Short-term owners in profit (dark red area) hold only 4.5% of BTC supply - sharpa decrease in the share from 30% in mid-April, near the price maximum of ~ $ 64 thousand. This suggests that about 26% of the supply of coins is currently at a loss.
  • In this way, short-term owners at a loss (light red area) with an unrealized loss of 26% of the total BTC supply. This group is the most likely source of selling pressure now and in the near future.

In our last analytical article, we discussednet unrealized profit / loss for both groups to determine their relative pain points. We estimate that short-term owners have capitulated with a large volume of coins, but they may still be a source of supply on the sell side in the near future. Long-term owners, on the other hand, remain in profit but are approaching the net unrealized profit / loss (NUPL) threshold of 0.75. In previous cycles, this signaled the beginning of bear markets as long-term owners took in remaining unrealized profits.

Net unrealized profit / loss for short-term (left) and long-term (right) owners

Spending structure matters

From the above, it is clear that many bitcoin investors are at a loss today, and the overall situation can be quite grim.

However, now, having identified potential painpoints to the market, we can trace the actual dynamics of spending coins on-chain to see if investors are taking action on paper losses and if they are intimidated by the red candles on the price chart.

Metric Average Spent Output Lifespan (averageLife Spent Output), or ASOL, gives an indication of the average age of all UTXOs spent that day. In the chart below, we applied the 7-day EMA in order to simultaneously watch out for the metric's recent behavior and somewhat smooth out the daily noise.

  • High ASOL values ​​mean old coins are in motion and are being distributed to new addresses.
  • Low ASOL values ​​indicate that old coins remain dormant.

In relation to recent price movements, two key observations can be made:

  1. Older coins have seen a splashspending in early May - partly probably due to distribution (smart money could expect some market weakness), as well as capital rotation (ETH doubled in value during this time).
  2. During the sale, the ASOL value plummeted,returning to levels below the accumulation range observed between $ 50K and $ 60K. This suggests that long-term owners did not panic and did not sell their coins on this correction.

Average Spent Output Lifetime (ASOL) (link to updated source)

The other two life span metrics, Coin-DaysDestroyed, or CDD, and Dormancy, paint a similar picture. Older coins seem to remain largely motionless (low values ​​of these metrics), despite a 50% drop in price from their peaks.

  • CDD represents the total age of coins spent on a given day.
  • Dormancy adjusts the CDD value for on-chain volume, reflecting the number of days that each coin was idle before being moved on-chain.
  • High values ​​of these metrics are usually bearish., testifying to the expenditure and distribution of old coins.
  • Low readings are usually bullishas old coins remain motionless and accumulation occurs.

Dormancy (red curve) + CDD (purple) (link to updated source)

As you can see from ASOL, the total age of the consumableexits have actually now fallen to levels before the 2020 bull market or even lower. This confirms that older coins hardly change owners and most of the spending goes to holders of relatively young coins.

All three of these metrics indicate that the older“Hands” are in no hurry to part with their coins. If the ASOL / CDD / Dormancy values ​​continue to decline, it will be reminiscent of previous accumulation ranges: old coins remain motionless, and weak hands distribute their coins in favor of stronger hands. Conversely, if these metrics start to rise, it could indicate that old coins are back in motion, creating additional selling pressure.

So who's selling?

So far, we have found that old coins are consumed less than usual. However, the price goes down and the exchange balances go up. So who is the main sales driver?

Metric of liquid and non-liquid supplyshows that in May a total of тыс155 thousand moved from an illiquid state (hodling) to a liquid or highly liquid state, which allows us to estimate the overall “selling pressure”. This metric takes into account both long-term and short-term owners who spent coins previously held in wallets with a heuristic similar to cold storage.

Liquid and illiquid offer (link to updated source)

The total volume of on-chain settlements in USDterms (up to $ 55 billion / day) last week is also very close to a record high. This is 60% more than at the peak of 2017. So it cannot be denied that a huge amount of coins are in motion.

On-chain volumes adjusted for delivery (link to updated source)

By filtering out the profitability ratioSpent Exit (SOPR) for short-term holders, you can see that they continue to take losses at current prices by selling coins purchased at higher levels. With extensive surrenders, this metric stays below 1.0 for extended periods of time. With this in mind, the current market structure is comparable to the March 2020 surrender.

STH-SOPR (link to updated source)

We can also consider the volume of on-chain transferBTC traded at a profit (bought at lower prices) versus the volume of BTC traded at a loss (bought at higher prices). From the graph below, a few key observations can be made that strongly support that much of the spending and selling pressure today comes from short-term owners:

  • Long-term owners clearly recorded profits during the fall rally from $ 10K to $ 42K, after which the level of their spending remained relatively stable.
  • Long-term owner spending structure,appears to have remained unaffected by the sell-off of recent weeks, and the “volatility” of spending has actually eased. This suggests that long-term owners are generally unwilling to sell their coins at discounted prices.
  • On the other hand, short-term owners increased their spending more than 5 times during this sale, with the maximum volume spreading near the current local minimum.

BTC transfer volume in profit or loss (link to updated source)

Finally, we can compare the supply volumes held by short-term (blue curve), long-term (green) holders, and miners (orange).

  • Short term holders distribute their coins.
  • Long-term owners continue to hoard and accumulate.
  • Miners accumulate.

Without a doubt, the current market structurebest described as a battlefield between bulls and bears, with a clear trend formation between long-term and short-term investors. This is a battle between hodlers' conviction and immediate purchasing power.

Supply volume held by short-term, long-term holders and miners (link to updated source)

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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