The cryptocurrency market continues to suffer market-wide liquidations amounting to millions. Bitcoin [BTC], the largest crypto by market cap, was changing wallets at the $22k mark as it suffered a 6.44% correction over the last day. But the situation might be getting worse. A majority of macro indicators suggest the market is entering the deepest phase of this bear cycle.
Detaching from the deceased
Long-term holders represent the HODLer cohort, who are relatively price-insensitive. This cohort is more likely to avoid volatility and price drawdowns in the pursuit of long-term value. When selling, or spending their Bitcoin, ‘HODLers’ are typically able to sell BTC at a lower average cost basis than their short-term peers.
But this scenario might not stand anymore- Long-term holders are currently spending coins with a “higher cost basis than STHs”. This does occur when entering a deep capitulation zone, where even the strongest hands are purged from the asset.
Consider the spent price of LTH to STH chart below.
In this regard, the analytical firm, Glassnode added,
“LTHs are currently spending coins with a higher cost basis than STHs. Previous instances of this have coincided with deep bear market finales, lasting between 52-days (2020) and 514-days (2014-15) and accompanied by additional drawdowns in the price of -40% to -65%.”
As long-term holders are now realizing “significant losses,” their conviction, which many believed is insensitive to price, to buy the dips has been rattled. Look into the HODLers net position change in the chart, for instance.
This metric indicated that approximately 15k-20k BTC per month are transitioning into the hands of Bitcoin HODLers. This has declined by around 64% since early May, suggesting a weakening accumulation response.
In addition to this, BTC’s ongoing correction dropped below its realized price of $23,430. Comparing this the LTH-cost basis shows that the two are currently converging.
LTH cost basis approaching the aggregate cost basis indicates that the current holdings of the ‘smart money’ cohort have no outcome in the broader market.
As seen above, previous encounters coincided with the deepest phases of a bear market. Furthermore, the Fed’s on 14 June could further add a hawkish surprise to this party.
According to CME, due to higher-than-expected inflation in the United States, the probability of the Fed raising interest rates by 75 bp on the 15th has risen to 69.4%, and the probability of raising interest rates by 75 bp in July has risen to 83%.
— Wu Blockchain (@WuBlockchain) June 14, 2022
Bitcoin: On-chain metrics to consider in this bear cycle before going…
The crypto market has had quite a ride this month after bearish waves struck down major cryptocurrencies. The global crypto market capitalization also fell below $1 trillion leading to failing crypto institutions such as 3AC and Celsius. Bitcoin also suffered heavy drawbacks during the period.
BTC reached its lowest levels since December 2020 after dropping below $17,750. Starting the month at around $32,200, the largest-sized crypto has taken a lot of heat and at press time, it was trading at $21,000. The king coin was up by more than 2% in the past day and was just down 0.05% during the week. This was a good signal of recovery after treading through bearish downturns early in June.
Nearing market bottom
On-chain data analytics platform CryptoQuant released the latest update surrounding Bitcoin. It stated that the current BTC price is undervalued. Most on-chain indicators indicate that we are close to a market bottom for Bitcoin.
BTC’s indicator of Net Unrealized Profit/Loss was hovering around -0.06, at press time. This is the initial signal for nearing a market bottom. In the latest crypto crash, there were many addresses that recorded losses when BTC reached the 18-month bottom of $17,744.
According to CryptoQuant, the MVRV ratio has fallen significantly during the current run. At press time, it was estimated at around 0.93, suggesting an undervaluation of BTC.
There was, however, a little spike in Miner’s Position Index but it was still estimated at -0.6. This means that miners are circulating more than their daily distribution in the moving average of the YTD.
Miners have also increasingly offloaded their holdings to exchanges. This can indicate that some miners’ revenue cannot meet the break-even point.
For many investors, this is a good time to start accumulating again if they want to recoup their losses. With the regulatory proposal for digital assets already in place in the United States, there is still hope for a bullish surge in the coming months.
Bitcoin Whale Presence On Derivatives Still High, More Volatility Ahead?
On-chain data shows Bitcoin whales are transferring large amounts to derivatives exchanges right now, a signal that more volatility could be ahead for the crypto.
Bitcoin All Exchanges To Derivatives Flow Continues To Show High Value
As explained by an analyst in a CryptoQuant post, BTC whale activity on derivatives exchanges still seems to be high.
The relevant indicator here is the “all exchanges to derivatives exchanges flow,” which measures the total amount of Bitcoin moving from spot exchange wallets to derivatives.
When the value of this metric spikes up, it means whales are currently moving a large number of coins to derivatives exchanges right now.
Such a trend usually occurs around lows in the price of the crypto as whales look to get themselves long positions.
Related Reading | Bitcoin Recovery Slows Down As Whale Inflows Remain Elevated
On the other hand, low values of the indicator show whales aren’t moving much coins to derivatives at the moment. This kind of trend has historically lead to tops in the value of the coin.
Now, here is a chart that shows the trend in the Bitcoin all exchanges to derivatives flow over the last couple of years:
Looks like the value of the metric has been quite high recently | Source: CryptoQuant
As you can see in the above graph, the Bitcoin spot to derivatives flow has spiked up recently, suggesting that whale activity is pretty high right now.
In fact, the current value of the indicator is actually the highest ever in the history of the cryptocurrency, implying there is an all-time high rate of whales on derivatives currently.
Historically, the price of the crypto has observed significant volatility whenever the metric’s value has been elevated.
Based on this trend, the quant believes that the value of the coin could still see further fluctuations in the near future.
The analyst also notes that a reduction in the all exchanges to derivatives flow will need to be there, for the volatility to die down.
At the time of writing, Bitcoin’s price floats around $21.1k, up 4% in the last seven days. Over the past month, the crypto has lost 27% in value.
The below chart shows the trend in the price of the coin over the last five days.
The value of the crypto seems to have surged up over the last couple of days | Source: BTCUSD on TradingView
After hitting a low of below $18k a week ago, Bitcoin has been trying to recover. So far, the crypto has managed to break above $21k again, but it’s yet unclear whether this recovery will last.
Featured image from Unsplash.com, charts from TradingView.com, CryptoQuant.com
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I’m Tony Spilotro. Behind the pseudonym, I’m a global remote work leader with a decade of award-winning content experience and excellence. Here, I explore my newfound passions pertaining to privacy, finance, economics, politics, cryptography, property rights, and other libertarian-esque views. I am a Bitcoin evangelist, maximalist, and educator whenever I can be, helping to spread its message of freedom from government control, monetary policy mismanagement, and passing the buck – literally – to future generations. My journey from a curious retail crypto investor to a serious Bitcoin advocate, trader, and technical analyst is an unusual one, but life-changing nonetheless and has become less about money and more about a long-overdue revolution. While a firm believer in the laws governing math and science, I am profoundly fascinated by the impact of astrology and astronomy including moon and solar cycles and planetary alignment and their ability to influence and potentially predict markets. It hasn’t yet clicked for me as to how to put anything to use, but I consider it my current rabbit hole I can’t yet dig out of. My perspective of growing up alongside the internet, the dot com era, the Great Recession, and roots in video games collecting coins and rare items caused Bitcoin to immediately make sense to me. Through all of these lenses, I seek to produce content that is educational and entertaining, and I thank you sincerely for taking the time to read what I have to say. Please follow me on Twitter at @tonyspilotroBTC and feel free to drop me a line if you would like to work together.
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