Activity on the chain has dropped by up to 30%, where does Ethereum go next?
The bitcoin market has continued to exhibit relative weakness this week in terms of price and on-chain activity. Prices have traded in a recent consolidation range, falling from a high of $41,295 at the beginning of the week to a low of $33,818 over the weekend.
Overall on-chain activity for Bitcoin and Ethereum is very low, with demand for block space down to 2020 levels. However, while the low demand for deals is a generally bearish reason, it also reflects the reluctance of strong players to spend at these prices. Are they waiting for a rescue pump?
Meanwhile, China's mining market is undergoing a sea change as several regions impose bans on the industry. This week we explore the on-chain observable impact of changes in hashrate and miner spending behavior.
Waves of on-chain activity
In the recent period, the chain suddenly seemed so quiet.
Both Bitcoin and Ethereum experienced a significant slowdown in on-chain activity, with the number of active addresses and total transfers falling back to levels seen in 2020 and early 2021. Bitcoin active addresses are down 24% from a peak of 1.16 million addresses that lasted from March to early May. The current number of active addresses is 884,000. The last time we saw this situation was last year.
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Real-time chart of BTC and ETH active addresses
The decline in activity was even more dramatic when it came to the dollar value of settlements on the network. Bitcoin (change-adjusted) and Ethereum (ETH transfers) are down -63% and -68% in USD value, respectively, from their recent highs in May.
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Real-time chart of BTC and ETH transfer volume
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Bitcoin Total Transaction Fees (BTC) live chart
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ETH Total Transaction Fees (ETH) live chart
supply and spending behavior
From a macro perspective, the balance of supply held by long-term (blue) and short-term (red) long-term holders bears striking resemblance to the 2017 macro peak. The graph below shows the relative supply held by each group, and whether they are profitable (dark) or losing money (light).
After reaching “peak HODL” (maximum LTH supply), both cycles show macro distribution events as BTC wealth shifts from long-term to short-term holders. After reaching the top, we started to see the opposite effect, with long-term holders stopping spending and starting to accumulate again, although their tokens were often caught in unrealized losses.
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Relative LTH vs. STH Supply in Profit & Loss Live Chart
If we investigate aggregate spending behavior over the past year, we see that the proportion of young coins on the move (those < 1 year old, excluding < 1 day old) continues to increase as a proportion of transaction flow. Over the past few months, we have seen new tokens account for more than 45% of total transaction volume. This is likely the result of new market entrants:
buy at the top of the hill, then,
Sold in surrender and current turmoil.
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Spending output age band real-time graph
Conversely, older coins (those > 1 year old) saw less payouts, dropping notably after the May sell-off. This demonstrates two realities of empty mempools:
1) The demand for on-chain settlement is extremely low (generally bearish)
2) However, it also suggests that long-term investors will not bail out at these prices (neutral to bullish)
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Spending output age band real-time graph
To confirm how insignificant the spending behavior of all coins is, we can look at the binary CDD indicator with a 7-day moving average applied. This metric tends to be higher when the number of coin days destroyed is greater than the long-term average. More coin days are destroyed when old coins and/or large BTC sizes are moved on-chain.
The binary CDD drops so low that only 1 in 7 days of life is above the long-term average. This state of affairs lasted almost all of June and started relatively soon after the May sell-off, suggesting that veterans were unwilling to sell at these prices. It also highlights how little block space is required.
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Binary CDD Live Chart
Earthquakes in mining circles shifted positions one after another
One of the largest Bitcoin hashrate migrations in history appears to be underway. Many miners are shutting down or moving their computing power offshore after several Chinese provinces officially banned mining activity.
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Average computing power real-time chart
As the Chinese mining industry begins to grapple with the logistical challenges of relocating, relocating, or selling its hardware and facilities, some may liquidate some of their accumulated BTC reserves. These token sales may represent miners hedging risk, accessing funds to facilitate and finance relocation activities, but for some miners may also be an exit from the industry altogether.
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Real-time chart of miners' net position changes
Finally, we look at holdings on over-the-counter (OTC) exchanges, which miners use to match their holdings with buyers.
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Real-time chart of OTC holdings
