In this article, we investigate indicators that describe market structure, including those that lead to sell-offs, as well as an assessment of future bull and bear market scenarios. This article will explore.
Indicators that provide early warning of slowing institutional demand and the distribution of on-chain consumption patterns.
Analyze exit ample liquidity needs for coins and stablecoins flowing in/out of exchanges.
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Changes in Institutional Needs
As the Bitcoin market’s valuation grows and matures, it both attracts more capital and requires more capital and volume to maintain and reach new highs. A major driver of the momentum of this bull cycle has undoubtedly been institutional inflows, primarily due to the massive monetary and fiscal policies stemming from the COVID pandemic.
The largest investment vehicle available to traditional investors is the Grayscale GBTC Trust product. Throughout most of 2020 and early 2021, investors have taken advantage of strong institutional demand by physically arbitrating the ongoing GBTC price premium. This serves a double purpose, becauseIt removes the BTC cryptocurrency from circulation, creating a self-reinforcing supply cycle that fuels growth in institutional demand。
By January 2021, inflows into the GBTC trust fund have reached almost 50,000 BTC, and GBTC has always traded between 10% and 20% of the spot price. In late January, arbitrage began to drive premiums below 10%, and BTC inflows began to slow sharply. In late February, inflows came to a complete halt and GBTC began trading at a chronically worsening discount to the spot price.
Both GBTC and Purpose ETF inflows suggest that institutional demand has weakened from February to May, with both products having an impact on liquid BTC supply. On the positive side, the recent sell-off appears to have energized investors in both products,first level title。
Exchange dynamics
In the months leading up to the sell-off, a trend can also be seen, that is, more and more tokens are being transferred out of exchanges. on the contrary,picture。
The trend of decreasing total exchange balances has been going on for more than 434 days, however a significant rise in exchange inflows was observed on April 3. This is consistent with the re-entry of previously illiquid cryptocurrencies into liquid circulation in the chart above. Note that there are multiple explanations for this behavior, which may all occur concurrently.
Exchange inflows for the purpose of issuing and selling.
Provide collateral for loans, futures and margin trading.
Capital is transferred to other assets (specifically ETH which we analyze here).
Retail-led speculation and trading, especially in relation to the Binance Smart Chain.
on the contrary,Balances on US-regulated exchanges Coinbase, Gemini, Kraken, and Bitstamp continue to droprecent,
recent,The proportion of on-chain transaction fees spent on deposits to exchanges is also accelerating. Similar to the 2017 macro top, demand for deposits on exchanges accelerated throughout the bull market before hitting a new ATH, this time exceeding 20% of all on-chain fees. This suggests that, whether out of panic or to re-collateralize margin positions during adjustments,Cryptocurrency Holders Urgently Need to Prioritize Deposits。
Finally, on the exchange front, there has been a massive deleveraging in the derivatives market,Caused a cascade of market sell-offs, margin calls and liquidationsfirst level title
exit liquidity
On the other side of this sell-off, however, the circulating supply of stablecoins has since hit new all-time highs. Since the adjustment started on April 14,Over the past 1.5 months, the stablecoin supply has increased by the following amounts。
USDT increased by $14.2 billion (+30%).
USDC increased by $9.72 billion (+88%).
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The Stablecoin Supply Ratio (SSR) compares Bitcoin’s market capitalization to the total supply of all stablecoins as an indicator of a cryptocurrency’s native, dollar-denominated purchasing power. A low SSR value means that the stablecoin has a large supply relative to Bitcoin's market cap. The SSR ratio has now been pushed to an all-time low of 7.5x as the valuation of Bitcoin has contracted, and the supply of stablecoins has increased.
HODLer's buying and selling behavior
If we compare the selling behavior of cryptocurrencies to the macro top in 2017, we can see a somewhat similar pattern has played out, with veterans slowing down their buying as the market overheats. However, it was during the first rally that the proportion of old coins sold increased again as the probability of a bear market increased. Similar events occurred in most of the bear market rallies in 2018, and the eventual sell-off in November.
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The HODL wave that achieves the cap provides a view of what fraction of the active supply the cryptocurrency is held for different holding periods. A typical cycle pattern is .
Longer-held coins rallied in bear markets as accumulation resumed and wealth shifted from speculators to long-term holders.
Short-held coins rise in bull markets as holders allocate expensive cryptocurrencies to new, soft-handed speculators.
In the current market structure, we have seen the first major impulse in cryptocurrencies less than 3 months old as new speculators enter the market. This coincided with an initial bull rally, with older coins being spent after the breakout from $10,000 to $42,000. What is noticeably different about this cycle is that we can see a decline in the share of new speculators. There are several explanations for this phenomenon.
Increased access to derivatives and instruments to complete risk hedging without interacting with the blockchain at all.
Retail speculators' preference and/or singular preference for other cryptoassets than Bitcoin, and similar access to derivatives and off-chain leverage.
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Looking at the opposite side of this chart, we can see two observations about the proportion of old coin holders.
1. The supply held by LTHs has actually returned to accumulation, supporting the argument that cryptocurrency maturation and institutional HODLing are still in play. If that happens, it will resemble the start of a bear market, but also facilitate an eventual supply squeeze.
2. Long-term holders currently hold 10% more active supply than they have in all previous market cycles.
This second point can be interpreted as both bullish as it means that HODers distribute less cryptocurrency. However, it can also be considered bearish as it indicates that there is not enough demand to absorb this relatively small supply of selling cryptocurrencies.
At the end of the day, during a sell-off, the ultimate financial pain comes from investors watching unrealized gains evaporate, either back on cost basis or dumped into unrealized losses. The Net Unrealized Profit and Loss metric calculates the extent of gross profit or loss held by the unspent cryptocurrency supply as a percentage of market capitalization.
If we filter this metric by STH (coin age < 5 months), we can see that the May selloff rivals in size the bear market and largest selloff in the entire history of Bitcoin. There are a large number of buyers currently holding underwater coins in 2021.When prices try to recover,These supplies could become overhead pressure orders, providing headwinds for bulls。
If we also filter by cryptocurrencies held by long-term investors, we get a chart showing that the market is standing on a historical knife edge.Unrealized PnL held by long-term investors tends to be less volatile and more cyclical due to Bitcoin's huge long-term price performance。
However, the unrealized equity held by long-term investors is currently testing the 0.75 level, which has been the decisive level between bull and bear cycles in the past. only in 2013"double pump"Under the circumstances, this indicator has recovered. This could also create a new source of overhead supply if LTHs continue to see their paper earnings decline. On the other hand, a supply squeeze from higher prices and buying dips will begin to resemble the 2013"double pump"first level title
conclusive summary
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for bear market
Institutional needsThere has been a noticeable softening from February, and the resulting supply sink/squeeze has largely dissipated.
The balance on the exchange increased, and the transaction behavior of selling a large number of cryptocurrencies must now be re-accumulated.
The distribution of stablecoins before the Coinbase listing showed that veterans had sold off before the plunge.
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for the bull market
Despite the slump in prices, institutional products GBTC and Purpose ETFs are showing signs of recovery, providing early signs of renewed institutional interest.
While balances on exchanges have increased, a more granular view reveals differences between U.S.-regulated exchanges and offshore exchanges. There may be a jurisdictional bias at play.
The output of stablecoins has expanded dramatically, creating the largest cryptocurrency-native dollar purchasing power role in history.
Much of the selling appears to be short-term holders, while long-term holders appear to be buying the falling cryptocurrency with growing conviction.
Few proclaimed that buying bitcoin was easy, and for many, the volatility seen last week was part of the cryptocurrency. What is clear is that the size of this sell-off is massive, with a large number of buyers currently underwater.How the market recovers from here will certainly be a test of faith in what remains a favorable macro backdrop for digital scarcity。
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