This article is from Encryption Valley Live, author checkmate, reproduced with authorization.
Summary: After becoming an outstanding macroeconomic asset in 2020, Bitcoin appears to be on the way from"gradually"The transition to"Sudden"stage. This week, we investigate the on-chain behavior of short-term traders and long-term holders in response to weekly events.
Bitcoin has once again stepped into uncharted territory. this week,Bitcoin was officially voted legal tender in El Salvador, a truly historic moment for the industry.It also seems likely that the next major mining energy source will come from volcanoes.
Prices started the week with relative weakness, selling off to a weekly low of $31,185. However, the market reacted to El Salvador's swift passage of the bill by bouncing back into a recent consolidation range, hitting an intraday high of $39,269.
After becoming a standout macroeconomic asset in 2020, Bitcoin appears to be on the way from"gradually"The transition to"Sudden"secondary title
profitable supply fluctuations
The high volatility of the Bitcoin market makes it a magnet for traders who are able to monetize price swings in both directions. at the same time,Bitcoin's strong fundamental properties make it an ideal store-of-value asset for long-term investors. In choppy market structures, we can gain insight into the balance of supply and demand, and the extent of accumulation by short-term and long-term holders, by observing profitable supply changes during price swings.
Prices rallied twice this week, first after El Salvador voted to pass a fiat currency bill, and then again on Sunday afternoon. During both swings, the value of profitable UTXO holdings jumped by about 1.5 million BTC. In both rallies, it went from a low of $31,700 to a high of $39,200 on Sunday.
While some of these cryptocurrencies may have been purchased in January (similar price range) and remained unused, we can estimate that,At least 1.985 million BTC (approximately 10.5% of the circulating supply) has an on-chain cost base between $31K and $39K.
We can reasonably assume that this newly profitable supply is roughly held by three distinct groups.
HODLers who bought cryptocurrencies in early January 2021: and haven't sold them yet. These cryptocurrencies are currently expiring across the 155-day long-term holder (LTH) threshold.
New HODLers: They buy dips in the current range and may hold on any future swings (difficult to isolate in the data right now).
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Traders Take Profit and Short Positions
Let's start with the last group, the traders and STHs most likely to generate selling pressure.
The graph below shows the profitability of the supply held by STH (green) and STH-SOPR as a measure of profitability (pink). There are two key observations here.
During price rallies, STH profited every spike in supply (green 1, 2, 3, 4), STH-SOPR quickly spiked and stayed at a higher level (matching pink 1, 2, 3, 4 ). This suggests that within this STH group, some may be profiting from swing trading, or deterred by intraday price fluctuations.
In the price rally following the El Salvador vote, ~737K BTC owned by STH returned a profit (~37% of the 1.985M in the previous chart). We can therefore estimate that approximately 63% of the cryptocurrencies with a cost basis in this price range are actually LTH-owned cryptocurrencies purchased in January 2021, and 37% are recently accumulated.
Keeping the analysis for short-term traders, we can see that futures open interest is climbing, albeit slowly, especially compared to the first quarter of 2021. Total open interest fluctuated between $10 billion and $12 billion last month, still down around $8 billion (40%) compared to the previous peak in mid-May.
Futures trading volumes were similarly subdued, especially relative to the $120 billion traded during the May sell-off. In the days following El Salvador's vote, trading volumes increased by about $15 billion. In the second half of the week, trading volumes began to decline again.
Of course, traders in the derivatives market seem unsure of the direction of the macro market, thus keeping leverage levels and trading volumes relatively low.
Regarding the perpetual futures funding rate, after turning extremely negative during the crash event, it has remained fairly neutral over the past month. The funds rate fluctuates between +0.005% and -0.010%.
Interestingly, in both of the aforementioned price rallies, funding rates turned negative, indicating a more bearish bias and traders preferring to sell on rallies.
However, usually,The large funding rate provides a contrarian indicator as it shows that many leveraged traders are leaning in the same direction. While the aforementioned negative interest rates are not particularly large, there has been significant short liquidation in all three examples.
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Long term holders continue to HODLing
Let us now turn our attention to the group of long-term holders (LTHs), which includes all cryptocurrency buyers until January 10, 2021. LTH Net Position Change shows the monthly net rate of cryptocurrencies expiring within the 155-day threshold, which includes any sold cryptocurrencies.
The graph below is a marker mapping the price range ($13,000 to $42,000) 155 days ago to the acceleration rate for those cryptocurrencies expiring today. This shows that in the early bull market, there was a lot of buying of cryptocurrencies and basically no selling.The current maturity rate is over 400,000 BTC/month, which is much larger than our estimated ~160,000 BTC sold in the May capitulation event, most of which were STHs。
We can also see this cryptocurrency maturing in the liquidation cap HODL wave, which presents the relative proportions of the cryptocurrency supply that make up the liquidation cap. Not only are we seeing a decline in very young cryptocurrencies (<1 month old) due to recent low on-chain transaction volume, we are also seeing an expanding share of cryptocurrencies aged between 3 months and 12 months.These are those HODLed coins that have accumulated throughout the bull run from 2020 to January 2021.
Some LTHs have and will be profiting on their cryptocurrencies. It is common in all Bitcoin cycles for LTHs to sell the majority of their cryptocurrency on bull rallies, and on pullbacks, their selling slows down as conviction returns. This behavior can be seen in the LTH-SOPR, an index that tracks the total profit multiple achieved by LTH.
After reaching a peak of about 7.5 times in March-April (LTHs realized 750% profit), it can be seen that the profit realized by LTHs in this price adjustment is declining, even when the price is trading sideways. LTHs are currently achieving a profit multiple of 3.2x, which indicates that the total cost basis of the cryptocurrency they sold is approximately $11,000
A similar observation can be seen in the CDD-90 metric, which plots the sum of daily cryptocurrency burns over the past 90 days. The drop in CDD-90 shows that older cryptocurrencies (with larger cumulative lifetimes) are still not being burned. This suggests that there was no panic selling of LTHs during this volatility and thus more likely to be re-accumulating rather than cashing out.
To further confirm this, we checked the binary CDD indicator with a 7-day moving average applied. The basic binary CDD indicator will return 1 or 0 when the number of cryptocurrency days broken is greater or less than the long-term average. With moving averages, we can see the trend of old coins being consumed (uptrend/high values), or remaining dormant (downtrend/low values).
The binary CDD indicator reached an extremely low value throughout June, coinciding with a bullish trend that began in early 2020. This shows that longLong-term holders did not sell their cryptocurrencies at all.
