Happy New Year to all our readers. The Glassnode team hopes you all had a happy holiday break.
Also, Happy Birthday to Bitcoin. Thirteen years ago, Satoshi Nakamoto mined the first Bitcoin block , with the following message encoded in the transaction as a timestamp:
“ The Times 03/Jan/2009 Chancellor on the brink of second bailout for banks ” ( or “Chancellor on the brink of the second bailout of banks”, in Portuguese).
As 2021 left, so did the activity in the Bitcoin (BTC) market , with trading volumes smoothing and prices trading sideways.
The price has continued to trade in the same range since late November, fluctuating between a high of $51,654 and a low of $46,197 last week.
In many network metrics, there is a general lack of activity, although there is a modestly positive connotation in the supply dynamics.
Currencies continue to migrate to increasingly illiquid and dormant portfolios while investor profitability and cyclical metrics present a more negative outlook.
With a balance of both bullish and bearish signals, it is likely that the expectation for the start of 2022 will continue to be lateral consolidation.
Blockchain activity remains weak
The first set of metrics that Glassnode will evaluate is associated with the activity happening on the blockchain.
Overall, the positive dynamism is accompanied by growing demand for block space as coins are purchased, sold and transferred to new owners.
On the other hand, downtrends generally have fewer new wallets, reduced transaction demand, and low network utilization.
The number of wallet addresses with a balance greater than zero is a metric that can be used to gauge long-term demand for bitcoin.
Over the last year, a net total of 7,462 million portfolios with a balance greater than zero were added to the network, recording growth in the year of 23.2%.
1.415 million of these portfolios have been added since the record high in October, an increase of 18.9% year-on-year.
The current record high of 39.6 million addresses with balances greater than zero is 40% higher than the peak recorded at the end of the 2017 bull market, indicating that user base growth has been continuous over the past five years.
Regarding the daily activity, it is noticeable that the number of entities in blockchain finally reached a number above 275,000/day.
The chart below highlights (in red) an observable and growing “bearish market channel”. It shows that, during periods of low prices and relatively low interest, there is persistent growth in network users.
Both the 2017 and 2020-2021 bull markets stand out for having more blockchain activity related to this channel. However, the current regime appears to be more similar to the “high mini-cycle” that took place between April and August 2019.
These two periods are similar in that they followed a deep correction and a major capitulation moment, but subsequent price hikes failed to generate enough dynamism for a full-scale bull market.
The price rally in 2019 culminated in a nine-month-long downward sideways trading range until final capitulation takes place in March 2020.
Transactions show a similar picture, where the 2017 and 2020-2021 bull markets stand out, reaching more than 300,000 transactions a day during the peaks.
Again, similarities can be found between April and August 2019 and in the current market since September 2021.
In both cases, an initial wave of activity provided support for the high prices but failed to sustain any significant dynamism as both the quantity of transactions and the price of the currency fell.
Until there is a further expansion in demand for Bitcoin block space, it is prudent to expect the price action to be less memorable and likely to sidestep on a macro scale.
It is important to highlight the differences in market structures between the 2019 and 2021-2022 periods.
The price increase between April and August 2019 was largely associated with strong demand for spot bitcoin due to the Ponzi PlusToken scheme, along with several “short squeezes” (when the price increases too fast) as trades weakened the movement in the futures markets.
The current market is best described as a strong price rally after the July and September lows after strong build-up.
This price rally was sold after a very strong October as both macroeconomic uncertainty and concerns about inflation plagued markets and trading firms wanted to post year-end profits.
Implicit supply remains positive
One of the characteristics of bear markets is a constructive connotation in supply dynamics.
While the blockchain activity above highlights relatively weak demand from retail and tourist market, currency dormancy remains impressive and signs of more patient smart money remain intact.
December 2020 was a starting point for a very strong price performance in the first quarter of 2021 as bitcoin broke the previous cycle and the record $20,000, reaching over $64,000 in April.
When looking at the last activity in sourcing metrics over a year ago, you can see that a greater proportion of coins accumulated at the end of 2020 have not been spent to date.
Since October 2021, more than 682,000 BTC have migrated to the one year old age bracket, representing 3.3% of the supply of coins in circulation.
More than 57% of the coin supply is now older than one year, equivalent to the 51.5% seen at the time of the positive momentum in April 2019.
Given how volatile 2021 was, it's impressive to see such an acceleration and a greater proportion of coins stored over the year.
Supply from Long Term Holders has also stabilized after a rather modest period of distribution following two record highs in October and November.
This means that Long Term Holders have slowed down their expenses and are likely to be HODLers or even buyers at these prices. This provides another constructive insight into market conviction.
Long Term Holders have spent around 150,000 BTC since October, or 1.11% of their total stored balance. The slowdown in spending is notable given the continued drastic correction during that time.
Note that it also happens after a huge accumulation phase in 2021, where, in net terms, more than 2.42 million BTC migrated to Long Term Holders portfolios after March – a balance growth of 22.1%.
It is also possible to assess currency liquidity as a more immediate measure of current currency supply dynamics, such as whether the market is accumulating (more illiquid) or distributing (more liquid).
While Last Activity in Long-Term Holders Sourcing uses time as the primary input (age or lifetime of currencies), Glassnode's Net and Gross metrics use portfolio spend heuristics.
When a currency is moved into a portfolio with no history of spend, it will be classified as illiquid (a HODLer that executes an averaging dollar cost strategy).
On the other hand, a portfolio that spends well regularly (the “hot wallet” of a day-trader or broker) will be classified as either Liquid or Highly Liquid.
In the chart below, it can be seen that, in the final months of 2021, even with the price correction, there was an acceleration of currencies from Net to Gross portfolios. Throughout December, currencies were moved into increasingly illiquid portfolios at a range between 50,000 and 100,000 BTC/month, reflecting a greater likelihood of broad accumulation.
It is noticed that the I-liquid (blue color) supply accelerated more thanks to the combined Liquid and Highly Liquid (pink) supply. Illiquid coins now represent 76% of the total supply and appear to have a visible correlation with price.
Current conditions reflect a divergence between what appears to be constructive blockchain supply dynamics compared to low to neutral price action.
Finally, on the long-term macro trends, you can see the confluence in the Vivacity metric. Vivacity reflects the relative growth of coin creation/day and coins destroyed per day in the supply in circulation.
Where more coins are created per day, there will be more dormancy and HODLing and the Vivacity trend will be lower (blue color).
In turn, distribution, mainly by older traders, will cause more coins to be destroyed per day than created and Vivacity will have a higher trend (pink color).
Vivacity appears to be in a strong downtrend as prices correct. This is typical in bear markets and periods of accumulation, which adds to the negative assessment with positive connotations .
The Pain of Short Term Holders
While the supply dynamics for more patient “smart money” seem constructive, there is a large sector of the market that is submerged with their allocations.
While Long Term Holders appear to have growing conviction, prices are trading below the blockchain cost base of their counterparts, Short Term Holders. They are the currencies most likely to create selling pressure and weigh on the market recovery.
Realized Price is a metric that measures each coin at the time it was last spent on the blockchain, reflecting the “stored value” in bitcoin and an estimate of the cost base. The chart below shows the realized price for three groups:
– Short Term Holders (pink) : currently trading at US$51,400, that is, this group, in total, is submerged with its investment and will probably create sales resistance;
– Aggregate market (orange color) : the price for the entire market is being traded at US$ 24.4 thousand. Realized Pricing generally provides reliable support of price and bear market trading, although it is obviously not ideal to see prices reach this level.
– Long Term Holders (blue color) : currently trading at US$17,700 after a large increase as currencies accumulated in the first half of 2021 at higher prices remain dormant. This metric can be thought of as a visual observation of Long Term Holders who rate bitcoin at a higher minimum price over time.
The market value/realized value (MVRV) metric for Short Term Holders shows that the magnitude of current submersion pain is relative to previous downturns.
The MVRV for Short Term Holders is trading below 1.0, an event that unfortunately has had few periods since 2017 of being a momentary event.
The down periods in 2018, 2019 and mid-2021 caused Short Term Holders to be submerged, with MVRV equal to 1 acting as a resistance.
Psychologically, this means new shoppers are “getting their money back,” which puts $51,400 as a key level to follow.
About the author
Glassnode is the largest provider of blockchain data and intelligence that generates on-chain metrics and tools for anyone who really wants to understand the cryptocurrency market.
*Translated and edited by Daniela Pereira do Nascimento with permission from Glassnode.
The post Crash Trading and Stall Currencies: What to Expect from Bitcoin to 2022 According to Glassnode first appeared in Bitcoin Portal .