This week, Bitcoin price moved in a trading range around $9,430 bullish. Prices started the week at $31,327, then returned to a new high of $40,757, before returning to a short-term downtrend.The market is expected to have a period of correction after the strong sell-off last week.
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The question that comes to most investors' minds at the moment is probably predicting whether the market trend will continue to decline or not, or whether the market will turn around the accumulation range as it is now. In this article, we will evaluate the on-chain trading behavior of short-term and long-term holders to gauge their current sentiment.
Pain threshold
The current market structure is quite attractive, as Bitcoin price 5 months ago (threshold for long-term holders, 155 days) was only slightly below current prices. Therefore, long-term (LTH) holders can more or less gain profits (accumulate before 2021) with a buying period from about the end of December 2020 to the beginning of January 2021. In contrast, short-term (STH) holders mostly recorded unrealized losses.
Using statistical means, two types of holders can be established based on the time since the coin was last moved on the network:
- Short-Term Holders (STH): generally assumed to be newcomers to the market who hold BTC for less than 155 days.
- Long Term Holders (LTH): generally assumed to be those who hold BTC longer than 155 days.
Using this classification, it establishes the ratio of supply held by STH to LTH and beyond how many BTC of that is currently profitable or losing. Since the current trading price range is very close to the price it was 155 days ago, we can also see that a small portion of LTH is currently in the losing zone, the light blue area in the chart below.
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Key stats on current supply dynamics in the chart above:
- Profitable LTH (dark blue) accounts for 69% of the total BTC supply. This essentially represents all buyers before 2021.
- Losing LTH (light blue) holds 0.5% of the total BTC supply, buyers in this group have a holding period from the last days of 2020 to the beginning of January 2021. If the price continues to fluctuate in this zone for the next 1 month (or lowers), the thickness of the light blue zone will indicate how many buyers from January 2021 continue to HODL their coin.
- Overall LTHs (white arrows) have returned to accumulation. This suggests that early buyers in the bull market (buying for < 30k) have HODLed a fair amount of supply and if this trend continues, could indicate a long-term supply squeeze is underway.
- Profitable STH (dark red) holds 4.5% of the BTC supply, which has dropped significantly from 30% in mid-April when BTC was at 64k. This shows that around 26% of the total BTC supply is currently losing money.
- STH suffered a loss (light red) thus holding 26% of the supply with unrealized losses. This group will be the source of the most selling pressure now and in the future.
In a recently released news release, it was assessed that STH has invested a large amount in BTC, however they will most likely become a supply for sellers moving forward. On the other hand, LTHs still bring in most of the profits, but are approaching the threshold of NUPL=0.75. In previous cycles, this signaled the start of downtrends.
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Spending patterns
According to the data given above, we can see a lot of Bitcoin investors are losing money and things are looking pretty bad.
However, now that we have found the potential pain points in the market, we can then observe the actual trading behavior to verify if investors are trying to hold on. holding losses on paper or being spooked by sell-offs.
The Average Spent Output Lifespan metric (ASOL) provides detailed information on the average age of all used UTXOs. In the chart below, the 7-day EMA is applied to emphasize recent trading behavior while reducing noise from intraday trading.
- A high ASOL value means that old coins are being moved and distributed.
- A low ASOL value indicates that the old coins are still in a HODL state and are inactive.
There are two main observations regarding recent price action:
- Older coins (BTC) have seen a spike in trading behavior since early May 2021. This could be due to a redistribution in the portfolio and possibly also to capital rotation (ETH doubled in price during this time).
- During the recent sell-off, ASOL has dropped significantly, returning to the zone below the accumulation zone.This shows that LTH did not panic and sell off.
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Two other indicators Coin-Days Destroyed and Dormancy are telling the same thing. Aged coins still seem to be inactive (low value) despite a 50% drop from ATH.
- CDD represents the total lifetime of the coin on that day.
- Dormancy adjusts the CDD index for an on-chain mass factor showing the used life per unit of BTC.
- High values often lead to a “bearish” downtrend as older coins are used and distributed.
- Low values generally lead to a “bullish” uptrend as the older coins are still dormant and accumulation is still going on.
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As we have seen in the ASOL chart, the total lifespan in use has actually fallen to or below market levels before rising in 2020. This confirms that the old coins are holding up and that the majority of transactions are coming from holders of relatively short-lived coins.
What these three metrics indicate is that long-term holders are not in a hurry to get out. If ASOL/CDD/Dormancy continues to trend lower, it will return to the previous accumulation range as the old coins remain dormant and the fearful will sell back to those who tend to hold the long term. Conversely, if these indicators start trending higher, it could indicate that older coins are being traded and once again create selling pressure.
So Who's Selling?
So far, we have identified that older coins are trading less than usual. However, prices are falling and balances on exchanges are growing. So the question is who is driving this sale?
The Liquidity and Liquidity Supply Index shows that in May 2021, a total of 155k BTC moved from an illiquid state (HODLed) to a medium-to-high liquidity state, giving an estimate of the total. 'selling pressure'. This will count for both LTH and STH who store BTC in cold wallets.
Online payments in USD are also getting very close to the ATH threshold with more than $55 billion being paid every day. This is 60% more volume than the 2017 peak. Therefore, there is no denying that a large amount of coins are moving.
If we consider the filtered Spent Output Profit Ratio (SOPR) for short-term holders, we can see that the STHs continue to take more losses by accumulating more BTC at the current price or lower. This index will stay below 1 for a long time when there is widespread speculation. With this in mind, the current market structure is comparable to the speculative event in March 2020.
We can also look at on-chain (on-chain) BTC transfers that are profitable (buy low with LTH) versus losing (buy higher with STHs). There are several observations from the chart below that confirm much of the spending and selling pressure is driven by short-term holders:
- Long-term holders have clearly taken profits in early 2020 of 10k to 42k, after which their trading has hit a pretty stable base.
- Long-term holders' trading patterns do not appear to have been affected by last week's sell-off, and in fact, the 'volatility' of trading volume has decreased. This shows that LTH in general does not want to “liquidize” at current prices.
- On the other hand, short-term holders increased their trades by more than 5 times during the last sell-off with trading reaching a maximum close to the low of the last drop.
Finally, we can compare the supply held by three main parties: Short-term Holders (blue), Long-term Holders (green), and Miners (orange). - Short-term holders are distributing.
- Long-term owners are HOLDING and accumulating.
- Miners are accumulating.
Without a doubt, the current market structure is described as a battleground between bulls and bears with a clear psychological bias forming on long-term and short-term investors.
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