Bitcoin On-сhain: October 2022 (№70)
Bitcoin price has remained stable in contrast to highly volatile equity, credit and forex markets in October. According to the BTC/USDT pair in Binance, Bitcoin was consolidating within a range between $18,658 and $21,077. Such consolidating periods are very uncommon for Bitcoin in October, taking into account the start of the crash in November 2018 and the beginning of the rally in March 2019. Meanwhile, October was pretty volatile month to few global markets:
- British pound fell to all-time lows against the US Dollar, the dislocation experienced in the United Kingdom Gilt market, where bond yields soared;
- CFDs on Gold have touched the 2-years lows of 1620$ (US/OZ) with growing evidence of stress developing even for conservative asset classes;
- S&P index Cash CFD felt down from 4815$ in December 2021 to 3495$ in October this year.
Bitcoin prices have shown remarkable strength, amidst a highly volatile traditional market backdrop. Several macro metrics indicate that Bitcoin investors are establishing what could be a bear market floor, with numerous similarities to previous cycle lows. In many ways, on-chain metrics, market structure, and investor behavior patterns are supporting this. A principle piece which is missing is duration, of which history would suggest there may be several months still ahead before a full recovery.
- Long-Term Holders have locked in losses of around -48% on average, that can man the depths of the bear market with only 3.3% of trading days incurring higher losses.
- Trading volumes in futures markets have also declined to lows of $24B per day similar to levels last seen in December 2020.
- We have also seen a huge increase in Futures Open Interest (+80% since May) that has reached a new ATH of 633k BTC.
- An average whale cost basis (1k+ BTC) since Jan-2017 is currently around $15.8k. It is psychologically important level to these investors.
- The Bitcoin reserves held on exchanges have also continued declining to multi-year lows throughout October back to Jan 2018 levels. Bitcoins have been withdrawn into a non-exchange associated wallets.
- Bitcoin hashrate has reached a new all-time-high of 242 Exahash per second.
It is very uncommon for BTC markets to reach periods of such low realized volatility. Historical examples with 1-week rolling volatility below the current value of 28% in a bear market have preceded significant price moves in both directions.
Long-Term Holder cohort locked in losses of around -48% on average. It is evident that the main transactors from the Long-Term Holder cohort are those from the 2021–2022 cycle, who continue to capitulate their positions at a loss. These periods of extreme LTH profitability stress generally occur towards the depths of the bear market with only 3.3% of trading days incurring higher losses.
Trading volumes in futures markets have also declined to lows of $24B per day. This returns to levels last seen in December 2020, before the bull cycle had broken through the 2017 cycle $20k ATH. This may signal a lower liquidity trading environment should the market find momentum in either direction.
We have also seen an aggressive increase in Futures Open Interest since May 2022. BTC denominated futures Open Interest has reached a new ATH of 633k BTC, which is an 80% increase. This suggests that levels of speculation, and/or hedging positions are increasing, despite coin prices declining significantly over this time.
We have calculated the cost basis for all whales who have been actively speculating over a chosen time period, can deliver a threshold level that is psychologically important to these investors. By price stamping the deposits and withdrawal volumes of the whale cohort (1k+ BTC) to/from exchanges, we can estimate the average price of Whale Deposits/Withdrawals since Jan-2017. This Whale cost basis is currently around $15.8k.
Cohorts from Shrimp (< 1BTC) through to Whales (up to 10k BTC) have altered their behaviour from one of net balance decline and distribution, and towards one of net accumulation and balance increase. Given prices have remained flat and of low volatility, this suggests a tendency towards patient accumulation at range lows.
BTC reserves held on exchanges have also continued declining to multi-year lows throughout October back to Jan 2018 levels. In effect, all coin volume which flowed into exchanges since the last cycle high, has now been withdrawn into a non-exchange associated wallet. In October we have seen 123.5k BTC withdrawn, equivalent to 0.86% of the circulating supply.
Currently, around 50% of the Bitcoin circulating supply is in an unrealized profit, suggesting that supply profitability remains elevated in relation to historical analogues (40–42%). This means that a full cleaning in profitability may not have occurred yet.
Unrealized Profit compresses to ~30% of the Market Cap. The price depreciation since November 2021 has caused this ratio to sink to 0.37, reflecting a meaningful, but not as painful outcome as prior lows.
The chart below shows that miner balances have increased by 10x since 2019, with a total of 78.2k BTC (worth of more than $1.6B). The vast majority is held by miners associated with BinancePool, Poolin, Lubian, and F2Pool. All have seen a stagnation of their balance in 2022, suggesting that prices below $40k have imposed income stress, and motivated a behavioural shift.
Bitcoin hashrate has reached a new all-time-high of 242 Exahash per second. These are extraordinarily large numbers.
The crypto market behaviour is very emotional. People often sell their coins in irrational reaction of seeing red numbers. Fear and Greed Index, helps to identify the emotional overreactions. Extreme fear can be a sign that investors are too worried. That could be a great longterm buying opportunity.