Written by: Yves, Head of Trading at Wirex
The Bitcoin price is still swinging this week around the $36,000-$37,000 levels, drawing the same pattern observed a week ago: the price reached weekly lows on Sunday, bounced back during the workweek, and it is heading down today. The retail Sunday traders remain predominantly bearish. In fact, the millions of short-term holders who invested in the past 5 months are still mostly sellers, capitulating to the market’s extreme volatility. Glassnode points out in this week’s on-chain analysis that ‘short-term holders continue to realise losses by spending coins accumulated higher’, comparing the market structure to the ‘March 2020 capitulation event’.
The report analyses the on-chain data for the Short-Term (STH) versus the Long-Term Holders (LTH), defining Short-Term holders as accounts holding Bitcoins for less than 155 days. Their graph below indicates that ’STHs’ contributed to the May sell-off, probably driving the Bitcoin price to the low $30,066, while long-term holders held through.
On-chain data also suggests that the short-term holding whales that pumped the market during the last week preceding the market crash have mostly sold during the crash. On the contrary, the large whales that sold near the high $60,000 levels, including several hedge funds, have reportedly bought back the dip. Together with the LTH holders who accumulated BTCs during the crash, they did eventually put an end to one of the worst dives in Bitcoin’s history.
As reported by FXStreet, Glassnode’s analysts consider now that the current levels are now testing the Long-Term Holders’ convictions over the future of Bitcoin. Their net unrealised profit and loss metric (NUPL), used to ‘determine whether the network as a whole is currently in a state of profit or loss’, stands at 0.75. This level broke three out of four times in the past ten years, every time before a major bear market in 2011, 2013 and 2018. However, the so-called ‘euphoria’ period that started in Q4 2020 has never been so short…
Analysts are now torn between a mayhem scenario that could send the Bitcoin price back below the $20,000, or a recovery to $60,000 that would happen within months. The latest metrics are rather mitigated. Cryptoquant’s BTC all-exchanges netflow is slightly negative this week supporting the start of a recovery, but the all-exchange BTC reserve is still high, indicating a looming risk of BTC panic sale.
The Bitcoin dominance is also down a few percentage points in the past two weeks as more investors are still favouring alternative cryptocurrencies. Ethereum’s performance over the same period has rather been in sync with Bitcoin’s. Regardless, the number of ETHs staked in the Beacon Chain reached a new record: it is now close to 5 million ETHs. 4.3% of the total Ether supply is staked in the new protocol until sharding features are fully implemented in 2022. Meanwhile, two further protocol updates are expected this summer:
the ‘Altair’ upgrade in July or August will reinforce the Beacon Chain validators rewards and penalties.
The ‘London’ upgrade (EIP-1559) in July will define a base fee for each block, removing the current mechanics around the gas fee bidding competition. As such, this second upgrade is expected to improve the level of on-chain transaction fees.
The Ethereum on-chain transactions volume sharply exceeded Bitcoin’s in May, and there are now six times as many transactions on Ethereum than Bitcoin.
Among the best performing alternative projects, Solana (SOL/BTC) is up by nearly 25% relative to Bitcoin in the past two weeks. The project relies on a Proof of History (PoH) protocol. The network can handle 65,000 transactions per second. In comparison, Ethereum can handle 30 transactions per second, but will be able to handle as many with ETH2. The main difference: Ethereum has the real advantage of history and popularity. It has been tested by individuals and businesses alike. Yet, after several network upgrades, it might be perceived now as over-engineered. Solana has the advantage of youth: it was founded in 2017 with a protocol that is efficiently engineered since day one.