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Bitcoin (BTC/USD)
For more than four months, the digital currency has held between $18,000 and $24,000 without giving any real direction to crypto-investors. A relatively long period that is enough to discourage market players from taking an interest in the assets it contains, but more importantly, it pushes investors to despair and let their crypto wallets vegetate while waiting for a large-scale movement. Is this behavior visible on the Bitcoin network?
Below cost sales are at the bottom of the barrel
Glassnode
After seeing unprecedented daily losses ($3 billion) during the digital currency's fall from $30,000 to $20,000 in late June, losses are returning to relatively low levels. As a result, many of the investors who bought bitcoin above current levels have opted to cut their positions as they see their digital windfall melting away. Currently, after this massive sell-off, losses are hovering around the $200 million mark daily. Profit-taking is disappearing
Profit taking
Glassnode
Profit taking is still low and decreasing over the past few weeks. Daily profit-taking is hovering below the $90 million mark. You have to go back two years, to 2020, to find such low levels of profit taking. These amounts are extremely lower than the cash-ins during previous bull markets, when we saw between $2 and $4 billion taken by the network players on a daily basis.
These small profit-takings suggest that a huge majority of investors, traders and market participants took their profits on the previous peaks in the bitcoin price.
With these first two metrics, we understand that selling at a loss still dominates profit taking at the moment. A typical behavior in bear markets. The following chart overlays the two previous charts showing losses exceeding profits at the moment.
Profits VS Losses (90 day average)
Glassnode
As profit-taking and selling at a loss diminish with each passing week, how are the big bitcoin holders - those famous whales - reacting?
The whales are getting bigger
If we look at wallets holding more than 10 BTC ($190,000) on one side, and more than 10,000 BTC ($190,000) on the other side, we see that the whales are getting bigger. If we look at the portfolios with more than 10,000 BTC ($190,000,000) in their portfolio, they tend to accumulate since February 2022 after having unloaded during the bull market of 2021.
We observe a well-known behavior of traditional finance that applies to the cryptocurrency world. Smart money accumulates supply during periods of decline, while young speculators buy the historical highs. To corroborate the previous chart, let's break down the "young" supply in circulation versus the "old" supply.
Speculators
On the following chart, we observe that overall, short-term holders of bitcoin, i.e. the share of BTC acquired between 1 day and 1 month, are positioned on extremely low historical levels. In other words, at current levels, new speculators are rare if not non-existent.
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BTC accumulation of short term holders (1 day - 1 month)
Source: Glassnode
The BTC acquired over the last month represent only 6% of all bitcoins in the network. In fact, historically, many new speculators come to position themselves at the new highs of the bitcoin price. It has been observed that in periods of bullish euphoria, more than 50% of BTC have a life of less than 1 month.
The "Hodlers"
The trend is clearly reversed for long-term holders. The following graph shows the percentage of BTC acquired between 1 and 7 years. During bullish periods, this share tends to represent less than 10% of the outstanding supply against more than 50% during bear markets.
BTC accumulation of long-term holders (1 year - 7 years)
Source: Glassnode
During dark periods in the bitcoin price, long-term holders accumulate supply. While during euphoric periods, the old hands distribute their expensive coins into the hands of speculative bulls (thus turning the tide in favor of the bears, selling cheap coins at a loss). A completely reversed behavior compared to the young hands as we have seen before.
Through the study of the cycles of behavior of crypto-investors, we can develop hypotheses related to the balance of supply and demand. We can see that the modus operandi of smart money is similar over time: accumulate cheap supply in bear market phases to make profits months/years later in bull market phases.
You might be thinking that you can simply follow the moves of the old hands by replicating their trades. However, the demons of greed and FOMO shake investors when the markets take off. Managing emotions in a market as volatile as digital assets proves to be a real duel with oneself. Managing your emotions in order to take your place alongside the smart money and knowing how to get out before it's too late proves to be a real obstacle course in the unforgiving world of digital currencies.
Let's finish this article by calculating the base cost for all the whales that have speculated to provide a price level that is psychologically important to these investors.
The cost basis of whales
By time-stamping the deposits and withdrawal volumes of the cohort of whales (holding more than 1000 BTC in portfolio) to/from the platforms, we can estimate the average price of whale deposits/withdrawals since January 2017. This base cost of whales is currently around $15,700.
Base cost of whales (portfolio > 1000 BTC)
Glassnode
It is noticeable that the profitability of whales has not quite reached the same level of financial pain as previous cycles, where the BTC price crossed the base cost of these whales during absolute bear market lows.
The bottom line is: "bitcoiners" who have historically bought BTC above the current price are selling at a more significant loss than those who are taking profits
Long-term holders have tended to accumulate since February 2022 after taking profits during the 2021 bull market
Whales are accumulating BTC but have not yet reached historical levels. On the other hand, it is important to note that we need to accumulate a set of data in order to understand the market as a whole: price, macro, individual asset characteristics, correlations between asset classes, market cyclicality, and volatility, among others. The aforementioned metrics simply give us additional insight.
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The evolution of the Top 20 cryptocurrencies in terms of capitalization over one month.
(Click on the heatmap below to better visualize the variations)
