On-Chain Weekly May 6th

  • Long-term Outlook - Sentiment: Bullish - Despite months of bearish news and a number of black swan events, on-chain data reveals that BTC investors continue to slowly accumulate Bitcoin during these uncertain times. Illiquid supply change remains a growing theme in the supply-shock narrative that has the potential to send the price of Bitcoin soaring. As digital currencies gain traction in the mainstream, the Bitcoin Network’s supply dynamic is quite bullish and ready for greater adoption.

  • Mid-term Outlook - Sentiment: Neutral - The mid-term outlook is showing some positive structure forming in short- and long-term holder’s supply that could result in an upward move in the price of BTC. Conversely, the long-term holder’s Spent Profit Output Ratio has tested the value of one in recent days, indicating coins being sold at a loss by investors who purchased Bitcoin at higher prices more than 155 days ago.

  • Short-term Outlook - Sentiment: Neutral - BTC has been trading in the upper $30,000/lower $40,000 range now for well over a quarter, seemingly stuck in a neutral channel and leaning bearish for the short term. Futures Open Interest remains low as investors store value in crypto stablecoins that could quickly be deployed in cryptocurrency markets, or withdrawn into fiat currency.

Long-term Outlook - Sentiment: Bullish

Some long-term holders are buying even as some sell

Long-term holders (LTH) of BTC, are defined by Glassnode as wallet addresses that have been accumulating Bitcoin for more than 155 days. This cohort of investors is typically viewed as being more patient and generally having more experience trading BTC. Long-term holders can be considered the “smart money” in the Bitcoin Network. They have been observed on-chain to accumulate inexpensive BTC during bearish trends, and distribute into bull market strength.

The current market has been tricky for investors, BTC included. The lower trading volumes by LTH on either side of the trade can be attributed to lower interest and conviction. Obviously, macroeconomic headwinds are a factor–generated by various global situations that are creating a great deal of uncertainty in many markets. It should also be noted that the world’s cryptocurrency landscape has changed exponentially in regard to the number of non-BTC projects and investment opportunities available since the Bitcoin Network was launched in 2009. There are far more new and interesting projects that could be catching the eyes of new retail investors and others who may in the past have invested in BTC.

Even while the BTC market has slowed over recent months, the fact that LTHs continue to add more Bitcoin to their wallets, at current prices, is fundamentally bullish for the long-term health of the Bitcoin network. During the month of April 2022, there has been a notable increase in supply being held by LTHs, now at ATH nearing 14 million BTC.

As LTH accumulate, fewer coins are for sale

Glassnode generally defines illiquid BTC as coins held in wallets with little to no history of spending. Illiquid BTC could also be BTC that was lost, held in wallets with no access, BTC that is being sequestered due to legal action as well as a multitude of other reasons. The point is that some illiquid BTC is not just in cold storage or self-custody wallets. Many of these coins may never be able to be bought or sold by anyone and are lost forever.

With this in mind, consider that the total circulating supply of BTC is around 19 million BTC, with approximately 1000 coins being mined and added to the supply daily (at the time of writing). We can break that 19 million BTC out into three groups; illiquid supply, liquid supply, and highly liquid supply. Liquid and highly liquid BTC make up about 4.5 million of BTC’s supply or about 24%. That leaves roughly 14.5 million, or 76% of Bitcoin’s total supply classified as illiquid.

The first quarter of 2022 is marked by a notable increase in BTC becoming illiquid. This trend has been steadily increasing and adds to the bullish longer-term narrative for the Bitcoin Network in the upcoming months, as fewer and fewer BTC become available to be bought on exchanges.

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Mid-term Outlook - Sentiment: Neutral

STH supply in loss has preceded higher prices

Long and Short-Term Holder Supply in Profit/Loss refers to the relative amount of circulating supply of Bitcoin held by long-term and short-term holders in profit/loss.

Over the past year, there are two occasions when short-term holders were nearing positions where all the BTC they were holding were being held at a loss. The first time, near the end of July 2021, followed a relatively short bearish period that emerged following the first top of the 2021 bull run that started at the end of 2020. This first instance culminated in more than just a bounce, as the market surged into a second top and Bitcoin reached $67,000. The second occurrence happened in January of this year, and also preceded a positive bounce in the price of BTC.

This time, a bull market did not emerge as it did previously. Instead, the market has struggled and has traded sideways with lower activity for more than 90 days. Currently, a similar structure has formed in STH P/L with all about 1.5% of their supply being held profitably. If the price of BTC dips further over the coming days, all STH will be holding their coins at a loss, and a bounce in price should be expected. However, considering the uncertainty and choppiness investors have been experiencing, we could see STH quickly selling into any liquidity being offered by investors taking advantage of a local dip.

Are long-term holders beginning to capitulate?

During past BTC market cycles, each major cycle has resulted in a “capitulation event” where Bitcoin has changed from the hands of long-term holders to new investors. These new investors eventually sell their BTC within the 155 day period, or they decide to hold their coins beyond that time, making them long-term holders (as designated by Glassnode). Below, illustrated by the Long-Term Holder’s Spent Profit Output Ratio metric, the 2017-2018 bull cycle was followed by a sustained capitulation event that lasted nearly a year. Long-term holders who bought the top in January 2018 languished for months in a weak market that punished investors. The pattern repeated itself during the less intense bull run in 2019, ending up with an extremely scary capitulation event brought about by COVID in March 2020.

This year, even while COVID looms, other headwinds have emerged that have the potential to drive more long-term holders to sell their BTC. This begs the question: What will it take to cause a capitulation event today? If rising inflation, rising interest rates, the threat of nuclear conflict, the invasion of Ukraine, sagging technology markets, and uncertainty in cryptocurrency regulation have not caused investors to capitulate and sell their BTC, what will? Additionally, the BTC being held by long-term holders is exponentially more expensive than the coins that were sold in the past, making a strong case for greater conviction in the protocol than in times past.

Short-term Outlook, Sentiment: Neutral

Supply is being absorbed and moved off exchanges

Supply and demand are the critical factors in the price of any asset, and BTC is no different. Typically, in any market, smart money investors sense undervaluation and quickly move in to buy at a discount with the expectation to sell at higher prices later in the cycle. This behaviour is currently being observed on-chain as major exchanges are seeing record withdrawals of BTC from their ledgers. Over the past months, billions in value have moved from exchanges as short- and long-term holders buy coins to be held in self-custody solutions like the Numbrs Bitcoin wallet. This is generally a bullish indicator, reflecting demand and adoption by investors savvy enough to manage their own holdings.

Futures Open Interest reflects sluggish sentiment

While uncertainty is definitely a factor in the current market, Bitcoin has fundamentally remained resilient and relatively stable in the $38,000-$43,000 range. Spot demand has been weak during the first quarter of 2022, with much of the price action in the BTC market being driven by futures markets with relatively low volumes.

Currently, Futures Open Interest levels are relatively low at exchanges suggesting a relatively calm market with plenty of room to grow if and when investor demand increases in the short term. The current period resembles past markets when uncertainty and headwinds have dominated the global stage, slowing growth and interest in Bitcoin.

Stablecoins offer stability for risk-off crypto markets

Cryptocurrency coins that are pegged to the dollar - so-called “stablecoins” - have been growing exponentially over the last two years. Stablecoins offer low volatility for traders and are attractive “placeholders” for value before entering or when exiting trades. It should be noted that stablecoins are currently traded at volumes higher than any other type of cryptocurrency, denoting their popularity and usefulness.

Many traders use these tokens as a primary vehicle for opening and exiting Bitcoin positions on exchanges. Stablecoins play a critical role in the supply and demand dynamics of various global cryptocurrency markets, which in turn can directly influence the price of BTC. Stablecoins live natively on the blockchain, allowing on-chain analysts to observe the supply-and-demand dynamics between BTC and USD.

Over 25bn in stablecoin ready to be spent

With over $25bn in stablecoin sitting on exchanges waiting to be spent, a recovery could potentially materialize quickly in BTC or other cryptocurrency markets. While billions in value available in stablecoin can be viewed as bullish for the entire crypto market, it does not mean that this value will flow directly back into BTC when the market goes risk-on again.

What is positive, is that investors are choosing to store their value in stablecoin during risk-off environments instead of converting that value into fiat currency. For the BTC market, it is a neutral indicator that could be interpreted as investors harbouring their investment capital in a safe haven, and in line with the current neutral short-term outlook.


BTC continues to be deflationary. The fundamentals of the Bitcoin Network continue to show strength throughout difficult global challenges that are affecting all markets. A cohort of long-term holders continues to step up and buy BTC, absorbing the slow trickle of coins coming from other short and long-term holders. The supply dynamics for the long-term outlook remain overwhelmingly bullish as more and more BTC continues to change from liquid and highly-liquid BTC into illiquid coins held in self-custody.

Will we see a capitulation event? Past markets have bottomed in pricing during capitulation events that emerged at the end of 2017 and 2019 when investors from all cohorts sold large amounts of their holdings at a loss. This created a flood of relatively inexpensive BTC that held prices down for more than a year in some cases. Long-term holders have been selling some of their coins, evidenced by a downward trend in LTH-SOPR. This means long-term holders are accepting losses, a negative indicator in regards to conviction. This sentiment is balanced out by the low volume of sales, and the corresponding net increase in accumulation observed on-chain.

A market stuck in neutral. Recent news of inflation and interest rates have largely been digested by markets, reducing their impact on the price of BTC. The geopolitical landscape continues to create black swan events that are difficult to price into markets – creating unclear effects. What is clear is that Bitcoin remains tightly correlated with equities markets and until a decoupling occurs, BTC will be subject to the headwinds and tailwinds of the larger financial markets.

Even while the short-term perspective is uncertain, the long-term fundamentals of the BTC protocol remain strong with consistent demand evidenced by a two-year trend of BTC outflows from exchanges into self-custody wallets. In addition to the steady, albeit slow, demand, it is becoming increasingly bvious that users who store their Bitcoin in self-custody or cold storage are more experienced, more savvy investors, contributing to an expansionist narrative that illustrates greater mainstream adoption and acceptance.

Nothing in this article constitutes professional and/or financial advice. The content is provided exclusively for informational and/or educational purposes. Nothing is to be construed as an offer or a recommendation to buy or sell any type of asset. Seek independent professional advice in regards to financial, tax, legal and other matters.

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