Bitcoin (BTC) On-Chain Analysis – Seller Pressure Is Easing?

As the extent of losses realized by short-term investors declines, a volume of more than 2.3 million BTC having changed hands in the price range includes between $18.5k and $22k made for the moment office support. However, the selling pressure built up by long-term investors has yet to be fully revealed.

Bitcoin tests the high end

The price of Bitcoin (BTC) is pushing above the upper limit of the range established over the last two months following the forced closing of tens of millions of dollars of short positions yesterday.

While the final redistribution phase is in full swing, one of the dynamics allowing us to identify the transition from a bear market to a bull market is theexhaustion of selling pressure from participants.

Figure 1: Daily price of BTC

In order to assess the selling potential remaining to be expressed following the two bearish episodes of May and June, we will analyze this week:

  • the formation of an onchain support level at the level of the former ATH;
  • the degree of return on expenditure short and long term investors;
  • the fall in bearish momentum of the price of BTC.

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A solid level of support?

If we base our vision on the long term, it appears that the current bear market has produced one of the worst monthly performances in BTC history.

Closely rivaling a historic drop of -38.5%, when BTC tumbled from $13.3 to $8.2 in August 2011, July 2022 sees a drop of -37.9%.

BTC Monthly Performance 190722

Figure 2: Monthly price performance of bitcoin (BTC)

Following such a record, it is legitimate to wonder if we are closer to the end of the bear market than to its beginning and if the worst is behind us.

take in account the current record levels of speculation, and despite the installation of strong demand, it is too early to say with certainty that a further decline is impossible.

Ever since price broke through the $20k level, the popular belief that the previous cycle’s ATH was an untouchable stronghold has been shattered.

That said, while this area has caused some people to feel panicked and selling, many investors have identified this as a rare buying opportunity.

GIF 190722

Figure 3: Evolution of the UTXO realized price distribution (May 1 – July 19)

Thus, more than 2.3 million BTC (12.4% of the circulating supply) have changed ownership in the price range between $18.5k and $22k

Now established, this strong cluster of trading volume provides a level of onchain support associated with the cost base of new inbound entitieswith the potential to turn into a bear market floor.

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Transferring selling pressure over the long term

By studying the degree of profitability of the losses/profits made by participants during recent periods of falling prices, it is possible to identify their spending behaviors and observe accelerations or decelerations in their selling pressure.

Regarding short-term investors, we can observe a realization of increasing loss ranging from – 6% to – 9.9% from May 11 to June 16.

STH-SOPR 190722

Figure 4: Short-term investor return on spending ratio

Following the decline that took the market to the gates of $20k, the spend profitability ratio for this cohort gradually moved closer to the neutral zone (STH-SOPR=1).

This dynamic is observable during the end of short, medium and long term corrections and signals that the sales pressure associated with this cohort is waning following several months of forced distribution.

The profitability of spending of the cohort of long-term investors, comprising all coins older than 155 days, has meanwhile fluctuated widely, while maintaining an overall bearish trend.

Indeed, we can measure a increase in the extent of loss taking by these entities, ranging from -21.5% in May to -40.9% in June.

Unlike short-term investors, more seasoned investors are currently making colossal lossessign of the testing of their convictions.

LTH-SOPR 190722

Figure 5 : Ratio of profitability of the expenses of long-term investors

The LTH-SOPR has been moving since June in a downtrend, indicating that LTH is participating in the selling pressure. Today, the majority of the remaining selling pressure comes from these entities.

The graph below represents the relative percentage of losing supply held by the two cohorts.

While the loss supply associated with STHs varies little over bear cycles (peaks include 18% and 20%), the portion of supply held at a loss by LTHs tends to decrease over time, from 41 .93% in 2015 to 28.85% in June 2022.

LTH/STH Profit/Loss 190722

Figure 6: Supply of STH and LTH in loss state

since long-term investors exhibit HODLing behavior during bear markets and spending behavior during bull marketsthis momentum suggests that the selling pressure is wearing off, especially at this late stage of the down cycle.

Considering the evolution of the LTH-SOPR, however, we can expect a final drop in the market, forcing the LTH into a final sell-off.

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Reversal of market momentum

Finally, studies the momentum of the market. Momentum is the momentum, the inertia variable of an asset’s price as it trends..

Presented here on three time scales (14 days, 28 days and 140 days), the realized market gradient delta (in blue) measures the upward or downward tilt of bitcoin price in order to gauge the power of a movement.

  • Higher or deeper peaks mean more vertical and wider movements.
  • A rising price, coupled with successive new highs, implies more power with every move.
  • A descending price, accompanied by negative peaks, indicates dissipation of momentum.

MRG14 090722

Figure 7: Market realized gradient delta (14 days)

Whether on the short (14 days) or medium term (28 days) time scales, we can notice two salient facts:

  • The deltas are currently positive, a sign that market momentum is near an inflection point that can act as a pivot for a trend reversal.
  • The bearish amplitudes of these two oscillators are diminishing, a sign that bearish inertia is falling, with each wave of selling gradually exhausting the selling pressure.

MRG28 090722

Figure 8: Market realized gradient delta (28 days)

In view of these observations, a short to medium term bullish trend, from several weeks to 1 or 2 months, is possible if the two oscillators take support above the zone of neutrality. This bullish divergence corroborates technical indicators such as the RSI.

However, although it is positive to observe a momentum in the short and medium term, these indicators can only announce a complete trend reversal if the 140-day variable is also positive.

MRG140 090722

Figure 9: Market realized gradient delta (140 days)

In order to confirm with certainty a bullish return to the market and the return of a multi-year bull market, we will have to wait:

  • The return of a positive long-term momentumwhich is not currently the case.
  • Confirmation that this inertia is in a stable directiontesting the neutral zone as long-term support.

Note however that this oscillator also indicates lower and lower bearish amplitudes, which constitutes a first constructive signal.

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Summary of this onchain analysis

In short, the data of this week we were allowed to determine that, despite a historically low monthly performance and the realization of record losses during the two violent falls of May and June, the market is at a level that can act as a bear market floor.

With over 2.3 million BTC having changed hands in the price range between $18.5k and $22k, a large trading volume is acting as short-term support for the moment.

As the magnitude of losses realized by short-term investors declines, the selling pressure built up by long-term investors has not yet been fully expressed.

Short to medium term price momentum indicates thata potential rise of a few weeks to 1 or 2 months is possible if the market breaks free from the upper limit of the current range. However, a long-term trend return is not yet identifiable.

Sources – Figures 2 to 8: Glassnode

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