good weather after the rain?

After losing more than 20% in the week from November 7 to 14, the digital currency is returning to its charms around $16,500 at the time of writing. You have to go back two years to November 2020 to find bitcoin at this price. Bitcoin therefore thrives more than ever at low tide in a context where trust in the cryptocurrency ecosystem has completely evaporated. We are going to the Bitcoin network.

Making a profit is at the bottom

After seeing an unprecedented daily loss selling ($3 billion) during the digital currency’s $30,000-$20,000 dip at the end of June, the loss selling is returning to higher levels. Actions that can largely be explained by the panic caused by the collapse of FTX, and therefore the increased distrust of centralized exchange platforms. Thus, a good portion of investors who acquired bitcoin above current levels opted to cut their positions when they saw their digital jackpot melt away at high speed in this bloodthirsty market.

Loss sales are currently over a billion dollars collected daily (well above the 70 million daily profit as noted above). Meanwhile, the number of bitcoins leaving the platforms is also reaching historic levels.

A decrease in the number of bitcoins on platforms

RED (Collection) : BTCs are leaving the platforms. In other words, the actors in the network acquire BTC in larger quantities than the BTC recirculated on the platforms. Simply put, buying and selling on platforms is bigger than selling in BTC.

But we also need to adjust this metric. Simply, investors can transfer their bitcoins acquired on platforms (Binance, Coinbase, Kraken, etc.) to decentralized wallets (so there is no purchase, it is a transfer of the same value). However, the platforms mark this transfer as an output in the above diagram. In fact, the FTX crisis has led to reluctance among users to leave their assets in the hands of centralized exchanges. This unprecedented peak in the flow of bitcoins is mainly due to the distrust of users and therefore the transfer of funds to offline wallets.

GREEN (Distribution) : BTCs are entering the platforms. In other words, players are uploading their BTC in a larger amount than the amount of BTC accumulated in the wallets. Simply put, sales are more than purchases in BTC.

It is clear that bitcoins are more likely to exit the platforms at the moment (purchase/transfer) rather than returning (for the purpose of selling in the market). An unprecedented amount of production in the history of Bitcoin. Now let’s see if new investors or speculators own bitcoins on the network.

Speculators VS Investors: RHODL ratio

Different Bitcoin periods, often marked by Halving Day (explanation of this mechanism in this article: Bitcoin mining and halving day: let’s explore the topic), represents the ever-changing supply balance of BTC between long-term investors and new speculators. The RHODL ratio is an oscillator that allows you to compare the wealth held by newcomers (more than a week) with the oldest investors (between 1 and 2 years). Let’s take a look at the chart and then detail the RHODL ratio.

Increase in Assumptions: An uptrend in the RHODL ratio (red arrow above) indicates an increase in USD wealth held by new bitcoin buyers (more than a week). A move typical of bull market recoveries and speculative bounces.

Increasing dominance of old bitcoins: The downward trend in the RHODL ratio (green arrow) shows the dominance of USD wealth by players who own “old” bitcoins acquired 1 and 2 years ago. This decline in RHODL indicates a tendency to accumulate and hold bitcoin in the medium to long term. In other words, BTC is older on average (compared to the date of purchase).

The shift in dominance between the short-term speculator and the long-term investor: stagnant RHODL (blue arrow) indicates that the rate of change is in balance between the dominance of older and newer BTCs. This balance is often observed during periods of market transition, such as highs in distributive markets and lows in accumulation markets.

Currently, as the chart above shows, bitcoin’s sustained hold over the past few months (the RHODL drop) is being challenged by a return to short-term speculation. A condition essential to the recovery of a sustained bull market. While it is too early to draw any confirmation of fresh cash flows, especially against the current gloomy backdrop in the cryptosphere, it seems that some players are absorbing some of the negative pressure to accumulate/speculate on bitcoin. To close this article, let’s take a look at the actions of different categories of addresses.

From March 2022, there is a clear trend towards the collection of addresses with more than 1 BTC in the portfolio. This phenomenon has accelerated sharply since the beginning of November.

In green: number of addresses with at least 1 BTC in their wallet ($16,500)
In blue: number of addresses with at least 10 BTC in the wallet ($165,000)
In red: number of addresses with at least 10,000 BTC in the wallet ($165,000,000)

It is clear that addresses with a relatively large share of bitcoins in their portfolio have been accumulating significantly in recent days. This partially explains the absorption of selling pressure and the rebound in the RHODL ratio as we saw above.

Finally:

• “bitcoin” (the name given to bitcoin holders) who bought BTC below the current price in the past are making very little profit at current levels.
• “bitcoin” In the past, those who bought BTC above the current price sold significantly more at a loss than those who took a profit.
• There is a potential change in direction between a conservation trend and a speculation trend. New fresh financial flows were injected in the short term to partly resist the selling forces and therefore regain its weight against the aging parts of the network (RHODL ratio).
• Addresses with a lot of bitcoins tend to accumulate heavily at current levels, slowing bitcoin’s decline and selling pressure.

On the other hand, note that in order to understand the market as a whole, we need to collect a number of data: price studies, macro, characteristics of each cryptocurrency, correlation between asset classes, market cyclicality and volatility, among others, are all factors to consider. The dimensions mentioned above just give us additional ideas.

Either way, crypto sailors are watching FTX’s destructive surge. Conditions that forced part of the crew to abandon ship with significant losses. Meanwhile, others are determined to ride the rogue waves at any cost without weighing the risks. What is certain is that it will take many more weeks for crypto-atmospheric conditions to become attractive again to attract new team members to the Bitcoin ship en masse. And you can bet the old sea dogs of the cryptosphere will be there to welcome them.