China’s crackdown on the mining industry and Elon Musk’s tweet announcing that Tesla has stopped accepting Bitcoin had a significant impact on the price of King of Crypto in the months that followed. These successive events discourage new entrants and stop the market from overheating.

BTC Price Chart | Source: Tradingview

On May 19, a series of lengthy liquidations resulted in BTC losing up to $ 10,000 for the first time that day, ending the speculative fever and marking the next big shift in Bitcoin’s on-chain market structure. The market has eliminated excessive leverage and speculation. Accordingly, the coin of the “weak hands” began to turn to the “hands”.

While most on-chain indicators provide little or no warning of what is to come index Glassnode’s illiquid supply suggests the opposite. Through an algorithmic on-chain analysis, Glassnode can estimate which coins are in the hands of the same entity. Since Bitcoin’s blockchain is a decentralized ledger that records every transaction, Glasnode can see the spending history of these units. Units that constantly move coins (e.g. active traders) are labeled as “highly liquid”, those that do so in a more relaxed manner are referred to as “liquid” and the rest have very little or no history of movement of accumulated coins the term “illiquid”. “.

The graph below shows the 30 day net change in illiquid supply. After the price drop from the current ATH of $ 65,000 in late April, illiquid supply fell significantly, suggesting that the group of formerly illiquid companies attempted to escape liquidity during the relief rally earlier this month and subsequent Chinese raids compounded the fire and aggravated it a sharp drop in prices that led to surrender on May 19th.

Bitcoin price (black) and 30-day illiquid supply change | The source: Glass knot

The May 19 sell-off marked the surrender of short-term speculators and the elimination of excessive leverage in the Bitcoin market.

Bitcoin supply momentum favorable since May 19

Large numbers of illiquid coins that were previously sold out are gradually becoming trusted by investors operating in a cumulatively shorter timeframe. Accordingly, a zone of accumulation begins to appear. From the capitulation on May 19, the proportion of the total Bitcoin supply that is not held on exchanges (blue), illiquid (green) or illiquid (green) increases.

Bitcoin price (black) and supply percentage | The source: Glass knot

In a market that has eliminated speculators and excessive leverage, it is important to consider these supply dynamics in the chain when assessing further price movements.

On the other hand, it must be understood that the trend of the indicators can suddenly change and paint a completely different picture, as we saw in the sell-off in mid-May, so an accurate prediction is not necessary price movements are based on these historical trends.

However, the data on the chain clearly shows that in the current climate, seasoned investors are generally reluctant to sell coins. If this trend continues, it means that more and more Bitcoin offerings are being held by die-hard investors. Since Bitcoin supply has a cap, it becomes increasingly difficult to buy at current prices when demand picks up again, as only a handful of holders are ready to sell. This is known as a supply shock.

If such a bow thrust actually forms, the current situation is like holding a balloon underwater while inflating it. You can hold the ball underwater for a while, but if you slip your hand for just a moment or the ball inflates so much that it can no longer be held, it will shoot out of the water. Time will tell if the current on-chain trends are really a sign that Bitcoin is an underwater balloon, as all dips are bought at this point – or if the context change (temporarily) reduces ball speed and thrust?

Local peak in January erects technical floor

Bitcoin peaked locally in January and the correction that followed brought in many key levels of support and resistance during the recent market downturn. The May 19th crash and mass liquidation event brought BTC to exactly the prices that the market found support (~ $ 30,000) after falling from its January high.

After the supply shortage caused by the crash of the 19th in the support.

Bitcoin price on Bitstamp and Zones reflects the upper (orange) and lower (green) of the local January low | The source: Trade view

The next graph shows how much bitcoin has moved in the chain for each price. Many coins have hovered around the $ 30,000 and $ 40,000 mark, which provides further evidence that these areas are potentially important to watch.

Unrealized Price Distribution of Unrealized Output (UTXO) | The source: Glass knot

Potential macroeconomic threats

While the above on-chain trends are pretty strong, they can change the medium to long-term view of Bitcoin price. The current uncertainties in the macroeconomic environment could be the direct cause.

In June, the US Federal Reserve (Fed) started saying it was considering shutting down some money printers at some point in the future. Some investors believed such measures would devastate the economy, but the dollar currency index (red / green), which has been growing since then, shows that others have started to adopt this mindset. The recent turmoil surrounding Evergrande, the Chinese real estate giant on the verge of bankruptcy, has increased uncertainty in the stock market and increased cash flow from stocks to cash.

S & P500 Index (SPX; black / white) and US dollars (DXY, red / green) | The source: Trade view

If the macroeconomic situation worsens in the coming period and broader financial markets increasingly risk triggering a sell-off in stocks, it is likely that Bitcoin price will fall with it. In that case, it will be interesting to see if the on-chain trends described in this article continue so that all the dips buy up quickly. Or, conversely, seasoned market investors are starting to leave their positions, resulting in a bigger bear market?

Current market sentiment

This month’s Bitcoin market survey on Twitter shows that part of the market still has high expectations for price advances over the next year.

Results of a monthly market sentiment survey on Twitter | The source: Dilution-proof

Roadmap for halving the cycle

The diagram of the Bitcoin Halving Cycle Roadmap 2020-2024 visualizes current prices via the BPT indicator and price extras based on two patterns over time (black dashed line) – Stock-to-Flow (S2F) and Stock-to-Flow Cross Asset (S2FX.). ) (striped black line) – period indicators for cycles 1 and 2 (white lines) and the geometric, arithmetic mean of these lines (gray lines). All of these models have their own statistical limitations, but they can give us a rough estimate of what will happen in the immediate future for price if history repeats itself.

BPT (Bitcoin Price Temperature) is a metric that studies the 4-year volatility of Bitcoin price by calculating the standard deviation between the current price and the 4-year moving average.

Bitcoin Halving Cycle Roadmap | Source: Coinmetrics

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