Bitcoin price is fragile, but on-chain data points to fresh accumulation

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Price volatility in the cryptocurrency market is tough to deal with, but there are some positive signs for bitcoin as it approaches the end of its first year. Since the start of the year, the bitcoin price has seen several major highs and lows, but the recent price surge seems to be a bit more sustainable than the other recent moves in bitcoin’s price. This is because, while most analysts believe the bitcoin price is too fragile to grow much further, there is enough on-chain data that indicates bitcoin’s price is not experiencing a massive correction, but rather a continuation of the bullish trend that began in February of 2017.

In the world of cryptocurrency, Bitcoin is the market leader (and not by a small margin, as discussed earlier). Every other alternative coin has all but vanished—except for Ethereum, which continues to chug along. When Bitcoin was first created, it was the only coin on the market. Today, there are more than 1,000 cryptocurrencies. Of these, about 75 are actively traded.

Bitcoin’s price volatility is a concern for many investors, but it doesn’t mean it’s going to crash down any time soon. The latest price action has seen the price of Bitcoin climb steadily over the last few weeks, and now sits at a wider range of levels compared to recent months. While there are plenty of factors that can impact the price of Bitcoin, the current 10-day moving average (MA) suggests that accumulation and distribution are ongoing.

The cryptocurrency market crashed on the 19th. In May, $1.2 trillion in total market capitalization was wiped out as the froth and excessive leverage of inflated markets quickly dissipated. But like a forest fire, whose destructive force is needed to rejuvenate the forest ecosystem, sudden market disruptions are an important part of the overall life cycle of an emerging market, as accumulated surpluses are burned and cleared away to lay the groundwork for a new growth cycle.

According to Glassnode, last month saw a historically large drop in online activity, a rapid transition from a booming network economy to ATH prices to almost completely suppressed memes, and a drop in demand for trading and settlement. The de-bottlenecking has helped address the rising cost of fees on the Ethereum (ETH) and Bitcoin (BTC) networks, which are now back at levels around $3.50 to $4.50 after brief spikes to $60 in April and May, but as BTC and Ether prices continue to move, traders are also wondering if the market has gone from bullish to bearish. Average transaction costs between Bitcoin and Ether. Source: Glassnode

Bitcoin price is fragile, but on-chain data points to fresh accumulation 4

The drop in activity led to a 65% drop in the total dollar volume of money transfers on the Bitcoin network and a 60% drop in the value of money transfers in Ethereum – the second-largest drop for the networks after an 80% drop for Bitcoin in 2017 and 95% drop for Ethereum in 2018.

Long-term holders accumulate – good for Bitcoin price?

While online activity paints a bleak picture for some, with short-term holders hit hardest by the recession, a closer look reveals that long-term holders (LTH) are starting to rebuild funds, a sign that the worst of the turmoil may be over. Change in net position of holders of long-term securities. Source: Glassnode


As you can see in the chart above, the supply available to long-term BTC holders began to move higher after the distribution period that occurred during the $10,000-$64,000 price rally. This bullish figure suggests that the LTH supply is now in a sustained uptrend and is similar to the trend we saw during the bullish end of 2017 and the bearish beginning of 2018.

Glassnode said: This fractal describes the inflection point at which LTHs stop spending money and start hoarding and storing what are now considered cheap coins. An additional incentive for bulls could be the fact that the number of BTC currently held by LTHs is 2.3 million more than at the 2017 peak, suggesting that these token holders expect the market to move higher in the long run. The latest sign that the market is consolidating to prepare for the next rise can be found by looking at the evolution of liquid and illiquid BTC supply over the past 6 months. Bitcoin is a liquid and highly liquid offering. Source: Glassnode


As you can see from the chart above, 160,700 BTC went from illiquid to liquid in May, which is only 22% of the total supply that went from liquid to illiquid since March 2020. This means that 78% of the BTC purchased since then has not been spent, indicating an overall positive outlook for long-term holders. While factors such as unpredictable volatility, volatile influencer tweets, and rumors of an unexpected government crackdown make it impossible to say with certainty what the next movements in the crypto-currency market will be, blockchain data points to a positive long-term outlook that should continue once the current periods of shock and consolidation are over.

Bitcoin has yet to really shake off its early-2018 slump, with its price having declined by more than 30% since June. And while the months-long slump is unlikely to last, the price remains a concern for many investors, as the value of the digital currency is widely considered to be overvalued.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of cryptotradingsite. There are risks associated with all investments and transactions and you should do your own research before making a decision.

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