Bitcoin
In the wake of an impressive three-week run, the crypto market hit a pause button.
In the past week, the bitcoin price retreated to $23,500 after breaking through the important $25,000 resistance level late Sunday evening. Ethereum’s price
ETH
Altcoins are a mixed bag. XRP
Meanwhile, in the latest on-chain report, Glassnode calls a “dramatic” change in bitcoin ownership structure, with hundreds of thousands of bitcoins changing hands from long-term bitcoin holders to new investors.
Glassnode tweeted: “After a dramatic capitulation event, the ownership structure of bitcoin has been reshaped. As markets sell-off, bitcoin migrates from weaker hands to those stepping in at the lows.”
Such migration, as their analysis shows, is the canary in the coal mine that often tips off the beginning of a structural bull market.
Zooming out
There are two important on-chain metrics and, probably even more important, the discrepancy between them that gives us some insight into who’s been the biggest bitcoin sellers lately.
The first is “Long-Term Holder Cost Basis” (LTH-Cost Basis). It estimates the average price at which long-term bitcoin holders bought their coins. As of mid-July, LTH Cost Basis was $22,300, which means that even at today’s prices, the average long-term bitcoin holder is still up.
The second is “Long-Term Holder Spent Output Profit Ratio” (LTH-SOPR), which shows how much profit or loss long-term holders realized after actually selling their coins. According to Glassnode, in July, bitcoin long-term holders were realizing an average loss -33% loss.
This discrepancy between LTH-Cost Basis and LTH-SOPR tells us that the biggest sellers in this year’s rout were the ones that bought in close to the top and bore some of the biggest losses.
And to whom did they sell? Short term holders.
According to Glassnode data, since the Luna
LUNA
So, what is essentially happening is that bitcoins are migrating from those who bought in at the highs and are most price-sensitive to those who bought bitcoin at the recent lows and are less price-sensitive.
Which is a dynamic that historically marked bottoms in bitcoin.
As Glassnode wrote in the note I covered in last week’s Meanwhile in Markets: “For a bear market to reach an ultimate floor, the share of coins held at a loss should transfer primarily to those who are the least sensitive to price, and with the highest conviction.”
Looking ahead
That said, much of the conviction that brought new bitcoin investors largely hinges on a flurry of positive news.
For one, July’s better-than-expected inflation rate put investors back in high spirits, boosting most risk assets. Since mid-July, the S&P 500 and Nasdaq have rallied more or less in line with bitcoin.
Bitcoin
BTC
Earlier this year, Fidelity added bitcoin as an option to its 401k plans and BlackRock
BLK
Meanwhile, lawmakers in the U.S. and EU are hammering out sweeping crypto legislations that will subject crypto to traditional-asset regulations, which could finally legitimize bitcoin in many institutional portfolios.
So, if these developments don’t change their course, bitcoin may be in for a strong comeback. On the other hand, with so much hope priced in, there’s a lot that can go wrong.
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