Buyers Remain Strong; Sellers Panic

Analyzing crypto’s crash in contrast to key indicators. Based on IntoTheBlock’s weekly newsletter. If you enjoy it, and would like to receive it every Friday make sure to sign up here!. This week we return with comprehensive insights on the recent downturn for crypto markets. We discuss investors’ high emphasis on macro factors, as well as how the market’s microstructure in order books and derivatives exchanges point to panic selling and bearish exhaustion.. We contrast this with on-chain metrics, which show buyers remaining patient and keeping their conviction regardless of the recent drop.. Weekly Fees — Sum of total fees spent to use a particular blockchain in a week. This tracks the willingness to spend and demand to use Bitcoin or Ether.. Both Bitcoin and Ether recorded increases in network activity as people made more transactions following the holidays and willingness to pay for fees grew as the market downturn continuedExchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges over the past seven days. Crypto going into exchanges may signal selling pressure, while withdrawals potentially point to accumulation.. Bitcoin closed out the year with $1.7B in net inflows to exchanges, the highest weekly inflows in over six months, but reverted the trend this week with $950M worth of BTC leaving exchangesEther on the other hand had mild net outflows of $250M last week and grew to nearly $900M throughout the course of the past seven daysFed Fears, Panic Selling & Excessive Shorting. We had previously discussed the growing influence of macro conditions in crypto markets, and how it was leading investors to doubt Bitcoin’s potential to act as an inflation hedge.. While inflation in the U.S. has remained high and the fed stated plans to accelerate an interest rate hike, Bitcoin has crashed in tandem with growth stocks.. As of January 7, 2022 through IntoTheBlock’s capital markets ETF insightsHigh correlations amid fears — Risk-on assets such as the growth stocks in Ark’s Innovation ETF (ARKK) and in Renaissance’s ETF tracking recent IPOs (IPO) have mirrored Bitcoin’s price action.. As prices began falling in mid-November, Bitcoin’s correlation with ARKK and IPO has grown substantially to a correlation coefficient of 0.79 and 0.83 respectivelyThe high statistical relationship between these suggest broader macro forces are behind the recent fall rather than factors specific to cryptoHopes of Bitcoin acting as a safe haven or inflation hedge appear to have diminished, at least in the near-termPanic selling — Looking closer into order books, sellers’ high urgency is evident.. As of January 7 using IntoTheBlock’s Bitcoin Trades per SideTrades per Side — Each trade has a maker setting limit orders and a taker with market orders. The Trades per Side indicator aggregates the volume of taker orders on both the buy-side and sell-side, showing the difference below.. Takers’ volume has been dominated by sellers as shown by the negative difference below the indicatorSelling activity accelerated around 10PM (EST) after Bitcoin broke below $42,000 for the first time since SeptemberThe high volume of selling orders from takers is reflective of their high urgency, likely panic sellingPerpetual swaps turn excessively bearish — Following the strong decline of crypto in the first week of the year, derivatives traders bet against Bitcoin.. Open interest in Bitcoin perpetual swaps decreased by 7% since December 27, significantly less than BTC’s 16% price dropThe relatively smaller decrease in open interest suggest perpetual swaps are betting against Bitcoin, because if not OI would decrease proportionally with price (or even greater due to long liquidations)By plotting the ratio of Bitcoin’s open interest to its market cap, this pattern becomes clearerAs of January 7 using IntoTheBlock’s Bitcoin aggregate open interestPotential short squeeze ahead — The ratio of Bitcoin’s open interest relative to its market cap has reached the highest level in over a year, suggesting that an excessive amount of traders betting in the current price trend continuing. The last time time the OI/MC ratio increased while Bitcoin’s price decreased was in July 2021, which marked the bottomFunding rates across major perpetual swaps exchanges have also turned negative for the most part, pointing to people willing to pay extra fees to shortThese signs tend to be indicative of exhaustion of the current trend, though not always the caseLong-Term Fundamentals Remain Strong. Zooming out, key on-chain indicators point to buyers remaining strong. As Three Arrow’s Capital CEO Su Zhu tweeted “Buyers are patient, sellers in panic”. This is evidenced by the growing volume held by addresses with over 1,000 Bitcoin.. Using IntoTheBlock’s upcoming ownership v2 indicatorsWhales Accumulate — As Bitcoin dropped below $50,000 addresses with over 1,000 BTC proceeded to increase their holdings.. Addresses with over 1,000 BTC ($41.5M) are evidently institutional players or whales in crypto parlanceThese addresses tend to lower their holdings following large rallies (as was the case in March and October) and patiently wait to buy at lower levels (like in May and over the past few weeks)Hodling Strong — Regardless of the volatility, long-term holders continue showing their conviction.. The number of Hodlers (addresses that have held for over one year) reached new highs with 24.2 million addresses holding 10.89 million BTCThis emphasizes how Bitcoin holders remain patiently holding despite recent market fearsHolders are not the only ones showing conviction, as miners also set new highs.. As of January 7 using IntoTheBlock’s Bitcoin mining indicatorsHash Rate All-Time High — Bitcoin kicked off 2022 with a new record high for its hash rate. The hash rate measures the aggregate amount of computing power miners dedicate to validating Bitcoin transactionsThe greater the hash rate, the greater Bitcoin’s securityGrowing hash rate also suggests positive expectations for Bitcoin as this is the main source of revenue for minersOverall, this highlights the contrast between short-term panic and long-term conviction in Bitcoin. Finally, while everyone seems to be a macroeconomic expert now closely following quantitative tightening, it is worth noting how the fed increased interest rates three times in 2017 and that did not stop crypto (nor equities) from reaching new highs.. Upcoming Webinar. Sign up for our next webinar. Limited amount of free seats available.. Derivatives markets in crypto continue to grow in popularity, outpacing trading volumes in spot exchanges. This has created opportunities for traders and investors alike along with a new set of tools to assess the state of crypto markets.. In this webinar we will dive into the numbers behind derivatives markets in crypto both in centralized and decentralized venues. Similarly, we will uncover opportunities in each of these markets that can benefit traders and builders alike.. Sign up here. Insights and News. We are constantly discovering new fascinating insights about the crypto-asset market. Here are our latest Medium articles and updates.. Staking as a GDP Dividend. If smart contract platforms are digital nation-states, is staking equivalent to a GDP dividend?. Read more. Ideas About DeFi Permissioned Pools. Gamified KYC and regulatory data analysis can complement traditional KYC-AML methods for DeFi protocols.. Read more. The Missing Primitive: Challenges of Derivatives in DeFi. Observations about key obstacles impeding the growth of DeFi derivatives.. Read more. Buyers Remain Strong; Sellers Panic was originally published in IntoTheBlock on Medium, where people are continuing the conversation by highlighting and responding to this story.

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