The Week On-chain (Week 19, 2021)
Bitcoin consolidation continues as miners accumulate and supply on OTC desks drains. Meanwhile ETH benefits from capital rotation to new ATHs.
Bitcoin Market Overview
Bitcoin price continued to grind higher this week, rallying from lows of $53,333 to an intra-day high of $59,454. Price remains within the 'Trillion Dollar' consolidation range established since early February, as the market gets comfortable with a market cap sporting four commas.
On-chain signals continue to support strong HODLing demand from both miners and long term holders as overall spending patterns remain bullish. However there are also indications that a portion of BTC capital is rotating, with signals that ETH being a primary beneficiary.
Bitcoin Grinds Higher
After falling below the $1 Trillion market cap level (~$53,475) during the recent correction, the Bitcoin market has bid the price back above a major on-chain support level. We can see this in the URPD metric, which is constructed to show the volume of supply transacted within various price zones.
We can consider these as price levels where BTC changed hands, creating a new cost basis for buyers, and levels where profit or loss was realised for sellers. The price zone above the $1 Trillion Threshold is the most significant on-chain support since $11k and the market is currently at the top end of this range.
BTC volume equivalent to 12.1% of circulating supply (2.93M BTC) now forms on-chain support below the current price. A far smaller volume of 0.678M BTC (3.63% of supply) was moved above the current price which may form possible resistance.
Supply held by Miners and OTC Desks
Miners have returned to coin accumulation in a significant way throughout April and May, with the net change in miner balances going green. This metric is calculated by looking at the net change to miner balances over a trailing 30-day window.
This metric currently shows that miners are not only net accumulating, they are doing so at an increasing rate, suggesting strong conviction and bullish sentiment.
If we zoom out and apply a 14-day moving average (equal to the difficulty adjustment period), we can see that the current rate of miner accumulation is actually historically significant. The current net position change compares to only three instances in the last five years.
At a rate of 6,000 BTC accumulated per month (after the halving no less), this suggests miners are HODLing around 22% of the block subsidy issuance over the same period (900 BTC/day x 30-days = 27k BTC/mth).
Since miners are often closely associated with OTC desks for distribution of mined coins, we can review the trend of OTC desk to estimate the balance of incoming demand from large buyers.
The total balance held by the three OTC desks we track has continued to decline throughout 2021, reaching local lows of only 6k BTC this week. This suggests demand by larger buyers exceeds available supply at these OTC desks. Furthermore, this trend clearly commenced starting in Dec 2020 at which time miners were distributing heavily. This aligns with the strong growth in institutional interest in the asset as a macro scale investment.
HODLing with a Hint of Capital Rotation
The current consolidation range has many on-chain similarities to the market during 2020 which was largely a period of accumulation. The Binary CDD metric (7-day moving average) shows the trend and spending behaviour of older coins, providing a proxy estimate for what the smart money are doing.
A summary of the last ~12 months:
- Jun-Oct 2020: Binary CDD traded sideways indicating older coins were generally dormant and accumulation was underway.
- Oct-Dec 2020: Binary CDD trends higher indicating old coins were spent at an increasing rate to realise profits after the break above $20k ATH.
- Jan-Mar 2021: Binary CDD trends lower as confidence and market conviction returns, and old coins slow down their spending.
- Mar-May 2021: Binary CDD trades sideways again indicating that old coins are relatively dormant and the market has returned to HODLing and re-accumulation mode.
However, it should be noted that Binary CDD is trading at a higher level to mid 2020 suggesting spending of old coins is still happening.
The HODLed or lost coins metric tells a similar story, however it explains more about the current period. This metric measures the estimated supply that is either HODLed or lost and we can see:
- Very clear accumulation and balance growth in mid to late 2020,
- Strong spending in late 2020,
- A slow down in spending in early 2021.
These observations align well with the Binary CDD observations above.
In the current period however (March 2021 to today), this HODLed balance has traded sideways (not upwards as expected for accumulation), with short bursts of spending. Whilst this confirms older BTC are generally dormant and maintain bullish market confidence, the ongoing accumulation is being offset by a slightly larger distribution.
If we look the the BTC balance on the two largest exchanges, Coinbase and Binance, we get a strong hint as to where these spent BTC are heading.
- Coinbase balances continue to trend lower in a 'stair stepping pattern', indicating US institutional interest remains in play.
- Binance balances have continued to grow throughout 2021, and since early April, have actually started growing faster then Coinbase is depleting.
Given Binance is a preferred venue for retail speculation and has some of the most liquid altcoin markets, it is very likely that recent spending of BTC is indicative of capital rotation, as traders take advantage of altcoin volatility whilst Bitcoin prices consolidate.
ETH the Beneficiary
As if it was not obvious already, ETH (...and DOGE) has been a primary recipient of a good portion of this capital rotation, with extraordinary price performance over the last three weeks. To demonstrate this effect, we can plot the spending behaviour of reasonably old Bitcoin UTXOs, between 6m and 3y, and compare it to the ETH price chart.
Whilst this is only an empirical observation (correlation <> causation), the distinct increase in these older BTC being spent back into circulation after a prolonged period of holding makes a compelling case. ETH prices have almost doubled in this time from $2,200 to an ATH of $4,000.
We can see the relative magnitude of this capital rotation in the Spent Output Age bands where there is a noticeable uptick in old BTC spending behaviour starting in mid April as BTC price consolidates.
Activity on the Ethereum chain has increased significantly over the past weeks, indicating on-chain economic flows support this rally in price. The chain has seen a strong uptick across the board of many metrics including total number of smart contract calls, uniswap transactions, total transaction rate and USD settled in ETH transfers, just to name a few.
Finally, the Ethereum chain has hit another on-chain ATH for daily transaction counts, as the increased gas limit provides a boost in maximum transaction throughput. A daily ATH of 1.63M transactions was achieved this week, representing a 22.5% increase over the previous peak, set just before the 2017 macro top.
Week On-chain Dashboard
The Week On-chain Newsletter now has a live dashboard for all featured charts here.
New Glassnode Content
Bitcoin's On-chain Market Cycles
Last week we released our second collaboration article with Bitcoin Magazine with a focus on the cyclical spending patterns of Hodlers, Speculators and miners. This article aims to provide a foundational roadmap with key metrics that help measure where we are in the Bitcoin market cycle.
All market cycles are unique, but the human response to profit, loss and incentives can be strangely predictable. The trick is knowing what to look for in the data, on-chain.
Be sure to check out the article here.
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