The Week On-Chain (Week 5, 2021)

BTC has remained relatively stable over the past week, while DeFi has its day with another week of strong performance. On-chain fundamentals for bitcoin remain strong.

The Week On-Chain (Week 5, 2021)

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Bitcoin Market Health

BTC had a relatively stable week, starting out at $32,300 and ending the week at $33,060. On Friday, however, it rapidly shot up to over $38,000, before dropping back down again before the end of the day and slowly declining for the remainder of the week.

For the Bulls

BTC's Stablecoin Supply Ratio (SSR) has been declining in 2021 as more stablecoins are minted. When SSR is low, this means that there is a large supply of stablecoins relative to BTC, which indicates more buying power ready to flow into BTC and other assets.

SSR is a ratio of the total value of all bitcoins vs. stablecoins - as such, it decreases when the price of BTC is low or when more stablecoins are entering circulation. The fact that SSR is so low even as BTC maintains high prices demonstrates just how many new stablecoins have entered the ecosystem recently.

Furthermore, many of these newly minted stablecoins are being deposited onto exchanges, meaning that they are highly liquid and ready to buy up assets such as BTC.

For the Bears

After spiking in early January 2021, the number of active entities on the Bitcoin network decreased significantly, returning to its previous trajectory. While this metric has since begun to increase again, it has still not returned to levels seen at the top of the market in January.

This news is not so much bearish as it is slightly-less-bullish. It shows that the spike up to over $40k was driven by (and led to) an increase in activity, which has since decreased as the price has dropped. However, this decrease looks more like a healthy correction than a shift towards a bearish trend, so investors should not be worried based on this metric.

A Bullish Comment from Willy Woo

Woo's Take: The market has completed a full purge of overheatedness.

Once selling commences, the selling pressure begets more sellers taking their profits while it’s still there. Profit-taking has now completed. We can see this in the SOPR chart below. When SOPR touches the 1.0 line, coins moving between investors no longer carry profit.

To push SOPR lower, investors would have to be willing to sell at a loss. In order to allow for that, we would need to enter a bearish phase, but this is very unlikely as we are bounded by the $29k price floor.

Read more from Willy Woo in his newsletter, The Bitcoin Forecast.

Altcoin Feature: USDC is Seeing Massive Exchange Inflows in 2021

After growing slowly since 2018, the number of USDC on exchanges has begun to rapidly increase as of 2021. This trend is bringing more buying power into the crypto market, acting as a potential catalyst waiting on the sidelines, ready to flow into BTC and other cryptoassets.

The number of USDC on exchanges increased by over 112% in January alone, growing from $431 million to over $915 million. This represents almost $1 billion worth of buying power from USDC alone, poised to move into assets such as BTC.

This high figure should increase investors' confidence in any dips being quickly bought up, making it a bullish signal.

Which altcoins would you like to see us cover in future editions of The Week On-Chain? Let us know on Twitter.

Weekly Feature: Grayscale Holdings Acquiring BTC Faster than it is Being Mined

In 2021 so far, around 26,000 BTC have been mined. Meanwhile, digital asset investment fund Grayscale Holdings has acquired over 40,000 BTC in the same period.

This means that, looking at Grayscale's acquisitions alone, the available BTC supply is drying up faster than it is being created. This is before we consider the other significant institutional investments into BTC this year, which have been extremely large.

These large investments have been drying up BTC's liquid supply, as seen in the red areas below. 2021 has seen the largest sustained decrease in bitcoin's liquid supply in the history of BTC.

With BTC's supply being continually bought up by large investors and institutions, new price floors are being set at higher and higher levels. This continued restriction of supply places bitcoin in a bullish zone.

Disclaimer: This report does not provide any investment advice. All data is provided for information purposes only. No investment decision shall be based on the information provided here and you are solely responsible for your own investment decisions.