According to Willy Woo, an on-chain analyst, Bitcoin (BTC), could suffer a final bear market capitulation if “whales,” addresses that hold more Bitcoin than $1 million, increase their selling pressure.
Is there room for another Bitcoin drop
Woo analyzed the average price at the which short-term investors entered Bitcoin market over history and charted daily changes in its value. This resulted in a cost basis. This metric signals when “inexperienced” traders sell BTC during a BTC-free fall. This usually coincides with market bottoms.
As shown in the chart below, the cost basis experienced significant drops during previous bear markets. It is interesting to note that Bitcoin’s constant correction — $69,000 in November 2021, to $39,000 in March 2022 — did not lead to a significant drop in its cost base.
Change in the basis of bitcoin short-term holder costs Source: Willy Woo
Woo stated that it was not clear if we have capitulated or not, but added that there is still room for “another drop” based upon the cost basis signal.
Whales have been known to sell their BTC
Woo’s outlook was in line with rising speculations about Bitcoins next major drop. Christopher Yates, editor at AcheronInsights said that BTC’s value could plummet to $30,000 because of the “deteriorating macro-environment.”
Yates’ latest BTC analysis stated that “What makes me more wary that the low for 2022 has not yet arrived” and added:
“Although it is not necessary for a market bottom to occur, such a capitulation-like spike of volume gives us confidence that such a bottom might be near.”
In its weekly report, data resource Ecoinometrics showed evidence of the gap in demand between rich and small Bitcoin investors. It noted, for example, that Bitcoin addresses holding up to 10 BTC had been accumulating them over the past 30 days.
Bitcoin on-chain accumulation, distribution Source: Ecoinometrics
However, people who have more than 10 BTC are distributing them.
Woo also pointed out that Bitcoin whales were selling their bitcoin stash to maintain the downward pressure on prices. This means that small investors have been taking on the sell-side pressure and preventing Bitcoin’s price from falling below $30,000.
Ecoinometrics analyst Nick also noted that the current accumulation trend is “as slow as it gets,” and that it could become weaker following the Federal Reserve’s March rate hike to curb rising inflation. Excerpts:
“To sum it all, the Fed is in charge. All risk assets could tank if they mess up the tightening cycle. Bitcoin trades as a risk asset at the moment, so it is unlikely that Bitcoin will be an exception.
Ecoinometrics’ and Willy Woo’s analyses also reveal that inexperienced investors are not dumping their coins, thereby becoming long-term owners (LTH).
Bitcoin is “most deflationary” in history
According to David Puell, ARK Invest on Chain analyst, another metric, the “LTH Inflation/Deflation rate”, is also supporting the aforementioned theory.
Bitcoin inflation is a result of LTHs releasing their BTC faster than miners’ natural sell-side. Deflation, on the other hand, suggests LTHs have absorbed a portion of the miner’s sell-side every single day along with the remaining total supply.
Similar: Crypto vs. Physical: The Musk-Saylor inflation debate boils to scarcity
Below is the attached chart showing the LTH Inflation/Deflation ratio. It shows the period of inflationary outcomes in red and the deflationary readings shown in green.
Bitcoin LTH market inflation/deflation ratio. Source: ARK, Glassnode
“Our analysis suggests Bitcoin, proportional supply held by long term holders (LTH), at its most deflationary point in history,” stated David Puell, an on chain researcher at ARK Invest.
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