If you were forwarded this newsletter and would like to receive it, sign up here.
Hey onchainers,
Welcome back to IntoTheBlock’s newsletter. We have created a different type of newsletter for crypto fans that is not about news, but about data and analytics. Every week, we deliver valuable insights about the crypto market.
Following a brief dip under $30,000, Bitcoin has reclaimed the highly-watched price level. As prices continue to consolidate near this range, on-chain and markets data point to key patterns savvy investors should pay attention to. In this week's newsletter, we'll cover these insights focusing on the short- and long-term horizons.
Bitcoin Rebounds But Short-Term Activity Slows Down
There is a stark contrast between recent on-chain activity and the one seen earlier this year as Bitcoin first broke past $30,000. In Q4 2020, the 30-day average number of Daily Active Addresses (DAAs) transacting on the Bitcoin blockchain grew 20% from 950,000 to 1.15 million. As prices were growing, daily activity followed.
This trend slowed down in Q1, where DAAs stayed stagnant near 1.10 million despite Bitcoin's price continuing to rally. When Bitcoin reached $60,000 in mid-April, DAAs also set a new all-time high of 1.37 million addresses using Bitcoin on a given day.
Since then, however, both price and DAAs have decreased significantly.
Although Bitcoin's price is back to January 2021 levels, DAAs have set a two-year low this June. This trend points to on-chain activity slowing down significantly following the recent crash. DAAs have since grown back to approximately 800,000 active addresses per day, but continue in a downward trajectory.
Along with daily activity, fees processed to use the Bitcoin blockchain have dwindled, and to a further extent. While average DAAs in July have dropped 27% versus their average level in April, the total amount of fees has diminished by 85% from its average in April.
In one end this can be interpreted as a positive sign for users, given that it is now cheaper to transact on the Bitcoin blockchain than it was three months ago (average fees also decreased, not just the total amount).
On the other hand, though, the decrease in total transaction fees accrued demonstrate the short-term decrease in demand for Bitcoin, as measured by the aggregate willingness to pay to use its blockchain. This poses headwinds for Bitcoin in the near-term, with total fees decreasing 90% over the past 90 days.
Short-Term Speculators Leave, But May Be Dragging the Market
As on-chain activity continues to slow down, we are observing a rotation in market participants.
With prices dropping, short-term traders are leaving the market, as tends to happen. The number of addresses that have been holding Bitcoin for under one month — labelled as Traders by IntoTheBlock — just set a one-year low.
While the number of addresses under the traders category dropped by over 20%, volume decreased only 2%. This suggests that, for the most part, it is retail traders that manage small volume that have left the market.
The number of traders had previously set all-time highs of 5.31 million on February, but sustained at above 5 million throughout March and April. Many have suggested that as lockdowns came to an end, short-term retail interest left the market. This is apparent in Robinhood's warning of a potential drop in its Q3 revenues.
Moreover, it appears that many of these traders are currently at a loss, at least on paper. Using IntoTheBlock's In/Out of the Money Around Price (IOMAP), we validate that indeed most of these addresses are "out of the money", or with unrealized losses.
70% of the addresses that bought Bitcoin within 14% of its current price are at a loss. As many of these traders leave the market, it is likely that they have had selling pressure on prices with many looking to break-even if possible, or in some cases panic sell.
Nearly 1 million addresses had previously bought 695,000 Bitcoin around $34,000. Given the high amount of prior buying activity at this range, it is likely to play as a level of strong resistance where short-term traders may look to break-even on their positions.
Long-Term Indicators Support Bitcoin's Store of Value Thesis
Zooming out, on-chain indicators are showing the opposite pattern. With the Global In/Out of the Money (GIOM), which covers all addresses holding Bitcoin, the image is indeed reversed.
In this case 70% of all Bitcoin addresses are "in the money", or holding positions with unrealized gains. By looking at the full picture, selling pressure from recent buyers seems less severe, with most long-term holders comfortably profiting.
In terms of price performance, Bitcoin also shows a positive pattern over the long-term. When compared to traditional finance indices, Bitcoin has significantly outperformed them over the past year.
Even after a 50% drop, Bitcoin is still up 240% over the last twelve months. While short-term bearish sentiment might create noise, over the long-term Bitcoin continues to sustain its position as one of the best performing asset classes.
This strong performance, along with the high conviction of its holders, support Bitcoin's investment thesis as a store of value or digital gold. As the name suggests, a key characteristic of a store of value asset is that it is expected to retain its value over time. In Bitcoin's case this belief that it will sustain its value over time is arguably reflected in its number of long-term holders, categorized as Hodlers by IntoTheBlock.
As seen in the graph above, the number of long-term investors in Bitcoin continues to grow to new all-time high, in spite of prices crashing over 50%. This demonstrates the high conviction these holders have on Bitcoin sustaining its value over the long-term. Furthermore, as more Bitcoin is "hodled", less is available to be sold. This makes the supply theoretically scarcer and further reinforces its potential as a store of value.
Overall, while the near-term picture points to bearish momentum in on-chain activity, long-term indicators opposes it with high conviction from long-term investors. Ultimately, this contrast reflects upon the recent sideways market price action, where short-term risks and long-term rewards collide.
IntoTheBlock Webinars
The IntoTheBlock's webinar series is a curated monthly program created to provide a unique view of the crypto analytics space. Each month we choose a different topic and analyze it using ITB data, providing insightful and unique perspectives on the market.
Next Webinar: August 11, 12pm EST
Analyzing the DEX Landscape - Key Insights into Past & Future Growth
(Limited to 300 seats)
Decentralized exchanges (DEXes) have quickly grown into some of the most popular crypto products. As the DEX space continues to evolve, it is worth taking a step back and analyzing the reasons behind its success and its road ahead.
In this IntoTheBlock webinar, we will be diving into the key metrics and catalysts that have propelled DEXes to billions of dollars in daily volume. We look into liquidity, capital efficiency, the benefits of a permissionless approach, protocol valuations and much more. As well, we explore how the space is likely to progress and if there are any sustainable competitive advantages for the winning protocols.
