Bitcoin (BTC) could suffer one last bear market capitulation if “whales” — addresses holding more than $1 million worth of Bitcoin — increase their selling pressure, according to on-chain analyst Willy Woo.
Room for another Bitcoin crash?
Woo evaluated the average price at which short-term investors entered the Bitcoin market throughout history and plotted the daily change in value. That resulted in a cost basis, a metric that signals when “inexperienced” traders sell BTC to “experienced” traders during a BTC free fall, which usually coincides with the market floor or bottom.
The cost base saw significant declines during previous bear markets, also before a strong buildup occurred, as shown in the chart below. Curiously, Bitcoin’s current correction from $69,000 in November 2021 to around $39,000 in March 2022 has not resulted in a massive drop in its cost base.
“It is not conclusive if we have capitulated yet,” Woo said, adding that “there is room for another drop” based on the cost basis signal.
Whales have been selling their BTC
Woo’s perspective came in line with growing speculation about the next big Bitcoin crash. For example, Christopher Yates, the publisher of AcheronInsights, said that the price of BTC could fall to $30,000 due to the “deteriorating macro environment.”
“What makes me increasingly cautious that the bottom is not yet in 2022 is the fact that we have not yet seen a capitulation style volume spike that has occurred at all of the recent lows in late 2019, early 2020 and mid 2021″. Yates wrote in his latest BTC analysis, adding:
“Although not a prerequisite for a market bottom, a capitulation-like increase in volume helps give us confidence for when that bottom may be close.”
Data resource Ecoinometrics provided evidence of the demand gap between small and wealthy Bitcoin investors in its latest weekly report. For example, noted that addresses holding up to 10 BTC have been accumulating coins in the last 30 days.
On the contrary, those who have more than 10 BTC have been distributing them.
Woo also pointed out that Bitcoin whales have been selling off their stock, thus keeping the downward pressure on the price.. That means small investors have been soaking up the sell-side pressure and have so far prevented the price of Bitcoin from falling below $30,000.
What’s more, Ecoinometrics analyst Nick noted that the ongoing accumulation trend is “as slow as it gets,” adding that it could weaken after the Fed’s expected rate hike in March to rein in rising inflation.. Extracts:
“Long story short, the Fed is in control. If they mess up their tightening cycle, all risk assets will go under. Bitcoin currently trades as a risk asset, so it’s unlikely to be an exception.”
Analysis from Ecoinometrics and Willy Woo also shows that inexperienced investors have not been dumping their coins, thus becoming long-term holders (LTHs) in the process.
Bitcoin is “most deflationary” in history
Meanwhile, another metric called “LTH Inflation/Deflation Ratio” is also corroborating the aforementioned theory, according to ARK Invest on-chain analyst David Puell.
Specifically, Bitcoin inflation points to LTHs releasing their BTC into circulation faster than the natural sell side of miners. Rather, deflation suggests that LTHs have absorbed a proportional amount from the miner’s sell side every day along with the total outstanding supply.
The attached graph below shows the inflation/deflation ratio of LTH showing the period of inflationary results in red and the deflationary readings in green.
“Our analysis suggests that Bitcoin, proportional to the supply of long-term holders (LTH), is at its most deflationary moment in history,” said David Puell, on-chain researcher at ARK Invest.
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