Bitcoin’s price is volatile, but on-chain data suggests new accumulation.

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Long-term investors are back in accumulation mode, according to on-chain statistics, after the latest shake-out cleared network congestion and shook away over-leveraged traders.

The May 19 crypto market sell-off removed $1.2 trillion from total market capitalisation as the froth and excess leverage of over-hyped markets were promptly eradicated.

But similar to a forest fire, whose destructive power is essential to the rejuvenation of a forest’s ecosystem, dramatic market shake-outs are a vital part of the full life cycle of a developing market, as excesses that have accumulated are burned away and cleared in order to set the stage for a new round of growth.

According to data from Glassnode, the past month saw a “historically large decline” in on-chain activity, “transitioning rapidly from booming on-chain economies at ATH prices, to almost completely clear mempools and waning demand for transactions and settlement.”

This clearing of congestion helped address the rising cost of fees on both the Ethereum (ETH) and Bitcoin (BTC) networks, which have now “returned to mid-2020 levels of around $3.50 to $4.50” after experiencing short term spikes as high as $60 in April and May, but traders are also concerned that the market has shifted from bullish to bearish given the lingering price action from BTC and Ether.

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Bitcoin vs. Ether average transaction fee. Source: Glassnode

The dip in activity has resulted in a 65% fall in total USD denominated transfer volume settled by the Bitcoin network and a 60% fall in value transmitted on Ethereum, the second greatest falls for the networks after an 80% drop for Bitcoin in 2017 and a 95% reduction for Ethereum in 2018.

Long-term investors amass

Although on-chain activity portrays a bleak image for some, since short-term holders were the worst impacted by the downturn, a deeper examination reveals that long-term holders (LTH) have begun to accumulate again, indicating that the worst of the shake-out has gone.


Long-term holder net position change. Source: Glassnode

As seen in the chart above, the supply held by long-term BTC holders has begun to speed higher following a period of distribution during which the price rose from $10,000 to $64,000. This increasing figure suggests that the “LTH supply is now in a firm uptrend,” and is similar to the trend seen during the “late 2017 bull and early 2018 bear.”

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Glassnode said:

“This fractal describes the inflection point where LTHs stop spending, start re-accumulating and hodling what are now considered cheap coins.”

Further evidence of bullishness can be seen in the fact that the quantity of BTC now owned by LTHs is 2.3 million greater than at the peak of 2017, showing that these token holders believe the market is heading higher in the long run.

The shift in the liquid and illiquid supply of BTC over the last 6 months provides one last clue that the market may be stabilising in preparation for its next move upwards.


Bitcoin liquid and highly liquid supply. Source: Glassnode

As seen in the figure above, 160,700 BTC returned to liquid circulation for the month of May, accounting for just 22 percent of the entire supply that has shifted from liquid to illiquid since March 2020.

This means that 78 percent of the BTC purchased since then has remained unspent, showing that long-term holders have a bullish outlook.

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While it is impossible to predict the cryptocurrency market’s next steps due to factors such as unpredictable volatility, erratic tweets from influencers, and rumours of surprise government crackdowns, on-chain data indicates a positive long-term outlook that should resume once the current shake-out and consolidation periods pass.


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