Is a supply crunch brewing for Bitcoin and Ethereum?

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The market’s top two cryptocurrencies have been moving independently of one another recently. While Bitcoin’s path has seen a lot of consolidation, Ethereum has been climbing the charts in the last week. As Bitcoin and Ethereum holders appeared hesitant to sell at a critical juncture in anticipation of a price surge, on-chain indicators provided an interesting insight into broader market sentiment.

Some intriguing divergences in both of the top coins’ metrics posed a tricky question: whether they were projecting bullish or bearish divergences? The supply dynamics for BTC and ETH, on the other hand, have been flashing both negative and optimistic signs. As a result, it is critical to compare it to market sentiment in order to acquire a better image of the future.

A strong trend for bulls 

Observing the accumulation and HODLing patterns gives for a more accurate portrayal of the long-term picture. The same revealed that current Bitcoin and Ethereum activity is similar to the stable pre-bull accumulation zone created in mid to late 2020. Despite the fact that prices have returned to higher trading ranges, demand for block space on both Bitcoin and Ethereum has been significantly lower than recent peaks.

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A Glassnode report also found that active entities on the Bitcoin network were around 275k per day, around 35% below the January peak. The same for Ethereum was down 33% from its May peak, sitting at around 450k addresses per day.

A drop in the young coin HODL waves for both Bitcoin and Ethereum appeared to indicate that the market prefers to HODL rather than spend. Young BTC accounted for barely 15% of the currency supply and saw a severe downturn. Young coins in Ethereum fell to a long-term low of 12.5 percent of the circulating supply.

Furthermore, an increase in the share of middle-aged coins for both ETH and BTC indicates an increase in illiquid supply.


Adoption, interest, accumulation, and HODLing

Since June, both Bitcoin and Ethereum have seen a decline in activity. This implied that there would be less spending and increased coin dormancy (coin maturity was building up). The total coin supply determines whether more coin days are accumulated (HODLing) or destroyed (spending) by the total coin supply.

Even while accumulation has been observable since May, the consistent growth in non-zero balances is a more accurate indicator of adoption, interest, accumulation, and HODLing.

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Non-zero Bitcoin addresses, for example, have been steadily increasing since July. They had surpassed 38 million and were on their way to an ATH.


BTC Non-zero Addresses; Source: Glassnode

Ethereum also set a new all-time record with 60.7 million non-zero balance addresses. Even though the difference between price and on-chain activity is unusual for a full-fledged bull market, it is not an uncommon sign for the pre-bull and pre-supply-squeeze dynamic.

ETH Non-zero Addresses; Source: Glassnode

The supply patterns for the top two cryptos revealed that the market had extraordinarily substantial underlying demand. If the trend continues, this might be quite beneficial to pricing.

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