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Data from numerous on-chain indicators imply that the current sell-off is coming to an end as Bitcoin price displays new signals of positive momentum.
Following its May 19 drop from $42,600 to $30,000 on Coinbase, Bitcoin (BTC) entered a consolidation period. The flagship cryptocurrency soon recovered its losses and recaptured $40,000, but it failed to post a clear bullish breakout over this resistance level, and the price remains trapped below $40,000 at the time of writing.
The latest price action in the Bitcoin market has been — at best — choppy, with traders showing no clear indication about their short-term bias. Some analysts predicted that if the BTC/USD price does not break above $40,000, it may very well fall to as low as $20,000 in the coming sessions.
Surprisingly, a few on-chain indicators indicate a different scenario. Long-term holders and accumulation addresses piling more BTC amid the latest price drop is one of the most intriguing themes keeping Bitcoin’s bullish bias intact.
Furthermore, the Bitcoin Entity-Adjusted SOPR (Spent Output Profit Ratio) statistic demonstrates that the market is no longer selling Bitcoin at a loss in aggregate.
Meanwhile, on-chain data suggests that exchange reserves have decreased, indicating that traders have been withdrawing their digital assets to cold wallets or putting them into DeFi liquidity pools for higher yields.
While the short-term outlook may be bearish, the following three on-chain signs suggest that Bitcoin may be in the process of bottoming out.
Bitcoin: Spent Output Age Bands
The Bitcoin price fall elicited three types of response in the spot market. The first was panic-selling by short-term traders who sold Bitcoin to reduce their losses, most likely because they purchased the cryptocurrency around its peak.
The second response was HODLERs who chose to keep their remaining bitcoin supply. They demonstrated a long-term belief in Bitcoin’s positive bias in the face of supporting macroeconomic factors such as ultra-low interest rates, low yields on government bonds, inflation worries, and a weakening US currency, which made hedging assets such as Bitcoin appear appealing to HODLers.
The third reaction was a combination of HODLers and accumulators, as traders took advantage of the Bitcoin price drop to purchase more of the cryptocurrency at a ‘discount.’
Various on-chain metrics revealed a significant difference in Bitcoin reserves held by short-term and long-term holders during the price fall.
For example, according to the ‘Bitcoin: Spent Out Age Bands’ graphic below, coins that were one day to one week old experienced the most selling last week. These coins continued to move in and out of the market, correctly reflecting the market’s heightened price volatility last week.
Meanwhile, coins that remained unspent for 1 to 3 months and 3 to 6 months also changed addresses in the wake of the recent price crash.
Another Glassnode measure, called ‘Bitcoin: Total Supply Held By Long-Term Holders,’ revealed that long-term holders – entities that have held Bitcoin for more than six months — benefited the most from the tokens sold by short-term holders.
In a weekly note to clients, Anthony Pompliano, investor at Pomp Investments, said:
“Long-term holders are adding to their positions, short-term holders are selling, some entities in the short-term cohort have now reached the 155-day threshold for this metric and are now in the long term cohort.”
This divergence pointed to long-term stability in Bitcoin price as more and more serious holders took positions against the ongoing macroeconomic crisis.
Bitcoin balance on exchanges drops
Net Bitcoin reserves held by cryptocurrency exchanges have also decreased in the last seven days, indicating that less and fewer traders are looking to sell their Bitcoin holdings.
The measure represents average trading activity. Traders only put Bitcoin into exchange wallets when they intend to sell it for cash or swap it for other digital assets. As a result, the amount of BTC available on trading platforms increases.
Conversely, a higher degree of BTC withdrawals reflects traders’ decision to hold the cryptocurrency. It means that Bitcoin would not face immediate sell-off pressure in the spot market, which is what the latest Glassnode readings show.
Bitcoin accumulation addresses and balances rise
The entire number of accumulating addresses, as well as the sum in these wallets, are increasing. An accumulation address is one that has received at least two BTC transactions but has never transferred the assets out of the address.
The number of these accumulation addresses has increased in the previous seven days, with 7,430 new wallets added to the list.
Another indicator, named “Bitcoin: Supply Held by Entities with Balance 0.01 – 0.1,” revealed that new users joined the Bitcoin network amid the price drop. Furthermore, supplies held by addresses with 0.001 BTC to 1 BTC in them grew in parallel, indicating consistent rise in retail interest.