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Bitcoin Institutional Analysis (Week 35, 2021)

7 minutos de lectura

Bitcoin (BTC) entered price consolidation this week, largely holding on to impressive gains since bottoming out in late July. Prices traded between a weekly low of $46,465 and a new local high of $50,461.

As the market for Bitcoin and cryptocurrencies in general recovers, a notable divergence continues to form on the chain in both Bitcoin and Ethereum. On-chain activity at both chains has remained quiet relative to bull market highs, even as price momentum continues to rise and uptrends in supply dynamics remain in play. This week, we explore and compare a series of on-chain metrics between Bitcoin and Ethereum to characterize this divergence.


Setting the stage

Before we begin our comparative analysis, we will take a quick look at the overall position of the Bitcoin market after a month of strong price performance. With prices topping $ 50k and notable profit taking covered last week, the market is currently at the high end of a very high on-chain volume node.

The chart below shows the price bands where the last transaction of the current supply of BTC coins was made. Since the last $ 20k ATH cycles were broken, three distinct volume bands have formed on the chain:

  • $ 31k to $ 40k (  minimum  price )  where more than 2.98M BTC was accumulated, both in January 2021 and in the recent consolidation of 2.5 months. It is now likely to be a very strong underlying support zone.
  • $ 45k to $ 50k (current range)  where 1.65M BTC has a cost basis. With the price at the upper end of this range, this is likely to act as strong price support as well.
  • $ 53.7k to $ 59k (Trillion Dollar Asset)  where 1,336M BTC accumulated between March and May and still have unrealized losses. These currencies are the ones that remain unwavering from a 50% + correction in May, but could also turn into general resistance if investors seek to exit at their cost.
On the net, this indicates that a fairly strong set of high-conviction investors remain in the market and is a powerful signal for bulls.
                                                               BTC URPD Live Chart 

In this context, profits continued throughout August as prices continued to rise. This suggests an underlying market strength, capable of absorbing this supply of spent coins. The aSOPR metric shows that similar behavior was observed after the March 2020 settlement with the following sequence of events:

  • Capitulation  where panicked sellers realized losses over an extended period of time.
  • Returns to  profitability  as designated by negotiating aSOPR and remaining above 1.0. This suggests that profits are made, but the market strength is sufficient to absorb the selling pressure.
  • Buyer’s conviction returns  when aSOPR resets to 1.0 on several occasions and then bounces higher, suggesting that holders of profitable coins prefer to remain inactive, and investors are buying the dip.
                                                                      aSOPR Live Chart

Divergence of chain activities

As prices rise, there has been an impressive divergence in on-chain activity. Demand for block space in both Bitcoin and Ethereum remains well below recent spikes despite prices returning to high trading ranges.

Active entities on the Bitcoin network are currently around 275k per day, around 35% below the January peak.

                                       Live chart of active Bitcoin entities 

Active addresses on Ethereum are similarly down 33% since the May peak, currently sitting at around 450k addresses per day. Notably, current activity on both chains is similar to the pre-bull stable accumulation range established in mid-to-late 2020.

                                                     Ethereum Active Addresses Live Chart 
Similar observations can be made regarding transaction counts that provide a proxy for the demand for block space. Bitcoin transaction counts have dropped to around 200k per day, a significant 37.5% drop below the peak.
                                Bitcoin transaction count live graph 

Even more dramatic is the USD-denominated on-chain transaction volume, which is currently down 62.5% to $ 6 billion per day relative to April’s ATH. Note that the transaction that is counted above, and the volume below, uses our entity-adjusted data, which filters internal transfers and own expenses and therefore reflects the magnitude of the economically significant volume.

                                Total Transaction Volume by Size Live Chart 

As a result of this meager demand for block space, Bitcoin’s network transaction fees have dropped considerably, returning to levels not seen in the last year. Currently, transaction fees average 21 BTC per day, which is only 1-2% of the total block reward.

                                        Live graph of Bitcoin transaction fees 

For Ethereum, transaction counts are down 33% from the highs as well, with the counts actually declining over the course of this week to around 1100k per day.

                                   Ethereum transaction counts live chart 

Interestingly, within the Ethereum ecosystem, we are seeing quite a dramatic divergence in on-chain attention. While transaction counts and active addresses decline, the magnitude of fees paid is trading significantly higher. This is most likely attributed, at least in part, to strong trading and investment demand for NFT.

Total transaction fees on the Ethereum network currently stand at around 10k ETH per day, which is a relatively high level, comparable to ‘DeFi summer’ and Bull 2021.
                                        Ethereum Transaction Fees Live Chart 

However, the increased market attention to NFTs has come at a cost, and DeFi tokens appear to be the losers in the equation. The chart below presents on-chain transaction data for four top-of-the-line DeFi tokens AAVE, COMP, UNI, and YFI. The top row presents the active addresses that interact with the tokens and the bottom row the value in USD transferred in the tokens.

Overall, it paints a somewhat bleak outlook, with all four experiencing structural drops in investor attention, most breaking to new lows this particular week.

                                   DeFi Token Performance Live Dashboard

Bull offer dynamics

The question of whether a divergence in on-chain activity is bullish or bearish is a complex one, as more trading volume of digital assets shifts to off-chain exchanges and derivatives. Additionally, technological advancements such as transaction batching, adoption of SegWit, and use of the Lightning Network and other Layers 2 make this a dynamic problem to solve.

On the other hand, supply dynamics, particularly with regards to coin expiration, provides a pretty strong signal in either direction. While accumulation and HODLing observations are often a long-range indicator (i.e., they take time to develop), the current market trend is historically strong for the bulls.

The following charts present a number of supply dynamics indicators for Bitcoin and Ethereum, and it will be immediately obvious that there are similarities between both chains, and both seem very constructive.

Young coins are those less than 3 months old. They are more likely to be spent during volatility. A decline in the HODL ripples of young coins indicates that the market prefers HODL and not spending. Young BTCs now account for only 15% of the coin supply and a very strong downtrend is in play.

                                                    Bitcoin HODL Waves Live Chart 
The Ethereum HODL waves are pretty much the same chart, with young coins trending toward a long-term low of 12.5% ​​of circulating supply.
                                                 Ethereum HODL Waves Live Chart 

As these young coins mature and age, they become middle-aged coins (3m to 1 year) and old coins (1 year +). These mature coins are statistically less likely to be spent, with an increasing proportion of them suggesting an increase in illiquid supply.

A powerful uptrend in coin maturation is in play for Bitcoin with almost 50% of the coin supply between 3m and 3 years.

                                                   Bitcoin HODL Waves Live Chart 

Once again Ethereum supply shows a similar trend with a whopping 70% of the ETH coin supply idle for at least 3 months. For both assets, these uptrends in older coin supply started around March 2021, thus reflecting very strong demand to buy and hold throughout this bull market.

                                              Ethereum HODL Waves Live Chart 
To highlight this change in market behavior, and in keeping with a minimal desire for long-term investors to spend coins, the Vivacity metric for both chains has entered a very strong downtrend. As a quick refresher on liveliness:
  • Liveliness indicates  whether more days of coins are accumulated (HODLing) or destroyed (spent) by the total supply of coins.
  • The downtrends suggest accumulation  where  more latency and maturity of the coins is  accumulating , and less spending is being made.
  • Upward trends suggest spending  where old coins move, shelf life is destroyed, and distribution takes place.
  • Trends  more  pronounced  mean at stake strongest fundamental trends of the above.

Bitcoin’s liveliness has reentered a downtrend that has accelerated during this price rally.

                                                             Bitcoin Live Live Chart 
Ethereum’s liveliness metric paints much the same picture, trending strongly since the May sell-off. Given that a large amount of ETH is being held right now in the NFT move, it does indicate that much of this volume is the same ETH tokens changing hands.
                                                      Ethereum Live real-time chart 

Finally, a good sign of adoption, interest, accumulation and HODLing is the growth of non-zero balances. Non-zero Bitcoin addresses have continued to rise, having returned to over 38 million addresses and are about to phase out the ATH.

                                            Live graph of non-zero BTC addresses 

Like its major, Ethereum’s non-zero address counts are also on the rise, hitting a new ATH of 60.7 million addresses.

                                         ETH Non-Zero Address Live Chart 

While the divergence between price and activity in the chain is historically abnormal for a large-scale bull market, it is not an uncommon signature for pre-rise and pre-supply decline dynamics. These periods often accompany the end of bear market accumulation where the investors who remain are the strong hands, the ones with the most conviction.

The supply dynamics seem to suggest that there is extremely robust underlying demand, and this should remain quite constructive for prices if the trend continues. Aggressive spending of older coins would be a key invalidation signal to watch out for.

Futures movement (week 36-37)

The following chart is only for Professional and Institutional Traders.

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