In Newsletter # 3 Bitcoin Uncharted, analytics firm Glassnode co-founders Jan Happel and Yann Allemann continue to offer revealing details of bitcoin (BTC) and the world of cryptocurrencies through interesting graphs that relate to the evolution of the present bitcoin bull cycle.
In this third installment, the engineers address everything from what they call Elon Musk’s “shock waves” in the cryptocurrency market, to the open interest of bitcoin futures, along with the accumulation of bitcoin, and the incorporation of new users. of bitcoin, among many other topics. The compilation of the graphs is carried out twice a month and they are presented individually, before the publication of the newsletter, on the Twitter account of Yann & Jan, @Negentropic_.
Tracking Bitcoin Celebrities
The first Bitcoin Uncharted chart is dedicated to Elon Musk. The authors show the visits of CoinMarketCap, Coinbase and Binance in the last four months. They note that Musk “has sent massive shockwaves into the crypto-sphere, as a consequence we have seen a strong resurgence of interest from retail investors in that space,” the document says.
The graph shows the impact of Elon Musk’s views on the growth of retail investors. Source: Bitcoin Uncharted.
As of the end of January, as shown in the chart above, there were an average of 2-3 million active users on CoinMarketCap and two of the most popular exchanges. At the beginning of February, indicated with the dotted red line, that average rose to a number of users that ranged between 4 and 5 million daily visitors.
As published by CriptoNoticias, Elon Musk made several pronouncements in February in favor of the Doge cryptocurrency, and contributed to a notorious increase in the price of bitcoin, announcing on the 8th of that month a Tesla investment of USD 1.5 billion. This brought the first cryptocurrency to a new all-time high.
On the other hand, the newsletter shows the increase in Twitter followers of analyst Willy Woo (@woonomic) and investor Anthony Pompliano (@Pomp), an evolution that also indicates a flow of new retail investors attracted to Bitcoin last week. .
New Twitter followers of @woonomic and @pomp. Source: Bitcoin Uncharted.
Rotation of capital towards altcoins
The authors claim that the so-called Altcoin / Bitcoin Cycle Index confirms the capital turnover towards altcoins. It measures the relative performance of bitcoin compared to a wide selection of digital assets, the report says.
Long story short, bitcoin started the year with a consolidation between $ 30,000 and $ 35,000, allowing many altcoins to start a rally. This changed overnight with the increased attention Musk paid to bitcoin, pushing it above 40k within hours of Tesla’s bullish announcement. Since then, both bitcoin and altcoins have been on the rally, an indication that both institutional and retail money are flowing into this space.
Yann & Jan. Bitcoin Uncharted.
Phases of bitcoin accumulation
The authors claim that the accumulation of bitcoin since the beginning of 2020 has been occurring in stages. From March to early December, the report states that there was a greater outflow of bitcoin from exchanges to institutional holders, indicating strong spot demand. “In 2021, these departures have started to decrease,” the report says.
From April to December 2020, the departure of BTC from exchanges intensified. Source: Bitcoin Uncharted.
According to the graduated scale, to the right of the previous graph, the portions marked with red circles reveal periods with high numbers of outgoing BTCs (yellow trend) from April-May to December 2020. Then there is a reduction in the light tones towards dark tones (less outgoing BTC) in 2021.
The institutional spot demand for bitcoin
The cash demand from institutions appears to have stabilized in January, the report said. However, he claims that the total number of withdrawals from exchanges shows a significant rebound in recent days.
BTC withdrawals from exchanges. Source: Bitcoin Uncharted.
The graph above shows a prominent withdrawal boom, in a single day, which is at the level of withdrawals during the last stages of the bull cycle of 2017, as indicated by the segmented red line. “This shows that other market participants are accumulating,” say the authors.
Reflection of the bitcoin rally in the futures
Demand for exposure leveraged through futures increased in January, after institutions reduced their spot purchases during December, the report says. “This is a sign of an increased appetite for risk,” the authors state.
Both daily CME futures volume and open interest grew in January 2021. Source: Bitcoin Uncharted.
This increase in demand is supported by the growth of new participants in the network, as can be seen in the following graph.
There is a steep slope of growth of new Bitcoin entities in recent days. Source: Bitcoin Uncharted.
Currently, the report notes that open interest on all exchanges is at an all-time high, just over $ 16 billion in total value. This represents a 60% increase from January 1.
Bitcoin futures open interest hit an all-time high. Source: Bitcoin Uncharted.
Bitcoin bull cycle analysis
Having presented the above results, the authors wonder ‘Is this the best for bitcoin or just the beginning?
To understand that, let’s take a step back and look at the bitcoin bull cycle as a whole. As mentioned in previous newsletters, bitcoin’s macro bull cycle begins with a reduction in supply on exchanges, leading to a drastic reduction in supply.
Yann & Jan. Bitcoin Uncharted.
The restriction of the supply of BTC also occurred in the bull cycle of 2017. Source: Bitcoin Uncharted.
In the areas highlighted in green in the previous graph, a decrease in the BTC inventory is noted. Currently, the current decline is seen to have lasted more than double what it lasted in 2017.
The BTC supply restriction, created by the accumulation of long-term holders, results in an increase in price, the document says. “This, in turn, attracts retailers and other types of short-term holders who also start buying.”
The highlighted area in the graph shows the rise of retail investors. Source: Bitcoin Uncharted.
“Once short-term holders have accumulated a certain amount of available BTC, they start to become a major market driver, affecting short-term price cycles.” These short-term forks are much more price elastic, and therefore respond more quickly to changes in the price of bitcoin, than long-term forks, the authors claim.
Long-term BTC holders in contrast to short-term holders. Source: Bitcoin Uncharted.
The chart above compares the supply of BTC in the hands of long-term holders (blue) with the supply in the hands of short-term holders (gold).
The authors note the importance of keeping track of supply that is generating profit for short-term holders, since any change in the price above a certain magnitude can cause a massive liquidation in a short term. “This effect becomes extreme in the later stages of the bull market, as short-term holders become increasingly sensitive to price movements.”
The golden line in the chart below represents the BTC supply that reflects earnings, held by short-term holders.
The maximum profit has not been reached yet in the present bull cycle of BTC. Source: Bitcoin Uncharted.
Once the price rises to a certain level, the document notes, new and old players begin to increase the number of BTC deposits to exchanges. This, in order to capture profits or speculate on price discovery. “When comparing our current cycle with the last bull run in 2017, it is clear that we are still in that initial phase of acceleration of the curve.”
The authors caution that it is important to normalize the number of warehouse addresses to the number of total addresses on the network, which has increased approximately 3 times since 2017. “Therefore, the current number of addresses in the graph below should be divided by 3 to make a valid comparison with the previous bull rally. ‘
«We did not reach the end [el máximo del ciclo alcista] until the number of addresses they are depositing on exchanges is exponential. “
The exponential rise in deposits and exchanges has not yet occurred in the current cycle. Source: Bitcoin Uncharted.
The authors note that the acceleration of the flow of incoming BTC to exchanges, from holders in the short term, coincides with the fact many of these are in profit. “Your increased urge to send coins to exchanges begins to increase network transfer fees.”
In historical terms, we are currently in the midst of a supply transition from long-term to short-term holders, the report says. “This transition, although faster than in 2017, is a strong sign that we have come out of the initial accumulation phase.”
The accumulation phase by long-term holders would be culminating. Source: Bitcoin Uncharted.
The exit of BTC from exchanges to the cold wallets of long-term holders would be ending. As supply continues to flow to short-term holders, the price hike for this cycle would be completed.
A recent prediction by analyst Willy Woo, commented on Sunday, February 14 by CriptoNoticias, coincides with this analysis regarding the arrival of large numbers of retail investors to various investment plans in bitcoin.