Glassnode On-Chain Week 26, 2021

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2021-10-16 12:09:07

WARNING: The article has a certain lag compared to the current price on the market, the information in the article should only be viewed from a reference point of view and should not be considered investment advice. The indicators given in the article can be found on (paid version).

The Bitcoin market is struggling to hold the lows of the trading price range established since the mid-May sell-off. The price fell to a low of $28,993 earlier in the week before recovering back to 35,487. USD.

As hash-power continues to decline during the biggest mining hardware move in history, Bitcoin holders across the market still seem to accept lower losses and we’ve discovered the market share. most affected.

This week, we take a look at the overall demand dynamics relative to institutions like Grayscale’s GBTC, various ETF products, and the balance of coins currently available on Coinbase.

Capitulation Round 2

After breaking a new record for loss in the dollar in May, the market has signaled investment again this week, a new ATH loss was recorded at $3.45 billion. This means that a very large number of coins are currently in a losing position. Note that almost all of the long-term holders are profitable and their spending actually offsets a net loss of about $383 million ($3.833 billion in total). Currently, only 2.44% of the circulating supply is held by LTHs with unrealized losses.

Net Realized Profit/Loss chart

On a different relative basis, we can look at Output Returns Spent (SOPR) to observe and compare on a relative basis. We look at SOPR indicators for two main groups, Long Term Holders and Short Term Holders. These two metrics have the same calculation, but with slightly different interpretations:

  • Long-term holders of SOPR (left, orange) can be considered a multiple of realized profits because LTH is generally green. A LTH-SOPR value of 1.95 means that overall, long-term holders receive a return of 195% (average cost basis around $16.3k at current prices).

  • Short-term SOPR holders (right, blue) hover around a value of 1.0 as recently moved coins are used back and forth during volatile market times. A drop below 1.0 (and sustaining it) shows that this group has had significant losses.

This week’s bearish price action seems to have created a panic on both the LTH and STH groups, as evidenced by the volatility in the LTH-SOPR and the depth of the STH-SOPR. STHs recorded a loss just slightly less than the March 2020 event. Ready-to-spend LTHs with an average cost base hovering between $9.2k and $16.3k this week, indicating a high degree of uncertainty.

However, with some evidence that LTH has sold in panic mode, virtually all “lifetime”-based indicators that track the coin’s age continue to break down to the upside. Below is one way we can interpret the above information.

  • Some LTHs have spent their coins during times of market volatility, possibly in panic based on the disparity of the cost basis.

  • Most of the LTHs haven’t spent their coins and thus the average age of the coins that are moving is still very young (despite the market taking a net loss of $3.45 billion).

  • The selling pressure was largely coming from STHs, who were almost entirely holding their coins with unrealized losses. 23.5% of the total circulating supply is owned by STHs and bears a loss, compared to 3.4% as a profit.

ASOL, Dormancy and CDD from the HODLers Dashboard

Miners’ selling pressure

As the biggest move in Bitcoin’s hash-power history took place, the market speculated on the magnitude of the selling pressure coming from miners that could create headwinds for the price. There are two main factors that can drive the increase in the selling pressure of miners:

  • A severe drop in revenue with a recent ~50% drop resulted in more coins being sold to cover expenses at the same face value.

  • The logistical costs and risks borne by miners to relocate or liquidate mining equipment require liquidation of BTC held in their coffers. These costs will likely continue for a number of months.

To start the analysis, we can evaluate this change in total miner revenue (7DMA). This shows that the mining market has lost about 65.5% in revenue since the levels maintained in March and April. The 7-day average mining revenue is now at $20.73 million/day, in Against that backdrop, it’s still 154% higher than it was at the time of the halving in 2020.

Mining Revenue Chart

During the same period, mining difficulty increased by only 23.6%. The mismatch between revenue and difficulty is mainly the result of a global shortage of semiconductors that has limited the ability of miners to scale their operations. In practice, this means that Bitcoin mining has been exceptionally profitable throughout 2021, and that some mining hardware, if not outdated, is still profitable. This means less sales are needed to cover costs and miners’ treasury reserves can be accumulated.

Bitcoin mining difficulty is 23.6% harder despite a 154% increase in revenue on a 7-day average basis. Since a very large percentage of hash-power is currently offline and in transit, the next difficulty adjustment is estimated to be -25%. As a result, miners that are still active are likely to reap more profits in the coming weeks, unless the price corrects further or the hash-power moves back online.

Mining Difficulty Chart

This largely indicates that active miners are unlikely to oversell so it is more likely that Chinese miners liquidating treasuries are the dominant source of sell-side.

The second question is whether miners are liquidating their coffers to cover the risks and costs of moving hash-power. Here, we will take a look at the aggregate balances held in miners’ wallets and see that overall, miners have added 10k BTC to their coffers since the lowest recorded on 27/27. 01. This number represents 7.6% of all coins mined since then and shows that miners as a whole have distributed 92.4% of their coins during this time period.

We could also see an overall spend of 7k BTC happening in early June, be it a miner or a pool of miners liquidating their coins in preparation for the move.

Miner Balance Chart

We can also track the percentage of miners sending funds to exchanges to gauge relative selling pressure. Use a 14-day moving average to smooth the data over the same time period as the difficulty adjustment window.

In 2020 and Q1 2021, the selling pressure of miners on exchanges is actually significantly lower than the 300 to 500 BTC/day levels maintained over that period. Inflows into existing exchanges have steadily decreased from over 500 BTC/day in March to less than 200 BTC/day in June.

Miner to Exchanges Chart

We should also look at the balances on OTC desks, which represent another destination for the coins miners have mined. Throughout 2021, OTC balances have been on a ‘decreasing’ trend, with each decline typically correlating with changes in market trends. From April to June, a total OTC balance of 8k to 6k BTC was maintained, with a net outflow of ~1,134 BTC over the past two weeks.

Balance on OTC Desks Chart

Institutional demand remains slow

The main driver for Bitcoin’s price increase in 2020 and 2021 comes from the reality of institutional demand. One of the biggest factors driving this is the one-way flow into Grayscale’s GBTC trust as traders look to arbitrage the high premiums observed in 2020 and early 2021.

Since February 2021, the GBTC product has reversed to trade at a constant discount to NAV, reaching the deepest discount of -21.23% in mid-May. After the sell-off, discount GBTC has started to rise, trading this week between a low of -14.44% and a high of -4.83% against NAV (actual value).

Grayscale’s GBTC Trust currently holds over 651.5k BTC, representing 3,475% of the circulating supply of Bitcoin, a whopping number.

Grayscale GBTC Premium Chart

There are two Bitcoin ETF products available in Canada that can also provide insight into institutional needs:

The Purpose Bitcoin ETF has continued to grow its total BTC under management, with a net inflow of 3929 BTC as of May 15. This represents a daily outflow of 95.83 BTC/day and brings the total to The ETF holds up to 21,597 BTC.

Purpose ETF Holdings Chart

Meanwhile, the QBTC ETF has seen significant net outflows over the past two months. Total holdings have decreased in two notable steps totaling -10,483 BTC. This brings the current holdings down to 12,975 BTC.

As such, the Purpose ETF has now surpassed the QBTC ETF in total funds under management. However, when combining the net outflows for both ETFs over the last month, a total of -8,037 BTC has flowed out of these ETF products.

QBTC Holdings chart

Finally on the institutional picture, we can observe the net change in the balance of coins available on Coinbase, a favorite venue for US institutions during the bull market. After a sustained period of net cash flow since December 2020, the change in Coinbase balance has decreased markedly.

Amid observations of GBTC premiums, combined net outflows from ETFs, and Coinbase balances, institutional demand still appears to be somewhat lackluster.

Exchange Balance Chart

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