Glassnode On-Chain Week 36, 2021

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2021-10-14 06:00:07

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 has continued to grow, breaking the sideways trend of previous weeks, and reaching new multi-month highs. Bitcoin’s trading price rose from a weekly low of $46,562 to a new high of $51,838.

While optimism follows a positive price reaction, on-chain trading volume is continuing to grow with the dominance of institutional capital and large investment funds. We also see a decrease in the spending volume of long-term investors, who are interested in long-term storage and continue to accumulate more. Bitcoin miners also started selling Bitcoin this week as mining rates recovered more than 42% since the lows in July.

Bitcoin Mining Companies Are Selling For Profit

Bitcoin mining market continues to recover after half of the mining speed declined during the great mining exodus out of China. The 14-day average mining rate recovered to 128 EH/s, about 29% below the previous high, reflecting a 42% recovery from the July low.

The increased mining speed could be a combination of the old outdated mining hardware finding new hires, and the success of miners in China in relocating, setting up, and resuming operations. and their hardware.

The competition in the Bitcoin mining market continues to increase over time, resulting in the difficulty of mining continuously increasing accordingly. This competition is increasing despite the significant drop in Bitcoins mined with each halving event. As a result, the number of Bitcoin rewards per mining speed (hash) has been declining for a long time.

While miners’ income is denominated in Bitcoin, their capital and operating expenses are primarily denominated in fiat currency. This makes the miner’s revenue subject to fluctuations in the price of Bitcoin.

With a large share of mining equipment offline and limited ASIC chip production globally, the current mining market is slow to react to the inflated market prices since 2020. It’s simply there. Fewer miners compete with each other to mine the same amount of Bitcoins that transact with a higher value.

As a result, miner revenue in USD has rebounded to July 2019 levels of $380K per Exahash, making bitcoin mining extremely profitable throughout its mining history. .

As the Bitcoin price fluctuated around the $50K range for the past few weeks, some miners have started selling a portion of their Bitcoins to lock in profits. This week, about 2900 BTC were sold by miners, with the equivalent of $145 million at $50K for one BTC.

This could be a combination of affected miners in China looking for cash to cover costs, or Bitcoin miners looking to lock in profits and mitigate risk following the sell-off. in May. It is also possible that a portion of this revenue will be spent on redeployment into the expansion of the infrastructure warehouse, and buying more excavators from the old excavator market or investing in new excavators.

Note: The chart below uses our Workbench tool to subtract Patoshi coins thereby reflecting the balance held by the rest of the mining market.

Miner Balance (excl. Patoshi Coins) Live Chart

Accordingly, the “miner net position change” index has returned to neutral, indicating an intranet balance between the accumulation and sale of Bitcoin by miners during the past 30 days. It is typical for the index to fluctuate between +5K and -5K BTC per month, making the current dynamics reasonably expected and the market clearly absorbing additional sell-side pressure.

Miner Net Position Change Live Chart

Trading volume is increasing

The main feature of the market cycle 2020 to 2021 is the increase in investment capital of large institutions and investment funds. This trend is increasingly evident when examining on-chain data on-chain, and even after the 50% correction in May, this increase has remained relatively steady.

The average USD trade size in a bear market in 2019-20 is typically between $6K and $8K. This phase was largely dominated by retail investors and early-stage funds.

The 2020-21 bull market saw the average deal size increase significantly to as high as $58.6K during the May sell-off. This has largely cooled from July onwards, with Current average trade size ranges from $30k to $36k.

Compared to 2019-20, this represents a significant growth of 370%, despite the recent correction, reflecting continued interest and interest in large hedge funds.

EA-Mean Transaction Size Live Chart

Further supporting this observation is the increasing trade volume dominance by size, reaching above $100k. In the chart below we can see the gradual squeeze of smaller capital size (<$100k) in yellow-red from 40% dominance in 2017 to only 10% to 20 % mass on-chain today.

In contrast, the capital size of hedge funds and high net worth over $100k+ in the green has expanded significantly over the past 12 months. The $1 million to $10 million moving range pool (light green) has consistently accounted for 20% to 30% of trading volume since 2017.

However, the group of transaction sizes above $10 million (dark green) has grown significantly, from just 10% in October 2020, to more than 30% dominance today. This reflects notable growth in large-scale capital allocation and trading activities. Note that this data is adjusted by entities and thus represents only economically meaningful activity (e.g. excluding self-spending and transaction management of internal wallets).

Relative Volume By Size Live Chart

Newly acquired Bitcoin volume prevails

Another observation regarding transaction volume relates to Bitcoin’s age-based classification. We recently released a new set of parameters called “Volume Age Range Spent” (SVAB), which classifies the daily Bitcoin volume ratio by Bitcoin age. It is a comparison to the “Output Age Range Spent” (SOAB) index, which ignores Bitcoin volume and considers only ages corresponding to the number of daily transactions.

Some general guidelines for interpreting these indicators are:

  • As more older Bitcoins (>6 months) are spent, there is a higher chance that previously HOLDed Bitcoins will return to circulation. This is most common during speculative events and during bull markets when Bitcoin is in an uptrend.

  • As more and more young Bitcoin (1 day to 6 months) is spent, the more likely it is that smart investors and long-term holders are holding, and accumulation is taking place, as “Bitcoins” hot” is taken off the market

  • Young Bitcoins are coins that are less than a week old. This governs daily network traffic and is more likely to be re-spent in proportion to price fluctuations.

From a macro perspective, we can see that nascent and acquired Bitcoin volume spikes and dominates on-chain transaction volume in three typical cases:

1. The rise in prices, speculation, and greedy money pushed the price to its maximum.

2. Attraction events where new buyers are shaken out in bulk and Bitcoin is changed hands many times during times of high price volatility. Smart investors’ money also tends to flow in and accumulate Bitcoin

3. The skeptical rally at the beginning of a market uptrend, traders selling bullish as the new market rallies, is observed over a long period of time.

SVAB Live Chart

Hot coin Bitcoin (<1 week old) volume dominance is currently at a relatively high 94% of the volume spent. At the same time, average and older Bitcoin volumes (>1 month old) are at extremely low levels, below the dominant 2%, even below the bear market baseline seen in 2019-20.

This shows that the majority of Bitcoins spent at the moment, even if Bitcoin price breaks through $50k, are highly liquid Bitcoins and old Bitcoins still lying dormant. This shows that confidence in the long-term Bitcoin storage is very high and the lack of liquidity supply could force the spot market price even higher.

SVAB Live Chart

To further confirm this analysis, we can see the supply volume from Bitcoin older than 1 year has dropped below 5K BTC per day. This shows that investors who own Bitcoins older than 1 year are spending less and saving more, even as the price has grown. Previous events with a Bitcoin supply less than 1 year old correlate with the end of the bear market and the beginning of the bull market.

Revived 1yr+ Supply Live Chart

Leverage to new heights

The final comment this week is related to the derivatives market. Along with the positive sentiment and confidence for long-term storage in the spot market and on-chain indices, we are seeing open interest rising, touching, all-time highs for Bitcoin and Ethereum.

The Bitcoin perpetual futures market, which currently has over $11.8 billion in open contracts, is on a strong upward trend towards the April peak of $15 billion.

BTC Perpetual Futures Open Interest Live Chart

The market appears to be Long in the perpetual futures market with the finding rate for BTC touching 0.03%. While this level of aggressive lean is not too high compared to the levels seen in Q1 and Q2, it is similar to the funding rate seen just before the May sell-off. This could create a brief headwind. limit if long positions are squeezed out from their positions.

BTC Funding Rates Live Chart

This impact is even more apparent for Ethereum as perpetual futures open interest has surpassed its previous high, hitting $7.8 billion this week.

ETH Perpetual Futures Open Interest Live Chart

Similarly, the funding rate for ETH futures also accelerated to a higher level, reaching 0.02%, a level that coincides with levels seen before the May sell-off.

While supply dynamics in the spot market continue to show strength, caution is appropriate as high levels of leverage have penetrated the derivatives market. The combination of high overnight and high open interest can be an important set of indicators for assessing the short-term risk of long liquidation.

ETH Funding Rates Live Chart

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