Several on-chain data suggest that the bottom of the current crypto market carnage may be close as metrics measured reach historic levels.
Data from Cryptoquant, a data aggregator that monitors the inflow and outflow of major cryptos, show that more whales are depositing into exchanges. This behaviour has been consistent with heavy market sell-off in the past, and it seems to be near its peak.
Accordingly, the Exchange Inflow- Spent Output Value Bands, which shows the distribution of all spent outputs flowed into exchange wallets, have hit a 1-year high. The current value has reached the same level it was in the May 2021 crash. Meanwhile, the spot exchange inflow has also hit a 2-year high.
Data Suggest Bitcoin Bulls Under Pressure
Data provided by Glassnode supports the massive sell-off in the market. It shows that Bitcoin bulls are currently under pressure to defend BTC’s price and prevent further capitulation in the market.
However, their effort has been heavily impacted by the recent Federal Reserve’s 0.5% interest rate hike. The immediate aftermath of the increase saw a rally in the crypto market, with Bitcoin reaching $39,000. But the spike was short-lived as prices crashed to $33,000 last week. This week saw a further sell-off, with BTC trading at $30,000 before falling further to $27,000.
Consequently, Glassnode notes that as Bitcoin’s price falls, the bulls are under increasing pressure to build a support floor while network profitability declines. While BTC has drooped over 50% from its all-time high, it is still yet to hit levels reached in prior bear markets.
Source: Glassnode
As seen above, the bear markets of 2015, 2018, and March 2020 capitulated to lows between 77.2% and 85.5% off the ATH. However, the July 2021 market crash only saw a drawdown of 54.2%. This inevitably suggests that there could be further downside for Bitcoin
Furthermore, Glassnode has also noted a fall in the accumulation of Bitcoin as the price weakens. Since mid-April, the Bitcoin accumulation trend score indicator has been significantly weaker, returning values of less than 0.2. This often indicates more distributive behaviour and less accumulation.
Source: Glassnode
From the above, most wallet cohorts, from shrimp to whales, have seen a significant softening in their on-chain accumulation tendencies. Large wallet addresses with greater than 10,000BTC have seen a particularly strong distributive force over the last few weeks. However, Smaller investors (1BTC) are the most aggressive savers, but their accumulation is significantly lower than in February and March.
Accordingly, on-chain metrics point toward the possibility of a further downturn for Bitcoin. Nonetheless, the decoupling of UST may have also contributed to the negative market sentiment leading to the latest dump of Bitcoin.
However, with the various on-chain metrics showing Bitcoin reaching historical levels, the market bottom may not be far off. This would indicate that it is only a matter of time before the market flips bullish again. Nonetheless, investors have to be wary of global macro headwinds that would significantly impact Bitcoin’s price.
Do you think a market bottom is close even as on-chain data reaches historic levels? Let us know your thoughts in the comments below.
Chris is a crypto enthusiast and a firm believer in the blockchain’s ability to create a new financial paradigm. Through writing, Chris hopes to expose the intricacies of this disruptive technology and how it is beneficial to Africans and developing countries. He aims to give readers a rational and unbiased outlook of the industry by equipping them with the necessary information to make enlightened investment decisions.
