Bitcoin (BTC) could suffer one final bear market capitulation if “whales” — addresses that hold more than $1 million worth of Bitcoin — increase their selling pressure, according to on-chain analyst Willy Woo.
Room for another bitcoin drop?
woo rated the average price at which short-term investors have entered the Bitcoin market throughout history and plotted the daily change in value. This resulted in a cost basis, a metric that signals when “inexperienced” traders are selling BTC to “experienced” traders during a BTC freefall, which usually coincides with the market bottom.
The cost base suffered significant declines during previous bear markets, also before a strong accumulation occurred, as shown in the chart below. Interestingly, Bitcoin’s ongoing correction – from $69,000 in November 2021 to around $39,000 in March 2022 – has not led to a massive drop in its cost base.
“It’s inconclusive that we’ve capitulated yet,” Woo said, adding that “there is room for further decline” based on the cost basis signal.
Whales sold their BTC
Woo’s outlook came online with growing speculation about Bitcoin’s next big drop. For example, Christopher Yates, Editor-in-Chief of AcheronInsights, stated that the price of BTC may drop to $30,000 due to the “deterioration of the macro environment.”
“What makes me increasingly suspicious that the bottom has not yet bottomed out for 2022 is the fact that we have yet to see a capitulation-style peak in volume that has occurred. at all recent lows in late 2019, early 2020 and mid-2021”, Yates wrote in his latest BTC analysisadd:
“While not a prerequisite for a market bottom, such a capitulation-like spike in volume gives us confidence in knowing when such a bottom could be near.”
Ecoinometrics Data Resource provided evidence of the demand gap between small and wealthy Bitcoin investors in its latest weekly report. For example, he noted that addresses that hold up to 10 BTC have accumulated the coins over the past 30 days.
Conversely, those holding more than 10 BTC distributed them.
Woo also noted that Bitcoin whales were selling their stash, thus maintaining downward pressure on prices. This means that small investors have absorbed the pressure from the sell side and have so far prevented the price of Bitcoin from falling below $30,000.
Additionally, Ecoinometrics analyst Nick, noted that the ongoing accumulation trend is “as slow as it gets,” adding that it may weaken after the Federal Reserve’s planned rate hike in March. to control rising inflation. Excerpts:
“To sum up, the Fed is in control. If they screw up their tightening cycle, all risky assets will crash. Bitcoin is currently trading as a risky asset, so it’s unlikely to be an exception. “
Ecoinometrics and Willy Woo’s analysis also show that inexperienced investors have not abandoned their coins, becoming long-term holders (LTH) in the process.
Bitcoin is “the most deflationary” in history
Meanwhile, another metric called “LTH Inflation/Deflation ratio” also supports the aforementioned theory, according to ARK Invest on-chain analyst David Puell.
In detail, Bitcoin inflation indicates that LTH is releasing its BTC faster than the natural sell side of miners. Conversely, deflation suggests that LTH absorbed a proportional amount from the sell side of miners each day, alongside the remaining total supply.
Related: Crypto vs. Physical: The Musk-Saylor Inflation Debate Comes Down to Scarcity
The chart below shows the LTH inflation/deflation ratio showing the period of inflation readings flashing red and deflation readings flashing green.
“Our analysis suggests that Bitcoin, proportional to the supply held by long-term (LTH) holders, is at its most deflationary level in history,” noted David Puell, on-chain researcher at ARK Invest.
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