Partnered With:

After the collapse of 519, what are the changes in institutions, trading platforms and currency holders?

Read this article in 27 Minutes

Institutional demand for bitcoin has been trending weak since February, but recent market sell-offs at a discount have spurred buying of GBTC and Purpose ETFs.

原文标题：《深度｜5 月下跌中，哪些指标值得关注？》

原文来源： Glassnode

原文作者： checkmate

原文编译： harris，链闻

On May 19, 2021, the Bitcoin market experienced its most significant liquidity event and price pullback since Black Thursday in March 2020. The selloff followed a months-long consolidation above $50,000, which began after the market failed to hold new highs and the highly anticipated Coinbase IPO.

The worst sell-off on May 19 produced the biggest daily negative in bitcoin history, with an intraday price range of $11,506. The price of bitcoin is down a total of 47.3% since May 9.

The dramatic price drop caught much of the market by surprise, especially as it came in the midst of the longest bull market in bitcoin's history. As a result, it has many wondering whether the bull market has been cut off and whether bitcoin has returned to its long-term bear market structure.

In this article, we will examine the indicators that describe the structure of the market, including the ones leading to the sell-off, as well as an assessment of future bull and bear conditions. This article will explore.

Indicators for early warning of slowing institutional demand and distribution of on-chain consumption patterns.

Analyze the demand for the exit of loose liquidity from coins and stablecoins flowing into/out of the exchange.

Compare with previous cycles, selloffs, and holder behavior to determine whether future macro bull or bear tendencies are more appropriate.

Changes in institutional needs

As the Bitcoin market has grown and matured in valuation, it has both attracted more money and required more money and trading volumes to sustain and reach new highs. A major driver of the momentum of this bull cycle is undoubtedly institutional inflows, mainly due to the sheer volume of monetary and fiscal policy resulting from the COVID pandemic.

The largest investment vehicle available to traditional investors is the Grayscale GBTC Trust Product. Throughout much of 2020 and early 2021, investors took advantage of strong institutional demand by physical arbitrage against persistent GBTC price premiums. This serves a double purpose as it removes BTC cryptocurrencies from circulation, creating a self-reinforcing supply cycle that fuels institutional demand.

By January 2021, GBTC Trust Fund inflows amounted to almost 50,000 BTC, while GBTC has been trading at between 10% and 20% of spot prices. In late January, arbitrage began to push the premium below 10 per cent, and BTC inflows began to slow sharply. In late February, capital inflows stopped completely and GBTC began trading at a long worsening spot price discount.

GBTC prices have been trading at a discount for more than three months now, reaching a peak low of 21.23% on May 13. The existence of the GBTC discount both eliminates huge supply and provides a forewarning that institutional demand has softened considerably since late February.

However, with the recent sell-off, the GBTC discount has begun to narrow to -3.8%. This suggests that institutional interest has risen as the spot price of Bitcoin has fallen.

Telling a similar story, the Canadian Bitcoin ETF saw sustained capital inflows in late April and early May. Since then, outflows have dominated as the market has started to show signs of weakness. However, similar to GBTC, demand flows appear to be recovering meaningfully after the price adjustment, with inflows starting to rise again as of late May.

Inflows to both GBTC and Purpose ETFs indicate that institutional demand has been weak from February through May, and both products have had an impact on liquid BTC supply. On the positive side, the recent selloff appears to have emboldened investors in both products, as GBTC discounts have increased and Purpose ETF inflows have resumed.

Exchange dynamics

比特币在 2020 年 3 月后踏上了世界宏观经济舞台，这种效应在交易平台持有的余额中可以明显观察到。交易平台的余额经历了一个戏剧性的逆转，从长期的积累，变成了不间断的流出。BTC 的数量正在从流动状态转移到非流动状态，创造了一个自我强化的供应变化，加密货币从交易平台转移到机构托管人和 / 或冷钱包中。

The illiquid supply change indicator shows the speed of cryptocurrencies' transition from liquid to illiquid status over the past 30 days (green bar). The scale of the build-up over the past two years has been significant, but so has the scale of the selling pressure in May. In the latest sell-off, investors were clearly spooked.

While it may take time for the dust to settle, a return to a cumulative status would be a strong signal that belief has returned. If not, it could indicate further allocations in the future.

A trend can also be seen in the months leading up to the sell-off, with more and more tokens being moved off the trading platforms. Instead, as prices fall, there has recently been a reverse trend, with more and more cryptocurrencies coming onto exchanges as investors step in to buy the fallen cryptocurrencies.

The downward trend in the total balance of the trading platform has been continuing for more than 434 days, however a significant uptick in trading platform inflows was observed on April 3. This is consistent with the re-entry of previously illiquid cryptocurrencies into liquidity circulation in the chart above. Note that there are multiple explanations for this behavior, and they may all be happening at the same time.

An influx of trading platforms for the purpose of issuing and selling.

Provides collateral for loans, futures, and margin trading.

Capital transfers into other assets (specifically ETH, which we analyze here).

Retail led speculation and trading, especially related to the Binance smart chain.

A closer look at the trend shows that outflows have actually been sustained or net neutral across all but three trading platforms. Binance, Bittrex and Bitfinex. These trading platforms saw an acceleration in BTC inflows throughout 2021, with Binance in particular leading the bulk of the flow. During the May sell-off, the total balance held by these trading platforms expanded by over 100,000 BTC in one week.

Given that these trading platforms serve non-US entities, this could indicate differences in market reaction and belief between different international jurisdictions to the events that led to the sell-off.

In contrast, balances on US-regulated trading platforms Coinbase, Gemini, Kraken and Bitstamp continued to decline, with the trend having little meaningful impact throughout May.

More recently, the proportion of on-chain transaction fees used to deposit money on trading platforms has also accelerated. Similar to the macro top of 2017, demand for deposits on trading platforms accelerated throughout the bull market and then reached a new ATH, this time exceeding 20% of all on-chain fees. This shows the urgent need for cryptocurrency holders to prioritise deposits, whether out of panic or to re-mortgage margin positions during a correction.

Finally, on the trading platform side, there has been a huge deleveraging in the derivatives market, resulting in a series of market sell-offs, margin calls and liquidations. At the peak of $27.4 billion in futures open interest set in mid-April, more than 60 percent of the open interest has been cleared from the books. It's worth noting that open interest in futures is just one form of leverage in the cryptocurrency market. Additional margin sources are coming from cryptocurrency-backed loans, the options market, and a growing number of DEFI protocols, and we further discuss the reaction to this sell-off in this article.

Exit liquidity

Stablecoins undoubtedly play a role as reserve assets in the industry, and each stablecoin has a unique mechanism to keep it "stable". Thus, the performance of the stablecoin relative to its $1 peg can provide insight into the need to exit liquidity. In March and April in particular, the three stablecoins, USDT, USDC and DAI, all traded above the pegged price for one month before Coinbase went public directly. This suggests that the demand for stablecoin withdrawal from liquidity may be strong, possibly in anticipation of a "sell".

On the flip side of this sell-off, however, the supply of stablecoins in circulation has since hit a record high. In the past 1.5 months since the adjustment began on April 14, the stablecoin supply has increased by the following amount.

USDT increased by $14.2 billion (+30%).

USDC increased by $9.72 billion (+88%).

DAI increased by $1.22 billion (+38%).

The Stablecoin Supply Ratio (SSR) compares the market value of bitcoin to the total supply of all stablecoins as an indicator of the cryptocurrency's native, dollar-denominated purchasing power. The low SSR value means that there is a large supply of stablecoins relative to the market value of Bitcoin. The SSR ratio has now been pushed to an all-time low of 7.5 times as Bitcoin valuations have shrunk and stablecoin supply has increased.

This convincingly represents the largest cryptocurrency purchasing power of the native dollar in history.

The Buying and Selling of Hodler;

Finally, we will examine the buying and selling and HODL behavior in the market. In particular, we'll look at the balance between new investors, who may have relatively little exposure to the volatility of Bitcoin and the world of FUD (short-term holders, Sh), and long-term holders, whose beliefs are shaped by years of trading thinking.

During the bull market of 2020-21, cryptocurrencies held between six months and three years (representing buyers in the last cycle) saw two periods of heavy selling.

1. December 2020 to February 2021, as profits are realized during the market strength rally from $10,000 to $42,000.

2. Late April to mid May as old BTCs were sold, either through capital rotation (ETH prices doubled during this period) or in response to the weakening of the market structure discussed above.

However, after these two periods, sales of old coins slowed considerably as prices corrected. This suggests that old hands sell ahead of major corrections, and then they also tend to buy back (and possibly buy the downside) when prices get cheaper.

If we compare the selling of cryptocurrencies to the macro top of 2017, we can see that a somewhat similar pattern has played out, with the old hands slowing down buying when the market is overheated. However, it was during the first rally that the percentage of old coins sold increased as the probability of a bear market increased. Something similar happened in most bear market rallies in 2018, and the final selloff in November.

In the current market structure, this is an important indicator to watch, as it may indicate whether there will be a similar mass exit of old money in any easing rally. Conversely, the absence of these old illiquid cryptocurrencies being distributed would indicate that there is still a more bullish outlook among combat injured HODLers.

The HODL wave that implements the cap provides an idea of what percentage of the active supply is of cryptocurrencies held for different periods of time. A typical cycle pattern is:

Longer-dated currencies rise in bear markets as accumulation resumes and wealth transfers from speculators to long-term holders.

Shorter-dated coins rise in bull markets as holders allocate expensive cryptocurrencies to new, weaker speculators.

In the current market structure, we are already seeing the first major impulse for cryptocurrencies less than 3 months old as new speculators enter the market. This coincided with the initial bull market rally, when the old currency was exhausted after a break from $10,000 to $42,000. What is markedly different about this cycle is that we can see the share of new speculators falling. There are several explanations for this phenomenon.

Increased access to derivatives and tools to complete risk hedging without interacting with the blockchain at all.

Retail speculators' preference and/or single preference for crypto assets other than Bitcoin, and similar access to derivatives and off-chain leverage.

Institutional buyers that accumulate early in the bull market cycle increase cryptocurrency maturity and avoidance behavior, and they are not swayed by volatility, leading to early expansion within the old cryptocurrency range (cryptocurrency maturity).

Looking at the reverse side of this chart, we can see two observations about the proportion of oldcurrency holders.

1. The supply held by LTHs has actually gone back to accumulation, which supports the argument that the cryptocurrency is matured and that the institution HODLING is still functioning. If that happens, it would be similar to the start of a bear market, but would also promote an eventual supply squeeze.

2. Long-term holders currently hold 10% more active supply than in all previous market cycles.

This second point can be interpreted as both bullish, as it means Hoders are distributing less cryptocurrency. However, it can also be considered bearish, as it suggests that there is not enough demand to absorb this relatively small supply of selling cryptocurrencies.

At the end of the day, in the selling process, the ultimate financial pain comes from investors watching unrealized gains evaporate, either back to the cost base or selling into unrealized losses. The unrealized net profit and loss metric calculates the extent of the total profit or loss held by the unused cryptocurrency supply, as a percentage of market capitalization.

If we pass STH. 5 months) and we can see that the May selloff is competing in size with the bear market and the largest selloff in the entire history of Bitcoin. A large number of buyers in 2021 are currently holding underwater coins. When prices try to recover, these supplies could act as overhead pressure, providing a headwind to the bull market.

If we also filter for cryptocurrencies held by long-term investors, the chart we get shows that the market is standing on a historical edge. The unrealized PNL held by long-term investors tends to be less volatile and more cyclical due to Bitcoin's huge long-term price performance.

However, unrealized net worth held by long-term investors is now testing the 0.75 level, which has been the decisive level between past bull and bear cycles. Only during the "double pump" of 2013 did this measure recover. This could also create a new source of overhead supply if LTHS continue to see their paper earnings decline. On the other hand, the supply squeeze from higher prices and falling buying will start to resemble the "double pump" situation of 2013.

Conclusionary Summary

In this article, we explore some of the metrics and indexes that describe the market structure before, during, and after Bitcoin's scariest sell-off. All in all, there are some bull and bear scenarios that can be explained by the available data.

For a bear market

Institutional demand has softened significantly since February and the resulting supply sink/squeeze has largely dissipated.

Trading platform balances have increased, and a large number of cryptocurrency selling transactions must now be reaccumulated.

Before Coinbase went public, the stablecoin allocation reflected that veterans had sold before the plunge.

Plenty of short-term holders are still in dire straits, while unrealized gains for long-term holders are on a historical knife-edge, in line with past bear markets.

In a bull market

Despite plummeting prices, institutional products. GBTC and Purpose ETFs are showing signs of recovery, offering early signs of renewed institutional interest.

While the balance of trading platforms has increased, a more nuanced view points to differences between U.S.-regulated trading platforms and offshore trading platforms. There may be a jurisdictional bias at work.

The production of stablecoins expanded dramatically, creating the largest cryptocurrency role in the history of the native dollar purchasing power.

Most of the selling appears to have been by short-term holders, while long-term holders seem to be buying falling cryptocurrencies with increasing conviction.

Few people claim it's easy to buy bitcoin, and for many, the volatility seen last week is all part of the cryptocurrency. What is clear is the scale of the sell-off, with a large number of buyers currently under water. How the market recovers from this is certainly a test of faith in the market, which remains a favourable macro backdrop for digital scarcity.