Crypto Market And Legacy Report By Onchainlabs (May 5 2022)

Following from the last On Chain Report, FED Rate Hike was 50 bps as expected and markets reacted accordingly as they were already priced in for such event. We saw positive moves from risk on assets like cryptocurrencies and equities but we are still early to call this a bottom.

The FED tried to show they are aggressive but they doesn’t have much room to go. A total 2.25–3%+ rate will break the system. The FED in total confirmed 1.50 % rate hike so far and next time the FED rate hike won’t do anything to the market and everything will be all about the balance sheet reduction; any hawkish comments about this topic will indeed reflect on the price as fear and uncertainty is still present. Rate Hikes will not work to control inflation while commodities prices are high; Rusia/Ukraine war is still impacting markets and the new China Covid-19 lockdown will cause greater supply chain shocks that will turn into pushing inflation higher.

The labor market is strong and the notion that that will solve everything is unrealistic as inflation is shrinking their purchasing power and they will afford less now. Supply chain issues are not going anywhere as we have a reverse globalization sentiment between superpower nations. FED is doing what they have to to get some mid-term vote for the upcoming elections. The FED’s only destiny is to break the system and come back with trillions of more dollars to solve it and be a hero. Only scarce assets will save you from this madness and there’s currently nothing better than Bitcoin.

Now that we know the macro conditions, let’s take a look at some of the on-chain metrics to asses what’s happening behind scenes on Bitcoin.

Metric 1 — Exchange Reserve

This is an important metric to assess the total amount of coins held in exchanges. We can clearly see that since July Bitcoin bottom at USD 29.500 the exchange reserve has been constantly declining and basically showing us that the selling pressure has decreased as coins are being withdrawn and taken into cold storage to be held.

Metric 2— Wallet Balances

When we look at the wallet balances, it is clear that in below graphs they show us that smaller wallet cohorts are the ones that have been accumulating quite aggressively since July Bitcoin bottom. Larger Bitcoin wallet cohorts in between 10 to 100 native units, have been steady and there hasn’t been any negative or positive move from them. However, the wallets with addresses greater than 100 and 1,000 Bitcoin have seen increases in numbers over the past week, particularly the 100 Bitcoins wallets.

Metric 3—Exchange NetFlow

Now we take a look into the Exchange Net Flow. As we can see from the below chart, overall accumulation of Bitcoin remains relatively neutral, red spikes are a little bit more aggressive than green spikes showing us a possible stronger outflow than inflow. However, it is important that we look into the wallet cohorts on above graphs, to see if this strength on outflows is real. In this case it would be more encouraging to see bigger strength on bigger wallet cohorts to have more aggressive red spikes.

Metric 4 – Bitcoin — Net Unrealized Profit/Loss (NUPL)

Looking into this metrics, we can see if coins are being sold at a net profit or loss. The current graph is showing us that investors sentiment is currently in “anxiety” phase and possibly selling at losses. It is also important to note that current NUPL is showing that investors are holding through unrealized profit/loss. Overall, this shows a neutral sentiment amongst investors but for a bull market sentiment we would like to see this metric above 0.5 in which “euphoria” kicks in.

Conclusion

Current on chain metrics shows both signs of accumulation and selling. This reflects properly with the current market conditions which is basically ranging in a sideways market since January of 2022. We are seeing aggressive accumulation from small wallet cohorts which also reflects on the exchange balances metric, but for a proper bullish market we would like to see more accumulation from the bigger wallet cohorts as “whales” have showed more profitability over time. Current geopolitical events are not in the optimal scenario for a bullish reversal but as analyzed on the macro outlook, the FED doesn’t have many options now and their hands are tied. We will have to wait for more price and macroeconomic development in order to take any investment decisions.