Crypto Market And Legacy Report By Onchainlabs (April 22 2022)
In the last On Chain Report, Bitcoin was not showing signs of strength and that has been reflected with the latest price action development. Financial uncertainty is still present among risk on assets, and yesterday we saw a sell off on the Stock Indices after Powell comments regarding 50bps rate hike in the incoming event on May. In this third edition of the On Chain Report, we are going to see some other metrics that will let us understand what is happening behind the scenes with Bitcoin.
Before we start with the on-chain data, it is important to understand the macroeconomic outlook. The next FED meeting is May 3rd and the probabilities of a 50bps rate hike have increased due to recent comments; in such event it is possible the FED will announce the plans to reduce its balance sheet as well. With this Information, retail and professional investors are more likely to take a risk off approach at least on the short term basis and this means risking off from crypto and equities. We now have to be patient and look at how the market will react from such outcomes, but essentially, crypto markets may struggle to get any meaningful momentum to the upside as there would not be aggressive buying pressure from investors.
The chances of Bitcoin revisiting 37,000 zone is more likely now if we see more of a downside in equities, but this will also be a nice opportunity to deploy any capital sat on the sides during any significant market dip. If this 36,500 support doesn’t hold, then the next support target will be at 30,000 (unlikely).
Metric 1 — Exchange Net Position
With the economic details known, it must also be noted that much of the on-chain data looks relatively healthy. We can see from the below metric that large outflows have been occurring from this last months accumulation period. Overall, Bitcoins are being accumulated which means that both retail and professional investors are taking Bitcoin from exchanges and willing to hold on current prices on private and cold wallets.
Metric 2 — Institutional Outflows
This is another important metric only taking into consideration big players. The institutional flows is a set of metrics that basically track what the big money is doing, either flowing into Bitcoin ETFs or out of them. An outflow of Bitcoin ETFs would suggest that big players are bearish (red spikes) and inflow (green spikes) would suggest the opposite.
This metric is clearly showing that there has been significant outflow of Bitcoin ETF so big players are most likely to sell their Bitcoin, but we can also take a look at the Purpose Bitcoin ETF Holdings to see how many Bitcoin has flown out of this ETF over the past few months.
We can see in this metric that over the last accumulation period started on January the Bitcoin ETF holding peaked at 36,000 BTC, but now it has decreased towards 30.000; this means a 20% decline in the amount of Bitcoins hold and suggests that institutions (big players) are likely to be risking off ahead of a possible aggressive FED tightening cycle.
Metric 3 — Wallets
It’s now important to look at this metrics to understand where does the outflow from exchanges is taking place. We can see from the charts below that most of the accumulation has taken place by the smaller wallet cohorts ( >100 BTC wallets). Wallets holding more than 100 BTC has been sideways indicating a neutral approach on current prices and this cohort of wallets is not responsible for the outflows spikes on exchanges. Wallets with more than 1k BTC have showed an aggressive upwards move and this could be one of the first signs that big players have begun to re-accumulate again.
After taking into consideration the macroeconomic environment for financial markets and on chain data for Bitcoin, it’s important to note that the majority of accumulation during this macro range structure on BTC has been taking place by the small players, although we have recently seen some nice signals from big players entering the market. We would like to see demand increasing, otherwise prices can continue declining because of fear and uncertainty. The real question we have to ask ourselves here is that if Bitcoin continues to decline, will small players be willing to hold through significant unrealized losses?