A LOOK AT BLOCKCHAIN DATA
As the dust settles from the recent market volatility, we take a look at blockchain data to understand investor and miner behavior during the correction.
Exchanges Showed Inflows, But Outflows Have Resumed
Beginning on May 12th, exchanges began to show a significant inflow of bitcoins from off-exchange addresses, presumably to be sold. This continued throughout the sell-off, likely contributing to the price decline. These inflows were a reversal of a persistent trend over the past 12 months of bitcoin being removed from exchanges and held off exchange, either in personal wallets or custodial services. Exchange withdrawals have resumed though, a positive sign for the resumption of buying bitcoins and holding them long term.
Short-Term Investors Sold
Looking at the age of coins (UTXOs – Unspent Transaction Outputs) that were moved during the sell-off provides a good indication of investor behavior. It’s clear from the on-chain data that short-term holders, those who have owned coins for 1-6 months, were an important factor in driving the sell-off.
Movement from Long-Term Holders Subdued
The dynamic among long-term holders, those who have held bitcoin for more than 1 year, has been significantly different from that of short-term holders. On-chain analysis reveals that transactions from long-term holders ticked up during the sell-off, but just slightly. Our opinion is that long-term holders were largely unaffected by the price action and continued to hold.
Sellers Realize Substantial Losses
The movement of shortly held coins resulted in significant realized on-chain losses. Wednesday, May 19th, the day Tesla reversed course on accepting bitcoin for payment, was the single largest daily realized loss in the history of bitcoin at $4.6B.
Little Indication Miners Were a Meaningful Factor
Since the news from China on its renewed clampdown on crypto mining, there have been numerous investor questions about miner behavior. Mining pool BTC.TOP (2.5% of network hash rate) said it would cease its China operations, and Huobi said it would cease its hosting and mining cloud services but continue to manage its mining pool, Huobi.pool (8.7% of network hash rate). Even before the announcement out of China, we noticed a drop in network hash rate, and the next upcoming difficulty adjustment is targeted at roughly -15%. This could have been because of the seasonal movement of hash power to hydro powered regions for the upcoming wet season in China or the crackdown in Inner Mongolia, which started back in March.
On-chain data does not show significant outflows of bitcoin balances from miner wallets. The first day of the announcement from China, May 21st, showed about $10.5M worth of net outflows. To put that in perspective, that is only 0.04% of bitcoin balances miners hold in total. We continue to monitor the ongoing events within China and will report any findings.
The past few weeks have exhibited extraordinary volatility on the back of numerous news items. Based on our analysis of blockchain data, it appears that most of the selling was due to short-term holders, while long-term holders remained relatively unfazed. Our interpretation of that dynamic is that for long-term holders, the secular case for bitcoin remains unchanged despite the short-term market volatility. The China news seems to have gotten more attention that the underlying trends suggest, but we will stay on top of any developments.
Please reach out with any questions or comments.
GLOBAL HEAD OF RESEARCH
This report has been prepared solely for informational purposes and does not represent investment advice or provide an opinion regarding the fairness of any transaction to any and all parties nor does it constitute an offer, solicitation or a recommendation to buy or sell any particular security or instrument or to adopt any investment strategy. Charts and graphs provided herein are for illustrative purposes only. This report does not represent valuation judgments with respect to any financial instrument, issuer, security or sector that may be described or referenced herein and does not represent a formal or official view of New York Digital Investment Group or its affiliates (“NYDIG”).
It should not be assumed that NYDIG will make investment recommendations in the future that are consistent with the views expressed herein, or use any or all of the techniques or methods of analysis described herein in managing client accounts. NYDIG may have positions (long or short) or engage in securities transactions that are not consistent with the information and views expressed in this report.
There can be no assurance that any investment strategy or technique will be successful. Historic market trends are not reliable indicators of actual future market behavior or future performance of any particular investment, which may differ materially, and should not be relied upon as such. Target or recommended allocations contained herein are subject to change. There is no assurance that such allocations will produce the desired results. The investment strategies, techniques or philosophies discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation.
The information provided herein is valid only for the purpose stated herein and as of the date hereof (or such other date as may be indicated herein) and no undertaking has been made to update the information, which may be superseded by subsequent market events or for other reasons. The information in this report may contain forward-looking statements regarding future events, targets, or expectations regarding the strategies, techniques or investment philosophies described herein. NYDIG neither assumes any duty to nor undertakes to update any forward-looking statements. There is no assurance that any forward-looking events or targets will be achieved, and actual outcomes may be significantly different from those shown herein. The information in this report, including statements concerning financial market trends, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons.
Information furnished by others, upon which all or portions of this report are based, are from sources believed to be reliable. However, NYDIG makes no representation as to the accuracy, adequacy or completeness of such information and has accepted the information without further verification. No warranty is given as to the accuracy, adequacy or completeness of such information. No responsibility is taken for changes in market conditions or laws or regulations and no obligation is assumed to revise this report to reflect changes, events or conditions that occur subsequent to the date hereof.
Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision. Legal advice can only be provided by legal counsel. Before deciding to proceed with any investment, investors should review all relevant investment considerations and consult with their own advisors. Any decision to invest should be made solely in reliance upon the definitive offering documents for the investment. NYDIG shall have no liability to any third party in respect of this report or any actions taken or decisions made as a consequence of the information set forth herein. By accepting this report in its entirety, the recipient acknowledges its understanding and acceptance of the foregoing terms.