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.

‍QUICK TAKEAWAYS:

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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.

Final Words

‍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.

Sincerely,

‍GREG CIPOLARO

‍GLOBAL HEAD OF RESEARCH

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