Here are the key takes:
· BTC is transitioning from a short-term liquid asset to a long-term illiquid asset.
· A massive rebranding of Bitcoin as an elite digital asset at par with gold appears to be ongoing.
· Long term holders are mopping off BTCs from short-term holders for keeps.
· BTCs legitimacy is re-fortified.
The past week saw apex cryptocurrency, Bitcoin, briefly falling below its long-held $50,000 – $60,000 range, before bouncing back to $53,600. The recent dip which many blamed on Biden’s latest tax laws and a prolonged power outage in a Bitcoin mining facility in Xinjiang, China, saw a crop of eager entrants hop on the trending digital asset with the confidence of a speculative rise in the nearest future.
Who are these entrants? How does the activity of sellers and holders influence the market?
Top Bitcoin Analyst, Will Clemente, parts the veil on BTCs recent transaction trend, using on-chain metrics to expose the two types of Bitcoin investors shaping the trend of the market and its application for future traders.
Shorts vs. Longs
According to Will, Bitcoin trends over time have shown that two major players determine the circulation dynamics in the market.
The shorts, which he classifies as those investors who only hold Bitcoin for a short period, tend to sell off at the slightest hint of price fall or profitable rise. On the other hand, the longs hold bitcoin for longer, through bull and bear times, and sometimes, purchase more at price rise from other satisfied or scared short holders.
The Effect on the Market
Data analysis in the recent past shows that the spot market is where most of the action lies for Bitcoin. This means that there’s a beehive of exchange rally activity for the coin with many investors looking to create market fluctuations and make short gains off them. Will remarks that: “when funding rates go negative it is a clear indication that shorts are paying longs to acquire their long-held BTC. On the flipside, funding rates will turn positive in cases where longs are buying off BTCs from shorts willing to sell”
There are a few matrices to which he uses to analyze the cumulative trend:
Bitcoin Market through the Lens of Dormancy Matrix
The dormancy matrix analysis the average period coins were held by a seller before being traded or sold. Will’s analysis of the trend period in the sale of ‘younger coins’ believed to be held by new market entrants.
The implication is a reduction in dormancy levels throughout the last dip, which shows that older holders are unwilling to give up their coins.
But are the results any different from other matrixes? The pattern appears similar when examined with another matrix such as the Spent Output Age Band which classifies and stratifies coins by their mine age. The last weekend fluctuations proved a static positioning of older mine age coins while younger mine age coins bowed to pressure by channeling their numbers to the domain of young holders to older holders.
The Liquidity Matrix
A summary of these trends shows in general, how Bitcoin’s liquidity ratio has fared over time. When analyzed from the period of its $6000 price crash last year, it is easy to see how Bitcoin is fast turning from a heavily liquid asset to a long-term illiquid asset.
With the recent influx of investment by many billionaires and global corporations, Will, asserts that close to 80% of the global bitcoin available is now discovered to be illiquid, according to Glassnode. This could only mean that “Many Bitcoin holders are simply storing up large sums of Bitcoin without any plans of selling.” Will remarks.
As these indices have shown, many Bitcoin traders have vested a huge responsibility on the coin to be their dependable cash cow, but with the recent regulatory debates and talks about popularizing centralized digital currencies like CBDCs, there is once again the dilemma as to whether BTC can weather the storm and emerge a tested profitable holding asset.
It will take time to answer this question using the UTXO Realised Price Distribution (URDP). The metric focuses on analyzing the volume of BTC at varying levels of price. The results on the chart show an impressive 11% of all BTCs standing firm since the periods when the coin crossed a $1 trillion market capitalization – a validation that the coins have gained the trust of many as an asset base with many investors now comparing its profitability and stability to gold.
In summary, the charts reveal, as Will explains, a period of metamorphosis for Bitcoin. The market appears to be leveraging on its age, consistency, rigidity, and market dominance to transform the asset from a mere swap token to a high-class, high-yielding futuristic asset. There are no questions about its legitimacy since it exists in a decentralized democratic system where legitimacy is determined and preserved by mas consensus.
While many new entrants are yet to understand the market and are still viewing the digital coin in the light of a short term liquid holding asset, larger corporations are entering into the investment terrain of bitcoin ready to mop off all bitcoin from weak holders by driving prices up to lure the bait of short term profit. What this means is that in the future we may see bitcoin resume full exclusivity status like gold and become a high-end digital asset whose purchase will be associated with a sign of affluence.
Short-term holders must brace up for the long haul and learn to hold their BTCs through thick and thin or get kicked out of the market with future regrets when BTC price soars even higher.