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The current market structure might look similar to other bottoms seen over BTC’s lifetime
When market-wide fear hits, it becomes helpful to gain perspective by looking back at the whole picture. Crypto markets are very cyclical, and many believe that there are certain patterns that are repeated over and over again. Its own nature of increasing in value consistently over several orders of magnitude has helped to accentuate this seasonality.
So far BTC has crashed over 70% from the top. New traders and investors might think that this is something extraordinary but the reality is that there have been 3 more times where the BTC price crashed over 80% since 2011. And those times share some similarities with the situation that we are experiencing right now. These price drops over the life of BTC can be appreciated clearly with a logarithmic scale for price:
As of June 15th built using to IntoTheBlock Financial Indicators
The cycles noted below can be seen perfectly in the next chart. It shows how BTC holders were affected by the price drops. Historical In/Out of the Money shows the percentage of addresses that would be earning or losing money with their BTC holdings, given the price of a certain date:
As of June 15th according to IntoTheBlock Financial Indicators
Between 2011 and 2012 there was a point where more than 84% of the addresses holding BTC were at a loss. Back then there was not even a Crypto industry like today, BTC was used mostly for illicit purchases on black markets. And besides that, Bitcoin’s price still recovered a year later. A similar story happened between 2015–2016, up to 68% of the addresses were at some point holding at a loss. A year later the price was on all-time highs again. Turns out the next bear market of 2018–2019 not so many had bought the top: at the worst moment only 52% of the addresses were holding at a loss. Fast forward to today, not even half of the total addresses (49% currently) are holding at a loss. While this does not mean that there is room for more price falls, it becomes apparent that we are getting very close to the levels seen in the last bear market.
As has been seen, the amount of addresses that hold at a loss on each bear market has been reducing each cycle. Probably the store of value narrative and buying on the dips has helped in this regard to mitigate the urge of buying when prices go parabolic. Seasoned veterans that have been holding for years usually have a correct sense of when the crypto market is not so overbought and might be a safer time to continue accumulating.
In the next chart is seen how the balance of these addresses that have been holding for over a year (“Hodlers”) tend to sell some of their BTC when exuberance hits the market and price starts to increase exponentially. While as soon as the craze passes a bit, they continue accumulating at usually even faster paces:
As of June 15th according to IntoTheBlock Ownership Indicators
This same pattern happened in 2019 and is being mimicked right now. Usually the change from distribution to accumulation tends to get ahead for some months, but at some point this accumulation of spot BTC is reflected in price. In 2019 the bottom happened when the balance of these “hodlers” reached an all time high, which is what is happening as we speak.
Regardless of the outcome of the BTC price over the next few months, these indicators certainly show similarities with other bear cycles seen in the history of BTC. Macro uncertainty continues hitting both traditional and crypto markets alike, and would not be a big surprise if BTC would trade below their last bull market top ($20,000), but at least there is some certainty that buyers in the current market situation are more likely to be bottom buyers than top buyers.
Market Bottoms And On-Chain Data was originally published in IntoTheBlock on Medium, where people are continuing the conversation by highlighting and responding to this story.
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