Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
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The state of crypto – November 2022
Mads Eberhardt
Cryptocurrency Analyst
Summary: Bitcoin and Ethereum are encountering net outflows from exchanges. For Bitcoin, it suggests that holders most willing to sell have already sold at these prices. Too, the low volatility and high on-chain losses for Bitcoin may imply that we are past peak capitulation.
Immediately upon interacting with a blockchain, much data becomes publicly available on a public ledger. Analyzing this data may provide crypto traders and investors with helpful insight into the present state of the market. In “The state of crypto”, we take a look at the most important metrics to observe the market based on transaction and trading activity. Our main focus is the two largest cryptocurrencies Bitcoin and Ethereum, and we divide the metrics into short-term and long-term indicators. You find the report for the last month here.
Short-term
For the past month, there has been a net outflow of Bitcoins and Ether out of exchanges, although more notable for Bitcoin. This indicates that holders more inclined to sell have less Bitcoin and Ether at their disposal to potentially push prices down.
Although Bitcoin witnessed low volatility in October, the cryptocurrency encountered two notable price spikes. At the first spike starting on October 2nd, the price spike is followed by an equal increase in inflow to exchanges, since the higher price has likely triggered greater sell pressure. Interestingly, although the second price spike starting around October 25th was greater than the first spike, it is followed by a much smaller increase in exchange inflow. This indicates that these weak holders have already capitulated upon the first price spike, potentially suggesting that there is less resistance going forward for an additional leg upwards for Bitcoin.
Similar to last month, it appears that wallets with a low balance are accumulating both Bitcoins and Ether, whereas wealthy wallets are cutting their portfolio. In terms of Bitcoin, it may more than anything be because Bitcoin miners, who are normally wealthy, are selling newly mined Bitcoins at a faster pace to keep their heads above water. In that plausible case, it contributes to constant selling pressure, instead of the miners keeping the Bitcoins on the book, which they traditionally do in bull markets.
Long-term
With the price increase in Ether over the past month, the average holder is less underwater than last month. Yet, the more modest price increase in Bitcoin has formed a gap between the average loss of Bitcoin and Ether holders, with the latter being the least underwater. By linking the substantial average on-chain loss and low volatility of Bitcoin, the Bitcoin seller exhaustion constant is derived. According to Glassnode, the Bitcoin seller exhaustion constant has only been this low 6 times before in the history of Bitcoin. The combination of low volatility and large losses has traditionally been coherent with peak capitulation. If this is the case once again, we are potentially near the bottom for Bitcoin for now.
Bitcoin encountered an inflow equal to $41.4 into exchange-traded crypto products e.g., ETPs and mutual funds in October. On the other hand, there was an outflow equal to $10.8 from similar products holding Ether last month. This expresses that Bitcoin is more popular to hold as an exchange-traded product than Ether at these price levels.
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