New reports from Glassnode reveal that the Bitcoin price runs the risk of falling to trade around the $12,000 trading zone. In its new report, titled, “The Great Detox,” it explains that due to the current price action we are seeing in the market, is pressuring market participants, from long-term holders (LTHs) to miners, which could force a selling pressure that would see a further decline in its price.
“As global liquidity continues to evaporate, despite the remarkable resilience displayed by Bitcoin in the face of the bullish dollar index (DXY), which is a measure of the strength of the U.S. dollar, the token still faces the risk of falling in value, as we have seen with other fiat currencies like the British Pound and the Euro
Bitcoin’s price has so far remained range-bound this week, trading between a peak of $19,639 and lows of $18,309. However, price action is just barely hanging on to the consolidation range lows set in July, holding the line from what could be further capitulation, a capitulation that could see Bitcoin price trade at a level it has not traded since October 2020.
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In its analysis, Glassnode explored an on-chain metric called the “New Entities Metric,” which is a measure of network adoption and captures the best estimate of the number of new unique entities that transacted on the Bitcoin Network. The metric revealed that around 83,500 new entities are coming online per day, which is a new macro low for the 2020-22 cycle. However, when compared to the 2018 bear market low, it remains higher, which reached a minimum influx of 66,500 new entities per day. This is a 25.56% increase.
The metric also revealed that the monthly network adoption recently collapsed below the level set following the Great Miner Migration in May-2021, when China banned crypto mining in its country. This signifies that an appreciable recovery is not yet underway, and there is a declining influx of new users to the network.
The report explored another metric, “the Median Transaction Volume metric,” which shows the behavior of smaller-sized transactions. The Median Transfer Volume represents the “middle of the pack spend,” and thus can be used as a proxy to represent the participation of small entities. Currently, this metric is on a downtrend which signifies a decrease in retail market participation.
The report further explained that the structural decline of the Median Transfer Volume, although in a downtrend, appears to be in the process of gradually flattening out. This softening of the trend suggests the market may be entering a phase of relative stability, indicating that the network is close to a full detox of speculative interest, and is approaching an equilibrium baseline of users.
Another on-chain metric explored is “Miner Revenue from Fees.” This metric is directly related to the level of demand for blockspace and thus network congestion, which has historically been a leading indicator for macro market trend reversal. Currently, the metric indicates that Bitcoin is in what is called a “muted low fee regime,” which means that there is a lack of demand for block space, minimal network congestion, and a lackluster view when it comes to network participation.
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On this, the report further stated that “It is clear that the Bitcoin network remains in an extended muted fee regime, further confirming a recovery in demand is not yet underway. Network activity by and large remains a barren wasteland, with New Entity Adoption falling beneath cycle lows whilst a complete exodus of retail participation is most apparent.”
The report also tracked the volumes of lifespan destroyed in the network. The metric is often seen as synonymous with tracking “the smart old money vs the new and inexperienced money.” The metric incorporates both the age and the volume of the coins spent in an attempt to gauge the amount of “stored time” expended.
The metric revealed that the investors with older coins remain steadfast and have refused to spend and exit their position at any meaningful scale. It further stated, “whilst this is constructive in that it displays HODLer conviction, with such a lackluster demand profile as a backdrop, such an observation may be best interpreted as HODLers bunkering down for the storms ahead.”
On the plus side, the report further revealed that Bitcoin held by mature coins is at an All-Time High (ATH), due to the dominant investor behavior being a refusal to spend despite exceedingly uncertain global markets. Thus, almost all market activity is being conducted by the same cohort of young coins, who are repeatedly changing hands. As the number of young churning coins incrementally decreases, it can lead to an eventual supply squeeze if and when the market tides turn.
For the short term, Glassnode assessed the structure of coin distribution and in the short run, Glassnode stated, “A large supply airgap is apparent below $18k until the $11-12k range. Trading below the current cycle low would put an extraordinary volume of Short-Term Holder coins into a deep unrealized loss, which may exacerbate downside reflexivity, and trigger yet another wide-ranging capitulation event.”
A fall towards $12,000 is highly likely because the Short-Term Holders are responsible for the majority coin movement, with a heavy concentration around the current market price and macroeconomic events. Due to the actions of policymakers in relation to contractionary monetary policies, we could see these short-term holders behave irrationally as more will react bearishly to any news of an interest rate hike, making the chances of another capitulation very likely.
On the plus side, as prices collapse back below $20,000, the market has so far responded with an opposite reaction, as there is a sustained period of exceptionally low long-term holder coin spending, and in fact the quietest since the 2018 bear market lows on a statistical basis.
On this, the report stated, “It is clear that owners that have held their Bitcoin through the volatility of the last year are simply not interested in selling at these price levels, having experienced the full spectrum of volatility and downside that Bitcoin is infamous for. It appears increasingly likely that the Bitcoin HODLers who remain, are strapped in, and willing to go wherever the Bitcoin ship takes them.”