Jamie McNeill
A report from Glassnode has shed some light on changing behaviours of Bitcoin holders, which can be tracked on-chain. The report comes with a variety of insights, most interestingly that Bitcoin whale wallets are distributing to smaller holders over longer time frames, and over shorter time frames it appears that whale selling has already peaked.
What is on-chain analysis?
On-chain analysis is a type of analysis that looks into specific patterns on the blockchain to determine trends and patterns.
It differs from technical analysis in that price charts are not usually a part of the equation: the most important thing in on-chain analysis is determining which demographics are buying, selling and holding, and what prices.
Using on-chain analysis, one can interpret the data however they may choose, usually by drawing links between the strongest aspects of the data that support one another.
On-chain analysis is possible on Bitcoin because of the public nature of the blockchain and gives a fairly accurate reflection of the current state of what is happening in the market.
Nevertheless, there are some limits to the sort of analysis that can be achieved on-chain, given that there are a small number of exchange wallets who hold funds belonging to thousands or even tens of thousands of users.
What does Glassnode’s report tell us?
Glassnode’s report examined the various behaviours of the market during the course of the last 12 months, and broke the year down into four distinct phases:
- The accumulation phase. At this point in the market cycle, after having reached all-time highs and retraced somewhat, many market participants decided to continue to accumulate en-masse, believing that the retracement was temporary. At this stage, many people were confidently DCAing into Bitcoin, and sentiment was still relatively high, with many people quite confident that $100k would be eclipsed within a few months.
- The distribution phase. As investors came to realise that their conviction was mistaken, emotions changed from euphoria to disappointment to desperation, and people began to sell their coins at a significant loss. At this point, the reality of the bear market starts to kick in and people realise the markets will take much longer to turn around than they thought.
- Phrase three is another accumulation phase. At the time of the LUNA collapse, the Celsius collapse, and a litany of other high-profile failures, Bitcoin believers were accumulating. In fact, Bitcoiners were accumulating quite steadily between the $20k-$30k range.
- The final phase has been another distribution phase. After a few months of accumulation, the market managed to rally somewhat and Bitcoin reclaimed $24k. Then there was a series of profit taking and the next distribution phase came as a result of the price being driven back down.
Bitcoin whale wallets are distributing to smaller holders
Moreover, the data shows inflows to and from exchanges from whale wallets, and these align almost perfectly with the local tops and bottoms in each case, showing that whales have a significant influence over the market, albeit a diminishing one.
The distribution appears to be affecting whales the most significantly, whereas those with smaller Bitcoin stacks (often grouped by Glassnode as wallest with 0.1-1 BTC and 1-10 BTC) are rising.
The total supply that is being held by long-term holders has been in a consistent uptrend and continues to marginally rise, indicating that there are far more people who are coming to Bitcoin and choosing to hold it for the longer term.
The report concludes that we are still in a bear market, and this isn’t just in the context of Bitcoin but also in wider global markets.
Nevertheless, longer-term accumulation over several years is shown quite clearly on-chain, as is the distribution of Bitcoin from larger holders to smaller holders. This is a particularly interesting phenomenon, as not only does it suggest that Bitcoin will grow to become more decentralised over time, but also that a world on an Austrian standard can be more egalitarian than one on a Keynesian standard.
Are we in for another bull run?
Speculators who trusted too heavily in previous models would have been left high and dry.
People who put too much trust into Plan B’s stock to flow model (which is built using on-chain analysis), or people who put too much faith in influencers such as Willy Woo near the top of the market, would have lost money.
The problem with on-chain analysis is that it can’t predict future events, and price doesn’t always follow the fundamentals in the short term.
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This article was written for Business 2 Community by Jamie McNeill.
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