According to network analyst Willy Woo, Bitcoin (BTC) could undergo a possible capitulation in a bear market if “whales” – addresses with bitcoins worth more than 1 million dollars – increase the selling pressure.
The right place for another bitcoin crash?
Wu estimated the average price that short-term investors entered the bitcoin market throughout history and plotted the daily change in value. This led to the value base, which is a measure that indicates when “inexperienced” traders sell Bitcoin to “experienced” traders during a Bitcoin free fall, which usually coincides with a market bottom.
The cost base has had significant declines during previous bear markets and also before a strong build-up, as shown in the figure below. Interestingly, Bitcoin’s ongoing correction – from $ 69,000 in November 2021 to around $ 39,000 in March 2022 – has not led to a significant drop in value.
Change in the value base of the bitcoin holder in the short term. Source: Willy Wu
“It is not clear if we have given up yet,” Wu said, adding “there is room for another downfall,” based on the cost-based indication.
Whales sell their bitcoins
Wu’s prediction came in line with the growing speculation regarding the coming big decline of Bitcoin. For example, Christopher Yates, editor of AcheronInsights, said that the price of bitcoin could fall to $ 30,000 due to “deteriorating macro conditions”.
“What worries me more and more that the lowest level has not yet reached 2022 is the fact that we have not yet seen the capitulation style rise in all the last lows in late 2019, early 2020 and mid-2021 .. of the year. “. Yates wrote in his latest analysis of BTC and added:
“Although it is not a prerequisite for a market bottom, this capitulation-like rise in volume helps us to be sure when that bottom may soon come.”
The computer resource environment surveys provided evidence of a demand gap between small and wealthy bitcoin investors in the latest weekly report. For example, it has been observed that addresses with up to 10 bitcoins have collected coins over the last 30 days.
Bitcoin accumulation and distribution in the network. Source: Econometrics.
On the contrary, those who have more than 10 BTC distribute it.
Wu also noted that bitcoin whales are selling their holdings, thus maintaining a downward pressure on prices. This means that small investors are absorbing the sales pressure and have prevented the bitcoin price from falling below $ 30,000 so far.
In addition, environmental analyst Nick noted that the current trend of hoarding is “as slow as it gets,” adding that it may weaken after an expected rise in interest rates from the Federal Reserve in March to curb rising inflation. Excerpt:
– In summary, we can say that the Fed has everything under control. If they ruin the tightening cycle, all risky assets will collapse. Bitcoin is currently traded as a risky asset, so it is hardly an exception. ”
Econometrics and Willy Wu analysis also show that inexperienced investors do not toss their coins and become long-term owners (LTHs) in the process.
Bitcoin has become the ‘shrinking’ in history
Meanwhile, according to ARK Invest’s network analyst David Puell, another calculation called “LTH” also confirms the theory above.
In particular, bitcoin inflation indicates that LTH is releasing its BTC into circulation faster than normal mining sales. On the contrary, the contraction presupposes that LTH absorbs a proportionate share of the miners’ sales every day together with the total existing offer.
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The attached diagram below shows the LTH inflation / deflation ratio, with inflation results in red and deflation results in green.