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Bitcoin Market Intelligence - Issue #2

Jan Wüstenfeld
Jan Wüstenfeld
Hey everyone, 
I am glad that you found your way to the 2nd issue of my newsletter. In the first one, I have written about the general development of the market and the relationship of bitcoin to other assets, central banks, and more.
In this issue, I will write more about the fundamental developments of the Bitcoin network itself. 
Summary:
FED reinforced its hawkish stance
There are still 21 million reasons not to hold your savings in euro 
Percent of supply last active 1+ year ago at all-time high (almost 64%) and still rising
Exchange outflows continue to decline
Total value transacted on-chain relatively low
Number of addresses sending bitcoin to and receiving bitcoin from exchanges remains low (around bear market levels)
Fund flows negative
Uncertainty remains high
Check your financial privilege!
Last week bitcoin’s price dropped below $40k for the first time since mid-March (currently trading back above $40k), showing some signs of weakness. So far, the price however is holding up well.
Graph 1: Bitcoin Price USD Bitstamp Hourly (Source: Tradingview)
Graph 1: Bitcoin Price USD Bitstamp Hourly (Source: Tradingview)
The FED and the ECB
Before going into the fundamentals, I would like to give a brief update on the last newsletter. If there was any doubt before, the FED did make its hawkish stance very clear on April 6.
Caleb Franzen
From purchasing $120Bn/month in Treasuries & agency MBS to selling $95Bn/month in these assets.

Please anon, tell me how the Fed isn’t hawkish. https://t.co/ufnanzqQxy
 
As I wrote in the previous issue, this will not be a positive for equities, and it potentially also dampens price developments for bitcoin. In the best case, this will lead to lower returns for financial assets. However, depending on the measures taken by the FED, it could also lead to price corrections.
On April 14, the ECB proved once more that there are 21 million reasons not to hold the majority of your savings euros.
According to their monetary decisions, they will keep interest rates unchanged (the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25%, and -0.50%, respectively). 
They only intend to reduce and conclude their asset purchase program in the near future. That means €40 billion purchased in April, €30 billion in May, and €20 billion in June (see full press release here).
Further, Lagarde stated during the press conference that they are not planning to raise interest rates before concluding the asset purchase program and that hikes might come within the week after that or even months later. 
If you were to ask me, they are pushing that decision so far out so that they do not have to hike rates and are waiting for an excuse to reverse course, which could e.g. be economies fall into recessions (not unlikely given the overall economic and political situation currently).
In my opinion, the ECB is doing everything to avoid taking any actual measures. 
But enough on central banks. Let’s dive into the fundamentals of the Bitcoin network. First positive developments, and then some cautious notes. 
Positive Fundamentals
The first chart is shows the percentage of bitcoin in existence that has not been moved for at least a year. The percentage of these coins has risen to a new all-time high of nearly 64% and keeps increasing.
Graph 2: Bitcoin Percent of Supply Last Active 1+ Years Ago (Source: Glassnode)
Graph 2: Bitcoin Percent of Supply Last Active 1+ Years Ago (Source: Glassnode)
While it in itself is not enough to drive the price as demand has to follow in my opinion the trend of it going up is a net positive even if we cannot rule out that some of these coins will be moved/sold once we see a substantial price increase (some of the investors holding these coins might be stuck and might be waiting for a way out).
From a supply perspective, I rather see it going up than going down.
Also positive and unique to this cycle is the development of bitcoin exchange balances. While the trend has slowed since 2021 bitcoin exchange balances keep falling. To find similar levels as today one has to go back to November 2018. 
Nevertheless, all-in-all there are still more than 2.2 million bitcoin on exchanges according to data by CryptoQuant.
Note: Exchange flow data might be unreliable in the short term, so ignore individual more recent data points. It is the trend that matters.
Graph 3: Bitcoin Balance on Exchanges (Source: CryptoQuant)
Graph 3: Bitcoin Balance on Exchanges (Source: CryptoQuant)
Negative/Neutral Fundamentals
While fundamentally there are quite some positive developments. Retail still appears to be largely absent and on-chain volume is still low looking according to data from ByteTree.
This may not be surprising considering the recent price action, but ideally, we would like to see it pick up (an indication that more people are coming back). 
Graph 4: Bitcoin Total Value Transacted On-Chain 1 Week Cumulative, Rolling (Source: ByteTree)
Graph 4: Bitcoin Total Value Transacted On-Chain 1 Week Cumulative, Rolling (Source: ByteTree)
This also fits with the following two graphs showing the 7-day moving average of the number of addresses sending bitcoin to and receiving bitcoin from exchanges.
Graph 5: No. of Addresses Sending Bitcoin to Exchanges 7-Day MA (Source: CryptoQuant)
Graph 5: No. of Addresses Sending Bitcoin to Exchanges 7-Day MA (Source: CryptoQuant)
Graph 6: No. of Addresses Receiving Bitcoin from Exchanges 7-Day MA (Source: CryptoQuant)
Graph 6: No. of Addresses Receiving Bitcoin from Exchanges 7-Day MA (Source: CryptoQuant)
The 7-day moving average of the number of addresses sending bitcoin to and receiving from exchanges remains low, close to bear market levels. Activity measured by these metrics has even been moving a bit lower lately.
It is important to note that activity in terms of these measures has been generally lower during this cycle compared to 2017, particularly when looking at the second all-time high this cycle.
The peak in 2017 likely was caused by retail heavily speculating in altcoins so it is not necessarily surprising that peaks have been lower this cycle.
Also, activity is only at bear market levels considering the last bear market and not previous bear markets.
Nevertheless, with increasing adoption we would also expect this floor to rise so it makes sense to compare today’s activity with the last years and not earlier halving cycles.
A not so positive development is the bitcoin holdings of the Canadian Purpose Bitcoin spot ETF.
While particularly in March the fund has had some strong inflows, in late March and April investors seem have reduced their exposure to bitcoin, possibly in light of rising uncertainty and a hawkish FED.
The second and fourth largest daily outflows of bitcoin in history of the fund have occurred last week (-1.83k BTC and -840 BTC). Assets under management are down to 29,92k BTC on April 18 from its all-time-high on March 25 of 36.32k BTC. That is a decrease of 6.40k BTC in holdings of the fund.
Significant is the magnitude and the high number of outflows lately that we have not seen before in the history of the fund.
Graph 7: Bitcoin Purpose Bitcoin ETF Flows (Source: Glassnode)
Graph 7: Bitcoin Purpose Bitcoin ETF Flows (Source: Glassnode)
Graph 7: Bitcoin Purpose Bitcoin ETF Holdings (Source: Glassnode)
Graph 7: Bitcoin Purpose Bitcoin ETF Holdings (Source: Glassnode)
While the outflows themselves should not be market moving it is a possible indication that investors are reducing exposure to bitcoin in times of high inflation, high uncertainty, and a FED that is tightening monetary conditions.
A comparable pattern can also be observed when considering aggregated fund data by ByteTree which shows outflows of bitcoin since the beginning of April but also some signs of levelling out during the last week.
Graph 4: Bitcoin Held by Funds Aggregated (Source: Bytetree)
Graph 4: Bitcoin Held by Funds Aggregated (Source: Bytetree)
In summary, while the general underlying fundamental structure remains positive, some signs warrant caution from the demand side perspective. An increasingly bullish supply-side development does not need to translate into higher prices without the demand-side.
Significant demand might not largely come back soon with all these uncertainties currently in economies, financial markets, etc.
However, long-term holders keep stacking sats, slowly drying up supply. As long as they do not start to sell their bitcoin, they set the base for another price rise. A potential reason that the price of bitcoin has not dropped more substantially as of late.
Book recommendation: Check your financial privilege
This newsletter is market-focused, but I think it is essential to also talk about Bitcoin’s revolutionary technology and how Bitcoin is hope for many people worldwide.
A fabulous book that I have read lately on that topic is the new book “Check your financial privilege” by Alex Gladstein from the Human Rights Foundation. It is a collection of his essays on how Bitcoin, amongst others, helps women in Afghanistan, people in Nigeria, Cuba, and many more.
I can highly recommend you to read it no matter whether you are still a Bitcoin skeptic or already heavily into Bitcoin or if you know someone who is still skeptical.
It is an excellent account of why Bitcoin is needed beyond some speculative or store of value use case which too often gets the most attention on social media and in the media in general.
Hopefully it helps some people to understand the importance of Bitcoin beyond speculation and convinces some people to jump in now and not when prices are much higher.
Particularly during these difficult times, a book that provides examples for a hopeful future does not hurt. At least I felt that way when reading it.
You can also read all his essays for free here on the website of the BitcoinMagazine and do not have to necessarily buy the book.
Stay safe out there! Don’t trust! Verify! Make up your own opinion and consider multiple sources. 
Have a nice day!
Jan Wüstenfeld
Don’t forget to subscribe and share if you enjoyed the newsletter. You would make my day! :-)
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This content is for educational purposes only. It does not constitute trading advice. Past performance does not indicate future results. Do not invest more than you can afford to lose. The author of this article may hold assets mentioned in the piece.
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Jan Wüstenfeld
Jan Wüstenfeld @JanWues

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