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Bitcoin Market Intelligence - Issue #4

Jan Wüstenfeld
Jan Wüstenfeld
Hey everyone,   
It is hard to believe that it has just been two weeks since the last newsletter. With the Luna stablecoin (UST) blowing up last week and with all what ensued to me it feels like it has been much longer. It has been a pretty wild week for the space.
UST losing its peg has led to a volatile time last week for the crypto market and has been particularly rough for people who where invested Luna and their stablecoin.
Albeit, it should be common sense to not invest the majority of your holdings in these risky projects it unfortunately appears to be the case, that some people have been heavily invested in that project and lost a lot of money. I hope that everyone of you is alright and made it through the last week.
No matter whether you have invested in this project this is a good time to revise your investment strategy and consider whether you are over invested in one asset. The altcoin you may be heavily invested in may be next and you should ask yourself am I okay with losing all of it?
Also bitcoin has shown once again why it is king. While it has been affected by last weeks events most altcoins have suffered much bigger losses.
Don’t be misled by astronomical profit promises and make your decisions with a cool head! And if you don’t want to worry about any of that just go with bitcoin.
In the following I will look at what last weeks events mean for bitcoin in relation to other assets, why fundamentals mater who has and has not been selling amid the high price volatility and provide some remarks on fund flows.
Summary:
Bitcoin now performing worse than Nasdaq-100 and iShares Expanded Tech-Software Sector ETF
But correlation to other assets still high
Market absorbing 80k BTC selling pressure by Luna Guard Foundation well
Primarily short-term holders sold
Long-term holders unimpressed
Canadian Bitcoin Purpose spot ETF seeing pick up in activity
Bitcoin price correlation and a defence of fundamental analysis
I have already written about this topic in the first issue of the newsletter. Up until the Luna stable coin started to break its dollar peg on May 9 bitcoin’s price has been tracking the Nasdaq-100 and iShares Expanded Tech-Software Sector ETF (IGV) very closely and has not been performing worse than these two indices. 
The fact that this year bitcoin up until the stablecoin by the Luna Guard Foundation has blown up has not been performing worse than these two indices is something I would not have expected. In particular considering the fact that bitcoin’s price usually is more volatile to the up- and the downside.
At the same time on-chain analysis and analysts claiming that the fundamentals are strengthening have come under criticism and many may be asking why this is not reflected in the price of bitcoin. While we have not seen bitcoin’s price reach new all-time highs or trading as bullish as on-chain data may suggest to my mind on-chain fundamentals might have prevented bigger drawdowns this year.

Graph 1: Percentage Performance Year-to-Date Bitcoin, IGV and Nasdaq-100 + Correlation
Graph 1: Percentage Performance Year-to-Date Bitcoin, IGV and Nasdaq-100 + Correlation
Since last week bitcoin’s price started to drop faster than the Nasdaq-100 and iShares Expanded Tech-Software Sector ETF. This coincides with the uncertainty and shock waves that went through the market when UST started to break its peg (Note: In comparison to the S&P 500, the performance of these assets is even worse, but I have not included it in the graph not to overload it).
On the one hand, it was likely caused by investors reducing exposure to the market in order to not be exposed to potential contagion risks. On the other hand, LFG trying to defend the peg of their stablecoin by selling their bitcoin holdings added to the selling pressure.
LFG | Luna Foundation Guard
8/ As of now, the Foundation’s remaining reserves consist of the following assets:
· 313 $BTC
· 39,914 $BNB
· 1,973,554 $AVAX
· 1,847,079,725 $UST
· 222,713,007 $LUNA (of which 221,021,746 is currently staked with validators)
If you believe the Luna Guard Foundation, their bitcoin reserves dropped from 80,394 bitcoin to only 313 BTC. That is a quite substantial amount of bitcoin that had to be absorbed by the market.
In light of this, I would say that bitcoin’s price, currently trading above $30k, is pretty good.
Of course, that assumes that the Luna Guard Foundation can be trusted regarding their statement that they have run down almost all of their reserves (I’ll let you be the judge on that). But considering exchange flows that increased by 88k bitcoin last week, the numbers appear to add up.
For a more detailed account of this and the events around the Luna stablecoin blowing up, I recommend you to have a look at the latest “The Week On-Chain” by Checkmate from Glassnode. 
That said, the high positive correlation between bitcoin and the aforementioned indices has not been affected by last week’s events. 
With the FED determined to fight inflation (at least in the short-term and until something breaks) and financial markets trending downward, there might be more downside ahead for markets and with that also for bitcoin.
Who was selling last week?
As Checkmate points out in the latest newsletter, realized losses on-chain are on par with the start and end sell-off events of the 2018 bear market, the March 2020 COVID crash and the May 2021 sell-off.
So who has been selling? Graph 2 shows the spending behavior depending on the age categories of coins (credit to PlanC, who posted a similar chart a few days back).
Graph 2: Spent Volume Short- vs Long-Term Holders; Year-to-Date (Source: Glassnode)
Graph 2: Spent Volume Short- vs Long-Term Holders; Year-to-Date (Source: Glassnode)
Particularly short-term holders seem to have capitulated last week, as seen in the uptick of the spent volume of 1 week to 6 months old coins, which has been the highest this year (green line). The uptick in older coins (+1 year) spent/moved has been minimal in comparison. Long-term holders are not impressed by last week’s price moves and developments and continue to hold their bitcoin. This can also be seen looking at the percent of the bitcoin supply last active 1+ years ago.
Coins last moved six months to one year ago have barely moved.
Very young coins are not included in Graph 2 as they are usually constantly moved (they take the most considerable portion of moved coins. You can find the graph at the end of the newsletter).
Graph 3: Bitcoin Percent of Supply Last Active 1+ Years Ago; Year-to-Date (Source: Glassnode)
Graph 3: Bitcoin Percent of Supply Last Active 1+ Years Ago; Year-to-Date (Source: Glassnode)
Regarding the percent of the supply last active 1+ years ago and the interpretation of it reaching new all-time highs CrypotVizart.btc has written a great thread on why this has to be interpreted with caution in particular due to lost coins.
CryptoVizArt.btc 📈 ∞/18M
% OF SUPPLY +1 Y AT NEW ATH; OVER-EXAGGERATION 🚨
🧵/1. A new ATH for coins that have been dormant for +1 year ~63.1%! This is, of course, a + sign for the supply shock side of the story meaning the HODLers are strongly holding onto their coins, but how influential is this? https://t.co/nZ81vYpjgH
Before ending this newsletter, a few more words on the more recent Canadian Bitcoin Purpose spot ETF flows. Lately, the fund has seen some quite significant in- and outflows. While we cannot say what exactly this means, we can certainly say that there is an increase in trading activity. A sign of rising interest in bitcoin and potentially first signs of rising demand.
Jan Wüstenfeld 🇺🇦
I don't know what is happening over at the Canadian #Bitcoin Purpose spot ETF, but there is something brewing. Large in- and outflows lately. Last week ended with a large outflow and yesterday the fund started with a large inflow of 5.91k $BTC. AUM is now at a high of 42.48k BTC. https://t.co/VVcI5KSnIW
Summing up, while the stablecoin Luna blowing up last week might have felt to some that the crypto world is ending, for bitcoin fundamentally not much has changed. Bitcoin is still sitting on a solid foundation and long-term holders are not panic selling.
The high correlation to tech stocks, in particular, continues to hold and may even be rising. With the FED determined to fight inflation by raising interest rates and reducing their balance sheet, further downside or at least sideways movement for financial markets and bitcoin is likely.
Stay safe out there! Don’t trust! Verify! Make up your own opinion and consider multiple sources. 
Jan Wüstenfeld
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Appendix
Graph 4: Very young coins; Year-to-Date (Source: Glassnode)
Graph 4: Very young coins; Year-to-Date (Source: Glassnode)
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Jan Wüstenfeld
Jan Wüstenfeld @JanWues

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