Doubt settles on Bitcoin (BTC)? – On-chain analysis

Bitcoin retraces below $22,000

Following the increase recorded at the beginning of the year, Bitcoin (BTC) price stumbled upon a resistance zone located between $24,000 and $25,000.

Profit taking was evident from short-term investors in the price range between $21,000 and $24,000 during the start of February.

Figure 1: Daily price of BTC

The market has started a phase of moderate distribution towards the exchanges which is part of a cyclical behavioral pattern, reflecting some participants’ doubts about the sustainability of the current trend reversal.

Today, we will observe this behavior in detail thanks to a lot of data relating to exchange flows.

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The behavioral cycles of BTC

The transitions between the end of a bear market and the beginning of a bull market are marked by a series of behaviors that seem to repeat themselves, cycle after cycle.

Using the accumulation trend score, which measures the level of accumulation or distribution of Bitcoin addresses, we can get a visual representation of this dynamic, divided into 3 phases:

• a BTC accumulation close to bottom (opportunism), when new entrants are attracted by the drop in price;
• a distribution during the transition between the end of a bear market and the beginning of a bull market (doubt), when entities leave the market due to a lack of confidence in the short term;
• a accumulation at the start of a bull market (FOMO), when investors fear the train will leave without them.

Figure 2: Accumulation trend score

The current value of this metric (ATS = 0.03) indicates thata net distribution takes place within several groups of Bitcoin addresses.

By separating this metric according to the different sizes of wallets existing on the network, we can study a clear visualization of the behaviors of the entities that make up the BTC market.

• A score tending to 1 (blue color), indicates a accumulation sharp;
• A score tending to 0 (red color), indicates a distribution net.

Figure 3: Accumulation trend score, by address cohorts

In doing so, we can observe several opposing behavioral phases over the past few months:

• A very strong accumulation in November and December 2022as BTC bottomed out at $15,700;
• A almost unanimous distribution of groups of addresses during the month of February, during the market’s recent rally towards the $24,000-$25,000 resistance range.

This suggests that some entities have taken advantage of the recent appreciation of BTC to engage in profit taking.

Moderate distribution to exchanges

By measuring the net transfer volume (entries – exits) of the exchanges, it seems that the end of February saw an influx of around 2,000 BTC per dayalthough the trend has slowed over the past week.

Figure 4: Net exchange flows

This slight increase in deposits takes place in a global dynamic of acceleration of withdrawals after the month of March 2020the market increasingly favoring the autonomous holding of BTC, pushing up the numbers of so-called sovereign coins.

The following graph offers a separation by volume slices of the net entries/exits of the exchanges, allowing to visualize the dominant volume sizes over a given period.

Figure 5: Net exchange flows, by size

Over the past five years, the market has witnessed a notable drop in small deposit sizes (under $10,000 to $100,000), followed by a rise in large withdrawal volumes (greater than $1 million).

This explains the downward trend in exchange reserves, qui have seen their entries dwindle and their exits grow steadily since March 2020.

In the past two weeks, however, small deposits, mostly volumes ranging from $10,000 to $100,000, were recordedsuggesting that the entities responsible for the recent distribution are mostly short-term holders.

In order to confirm this observation, we can look at the recent profit/loss volume sent from the addresses of the short-term holders (STH) to the exchanges.

The following graph demonstrates thatnotable transfer volume, mostly held for profit, left STH wallets in January and February 2023 to be deposited on the exchanges.

Figure 6: Volume in profit/loss from STH to exchanges

Coinciding with the rise in the price of BTC, this behavior indicates that short-term profit taking has taken placeand corroborates the data of our previous analysis.

Last week, these are nearly 13,000 BTC smoldering latent profit which have been sent to the centralized exchange platforms by the STHs.

Currently, volumes indicate a net loss of around 2,500 BTC flowing to exchanges from these addresses, signs that the decline caused a slight loss taking.

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Summary of this on-chain analysis of BTC

Finally, this week’s data suggests thata moderate distribution behavior took place during the month of Februarywhen the BTC stumbled on the level of 24,000 dollars.

Low amplitude inflows and small volumes flow to exchangesand are overwhelmingly comprised of BTC less than 6 months old, associated with short-term holders.

Since a large part of these volumes are held for profit, it seems that this distribution movement was both motivated by profit taking, but also by a potential doubt as to the sustainability of the current trend reversal.

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Sources – Figures 1-4: Glassnode; Figure 5: ChainExposed

On-chain analyst, fervent fighter of informational asymmetry.

My goal is to inform everyone about the state of Bitcoin (as an asset and a distributed network) through the prism of on-chain analysis.

Teacher. Chain

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