Cryptocurrency prices have fallen by 30% or more during this week. Bitcoin was trading around $58,000 on May 12, but yesterday it turned out to be around $30,000, after which it returned to $40,000. Since the beginning of 2017, there were only four cases when the price of bitcoin fell by 25% or more by the end of the seven-day period:
December 24, 2017, when the price fell from the bull market peaks around $20,000;
February 5, 2018, when the price fell below $10,000 amid the end of the bull cycle;
November 25, 2018, when the price fell to $4,000 amid the establishment of the crypto-winter;
In mid-March 2020, when the price dropped to $4,000 following the financial markets ' reaction to the coronavirus.
Does the bull market end there? Is the second part of the crypto-winter waiting for us? Philip Gradwell, senior economist at blockchain analytics company Chainalysis, believes that no. It points to the differences between the current moment and the major market declines in March 2020 and December 2017. Although buyers ' doubts have increased, there are still many new market participants who have purchased large amounts of cryptocurrency and continue to hold it. The stakes are now higher than ever before, he says. Blockchain-level data suggests that retail investors are selling on exchanges, while institutional investors are not buying as much as they used to, but they are not selling either, although some started buying during yesterday's decline.
To illustrate the volume of bets on bitcoin, Gradwell provides a graph of the cost curves.
So, to date, investors have spent $410 billion on the purchase of bitcoins, which is significantly higher than the values of March 2020 and December 2017. $300 billion in these positions was at a loss at a price of $36,000. However, the remaining $ 110 billion in profit is more than the entire amount spent on the purchase of bitcoins that were at the disposal of investors in March 2020, when the last major collapse occurred. In other words, such investors have strong incentives to solve existing problems and support the development of the ecosystem, instead of selling and leaving it.
Gradwell also notes that the institutionals were hardly big sellers, although they became more cautious as buyers. The chart below shows that bitcoin inflows to exchanges were relatively low compared to the previous sell-off.
Over the past three days, 412,000 BTC were received on the exchanges – the same amount came in one day on March 13, 2020. This suggests that most of the sales are caused by people who have already held assets on the exchanges, and these are most often retail investors.
According to the following chart, the "whales" that have entered the market since the beginning of 2017 increased their investments by 34,000 BTC on Tuesday and Wednesday, after getting rid of 51,000 BTC in two weeks.
This is an even stronger reaction than was observed in March 2020. Thus, large investors remain cautious, but see current prices as attractive for buying, not for selling.