Bitcoin and the beauty of rear-view vision

Written by Ciaran Ryan. Posted in Journalism

As BTC bumps up against the $50 000 resistance level, are we poised for a replay of late 2020? From Moneyweb.

Spending trends provide a clue: the older coins become, the less likely they are to be cashed in. Image: Dan Kitwood/Getty Images
Spending trends provide a clue: the older coins become, the less likely they are to be cashed in. Image: Dan Kitwood/Getty Images

A year ago bitcoin was at $10 500 and by December had smashed through the previous all-time high of $20 000.

In April 2021 it hit $63 000 and then traded all the way down to $29 200 in July, losing more than half its value in a matter of months.

It was a timely reminder that cryptos are not for the faint-hearted.

This week, bitcoin (BTC) pressed up against the $50 000 resistance level. Could this be the start of the next bull leg, coming almost exactly a year after the previous run that set new all-time highs week after week?

Source: CoinMarketCap

Blockchain research group Glassnode reports that those who bought BTC at $53 700 and above are still holding tight, but could become sellers with a view to exiting their investment as close to break-even as possible.

Those who bought in the $45 000 to $50 000 range account for 1.65 million BTC and this likely to act as a price support.

A far larger number of buyers accumulated in the $31 000 to $40 000 range since January. This is now a very strong underlying support zone.

“On net, this indicates that a fairly strong set of high conviction investors remain in the market and is a powerful signal for the bulls,” says Glassnode.

There’s also evidence that BTC and Ethereum (ETH) holders are in it for the long haul. The number of BTC transactions at 200 000 a day is about 37.5% below its peak in January. The number of ‘active addresses’ – normally seen as a proxy for the popularity of the crypto asset – is down by 35% for BTC and 33% for ETH. Despite the drop in active addresses, the prices of both BTC and ETH trended higher, suggesting a larger percentage of investors are inactive because they intend to hold.

Bitcoin: Number of active addresses

Source: Glassnode

While ETH transaction counts and active addresses are down, the magnitude of fees paid for transacting on the Ethereum blockchain are significantly higher. This is most likely attributed, at least in part, to the strong demand for non-fungible token (NFT) trading and investing.

Glassnode says “Young BTC” – those younger than three months – now account for 15% of supply and are most likely to be spent in periods of volatility.

The fact that they remain largely unspent is a bullish sign, as the older coins become, the less likely they are to be cashed in.

The same trend is evident in ETH, with a whopping 70% of the coins being dormant for at least three months. For both BTC and ETH, “these uptrends in older coin supply commenced around March 2021, which therefore reflects a very strong demand to buy and hold throughout this bull market,” says Glassnode.

Source: Glassnode

Another signal of adoption and accumulation is the growth in non-zero account balances. Bitcoin non-zero addresses have continued to grind higher, with more than 38 million addresses, and are about to take out the all-time high.

ETH non-zero addresses also cracked an all-time high in recent weeks at 60.7 million addresses.

While all this suggests strong underlying demand in both BTC and ETH, “aggressive spending of older coins would be a key invalidation signal to watch for,” according to Glassnode.

Ciaran Ryan

The Writer's Room is a curated by Ciaran Ryan, who has written on South African affairs for Sunday Times, Mail & Guardian, Financial Mail, Finweek, Noseweek, The Daily Telegraph, Forbes, USA Today, Acts Online and Lewrockwell.com, among others. In between he manages a gold mining operation in Ghana, and previously worked in Congo. Most of his time is spent in the lovely city of Joburg.