Bitcoin (BTC) entered a period of consolidation after falling from $42,600 to $30,000 on May 19. Although the largest cryptocurrency rose back to $ 40 thousand with a rapid recovery, it could not hold on to this level.
Some analysts think that if the BTC/USD pair fails to exceed $40,000, it may drop to $20,000. On-chain displays tell a different story. While long-term savers and other savings addresses have increased their BTC savings in the last drop, the “Bitcoin Formation-Adapted Output Profit Ratio (SOPR)” indicator indicates that BTC sales have stopped at a loss.
On the other hand, on-chain data shows that exchanges are also decreasing in BTC reserves. This signals that investors are withdrawing their BTC to cold wallets or depositing them into DeFi liquidity pools for greater returns.
These three on-chain indicators indicate that Bitcoin price is about to bottom out.
Bitcoin: Spent Output Age Bands
The correction in Bitcoin price led to three different reactions in the spot market. First, short-term investors panicked to minimize their losses, probably because they bought BTC at the peak price.
Second, HODLers (savers) decided to hold on to their savings and showed their long-term belief in cryptocurrencies.
The best way to build wealth with #Bitcoin is to be boring. 2 fast, quick, simple, steps:
It’s really that simple.
— Paul McNeal #BTC100K ️ (@_CryptoCurator) May 28, 2021
The third reaction was to buy more Bitcoin at the bottom price.
Various on-chain indicators show that there was a large gap between the number of BTC held by short-term and long-term savers during the recent price drop.
For example, the chart below for “Bitcoin: Age Bands of Spent Output” reveals that the vast majority of cryptocurrencies sold in the past week are in the one-day to seven-day range.
On the other hand, cryptocurrencies that have not been spent for 1-3 and 3-6 months have changed their address in the last price drop.
Glassnode’s “Bitcoin: Total Supply by Long-Term Accumulators” indicator (those who have held BTC for more than six months) shows that long-term savers benefit most from the tokens sold by short-term savers.
Exchanges’ Bitcoin reserves are declining
Net Bitcoin reserves of crypto exchanges have also decreased in the past seven days. This means that less and less investors want to sell Bitcoin.
Investors usually deposit BTC on exchanges when they want to sell Bitcoin or convert it into other digital assets, and the exchanges’ BTC reserves increase in this case.
The increase in the number of BTC withdrawn from exchanges reflects that investors have decided to accumulate crypto money. This means that Bitcoin will not face a sudden selling pressure in the spot market.
The balances of savings addresses are on the rise
The total number of savings addresses and their balances are increasing. The savings address is defined as an address where BTC has been deposited at least twice but no BTC has been sent outside the address.
The number of savings addresses has increased by 7,430 in the past seven days.
According to the indicator “Bitcoin: Supply of Establishments with Balances Between 0.01-0.1”, new users entered the Bitcoin network during the last price drop. In addition, the supply of addresses holding 0.001-1 BTC has also increased. This shows that the interest of individual investors has increased.