On-chain analysis: traders buy on dips, supply shock continues

The positions of long-term Bitcoin

investors remained unwavering despite the sharp decline on September 7. Moreover, we continue to see a deepening supply shock as the amount of BTC on exchanges steadily declines. Sponsored Sponsored

The organic growth

of the

Bitcoin

network is illustrated by indicators of the number of addresses holding various values of BTC, most of which increased during the recent decline. The on-chain data confirms that the recent large price move was mainly triggered by derivatives traders playing with leverage.

BTC Price Action

Last week, Bitcoin reached a local peak at $52,956 just above the 0.618 Fib retracement level on September 7. On the same day, there was a flash crash that took the BTC price to a low at $42,900. One of the reasons for the 19% decline was the clearing of long leveraged positions that experienced liquidations totaling $4 billion

. Sponsored Sponsored On-chain analysis: traders buy on dips, supply shock continuesOn-chain analysis: traders buy on dips, supply shock continuesBTC chart courtesy of Tradingview

Shortly after the sharp decline, the price rebounded and is currently attempting to recover around $46,000. Despite the short-term rebound, technical indicators on higher intervals are starting to give bearish readings

.

However, it is worth noting that the decline has served to validate the long-term area at the 0.382 Fib retracement as support. This area coincides with a horizontal support level and Bitcoin’s historical all-time high of January 8, 2021.

Investors buy during the crash

On-chain analytics data can help explain how investors behaved during the sharp decline. It turns out that many on-chain indicators that monitor the behavior of investors holding actual BTC did not show significant movements during the flash crash.

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This was pointed out by on-chain analyst @woonomic, who said in a tweet that ” leveraged

markets sold off but investor buying only strengthened.” Furthermore, he compared the recent fall to the crash caused by the COVID-19 crisis in March 2020. Woo stated:

Flash crashes on BTC are caused by deleveraging. The COVID crash was similar in that <a href=”https://beincrypto.pl/learn/instrumenty-pochodne-gieldy-kryptowalut-2020/” target=”_blank” rel=”noopener”>derivatives overreacted, but then it was backed by investors. This one was completely divergent and is a puzzle.

This is supported by the on-chain analyst’s accompanying chart, which shows a deepening supply shock at multiple levels: stock market outflows and short- and long-term investor positions. Woo concludes that the effect of the decline is merely “cheap coins”.

On-chain analysis: traders buy on dips, supply shock continuesOn-chain analysis: traders buy on dips, supply shock continuesSource: Twitter

Bitcoin continues to drift away from exchanges

Willy Woo’s observations are confirmed by another on-chain analyst @TXMCtrades, who points to the 14-day Illiquid Supply Market Gradient indicator. It is used to estimate when long-term investors with strong hands hold their positions more strongly than the price action indicates.

According to the analyst, “long-term investors were not shaken by the decline and actually increased their holdings. This is confirmed by the discrepancy between the increase in investor positions and the decrease in the price of BTC and the two orange bars at the bottom of the chart below.

On-chain analysis: traders buy on dips, supply shock continuesOn-chain analysis: traders buy on dips, supply shock continuesSource: Twitter

An additional argument was provided yesterday by @WClementeIII, who also pointed out the deepening supply shock on Bitcoin. The on-chain analyst encourages people to “ignore the hype” and focus on the upward macro trend triggered by the dwindling number of available BTC coins.

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On-chain analysis: traders buy on dips, supply shock continuesOn-chain analysis: traders buy on dips, supply shock continuesSource: Twitter

The long-term perspective emphasized by all three of the aforementioned analysts is very much evident in the chart of the amount of Bitcoin held on cryptocurrency exchanges. It turns out that the amount of BTC on exchanges has been steadily declining since the COVID-19 crisis (red circle).

On-chain analysis: traders buy on dips, supply shock continuesOn-chain analysis: traders buy on dips, supply shock continuesGraph of the amount of BTC on exchanges thanks to Glassnode

The only two significant coin increases on exchanges during this period were seen during the BTC price increases in July 2020 and especially during the recent drops in May 2021. Moreover, the amount of BTC available on exchanges has just reached a 3-year low. The last time exchanges recorded such low supply was at the end of August 2018 (green circle) and Bitcoin cost around $7000.

Small on-chain positions are growing

The last indicator worth noting in view of the recent decline is the number of addresses that hold different amounts of BTC. In the first group there are 3 types of addresses with small amounts in the 0.01-1 BTC range.

Here we see a clear continuation of the upward movement (green rectangles) despite the drop in the Bitcoin price a few days ago (red rectangle). The number of small positions has been increasing since at least the midpoint of the May-July 2021 consolidation (orange arrow). The recent flash crash has only reinforced this trend.

On-chain analysis: traders buy on dips, supply shock continuesOn-chain analysis: traders buy on dips, supply shock continuesBTC address chart courtesy of Glassnode

We see more diverse behavior in the second group of addresses, which collects positions with amounts in the 10-10,000 BTC range (grey rectangle). Increases were seen in addresses with more than 10 BTC and more than 10,000 BTC. Declines are seen in addresses with more than 100 BTC and more than 1,000 BTC. Moreover, since the May-July 2021 consolidation, the trend in the number of large addresses remains horizontal (orange arrow).

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On-chain analysis: traders buy on dips, supply shock continuesOn-chain analysis: traders buy on dips, supply shock continuesBTC address chart courtesy of Glassnode

Finally, it is worth noting that regardless of the amount of BTC held, the general trend in the number of addresses is not downward. This indicates a strong organic growth of the Bitcoin network and, through the continuous increase in the number of small addresses, a growing distribution of coins.

For a previous analysis of Bitcoin (BTC) by BeInCrypto, click here.

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