As is usually the case, lots of factors were being attributed to the recent plunge in Bitcoin & other Crypto prices. To put the massive sell-off into perspective, $1.38 trillion worth of market value was wiped off of the cryptocurrency market from its high on May 12 through its recent low on May 19. Such was the scale of losses that Billionaire and crypto-enthusiast Mark Cuban has called it “The Great Unwinding”.
With regards to what caused the mayhem, there were a number of factors attributed to it, including fear of tighter regulation by the IRS & SEC in the U.S, a Chinese crackdown on Bitcoin mining with the central bank declaring cryptos as invalid forms of payment & a surprising antagonistic tweet from Elon Musk who holds more than $1.5 billion worth of Bitcoin in Tesla. Or maybe it was just the weary traders/investors who wanted to book some handsome profits after the recent astronomical rise in Cryptos.
Cryptocurrencies have made somewhat of a recovery as the extreme volatility subsided. At the time of writing, Bitcoin is hovering just over $38k, whereas Ethereum is trading around $2700 — the total market cap has recovered to around $1.7 trillion from a low of $1.2 trillion. Still, all these values are from their recent highs. Other notable developments this week included the appointment of the first Chief Policy Officer by COINBASE & Michael Saylor (CEO MicroStrategy) and Elon Musk (CEO Tesla) forming the Bitcoin Mining Council to provide data on the energy usage of bitcoin mining.
Now that we know what actually happened in the Cryptoverse and the speculated fundamental factors possible behind these wild price moves, let’s take a look at some data-driven statistics by Chainalysis Market Intel. According to the analysis, bitcoin miners only accounted for just 1% of exchange inflows. Not a surprise, since they are usually not known to provide much liquidity to the crypto market anyways.
Let’s move on to some of the other important statistics.
Bitcoin Amount & Percentage Losses
Figure 1
As shown in the chart above (Figure 1), considering absolute realized USD losses in Bitcoin, last week was awful. Almost all of the $3.2 billion loss was incurred by bitcoin was held for between 4 and 13 weeks, suggesting that recent investors were major sellers.1.2 million bitcoin was sent at a 5 to 25% loss and 120 thousand bitcoin was sent at a 25% loss or worse, as shown in the second chart on the right. However, this was a smaller number of bitcoin sent at loss than in the late 2017 and mid-March 2020 price crashes, suggesting that percentage-wise, last week was not the worst capitulation of holders in Bitcoin’s history.
Ethereum Percentage Losses
Figure 2
Ethereum, on the other hand, experienced the most ETH ever sent at a loss (Figure 2) — 22.6 million Ethereum was sent at a 5 to 25% loss last week. However, it was not the week with the largest number of Ethereum sent at a 25% or worse loss. While people took losses on Ethereum, they were not extremely large in percentage terms.
Bitcoin & Ethereum Price Floors
No doubt from the statistics above that it was a pathetic week for Bitcoin, Etherem & most of the cryptos for that matter. The next set of charts below (Figure 3) looks at the average cost of Bitcoin and Ethereum respectively, held by investors who entered in the last 12 months because this typically provides a floor to the price. Considering the fundamental shift of interest in Cryptos recently along with the massive inflow of institutional investment, the average cost of assets held by investors who entered in the last 12 months is likely to continue to provide a floor.
Figure 3
For Bitcoin, last week was about as bad as it could get. The price dipped below the current $37.8k average cost of bitcoin held by investors who entered in the last 12 months. If the price had remained below that level for a while it would suggest that recent investors were doubting their buy-and-hold valuations. However, the bitcoin price recovered relatively quickly to this price floor level and has closed at that level for most of the week.
Ethereum’s price, on the other hand, remained significantly above the $1.7k average cost of Ethereum held by investors who entered in the last 12 months. The second-largest crypto seems to be holding off the recent precipitous fall relatively better than Bitcoin.
Nonetheless, it was a challenging week for investors/traders in the Cryptoverse. The broader market seemed to have responded well with investor whales buying 77k bitcoin in the recent dip. The upcoming weeks would provide a clearer picture of where the market heads next.
Originally Published on Medium
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