Market Intel Report by Chainalysis

Ready your diamond hands as Philip Gradwell, Chief Economist, and Michael Gronager, Co-Founder and CEO of Chainalysis, discuss the launch of the company’s new subscription offering to Market Intel. Philip and Michael dive into the future of finance, unpacking all of the exclusive on-chain data now available to you!

Learn more about our new Market Intel product offering https://www.chainalysis.com/chainalysis-market-intel/ (here).

You can sign up for the Market Intel Newsletter, published weekly,https://go.chainalysis.com/subscribe-market-intel.html ( here).

Want to see this data in action? Reach out to Philip at [email protected]

Music byhttps://www.tylerbeckwithmusic.com/ ( Tyler Beckwith)

The bitcoin price settles at the buy-and-hold level of investors acquiring in the last 12 months, which is $37.5k, while the Ethereum price is still above its price floor. This suggests demand for Ethereum continues to grow but is currently flat for bitcoin, although not declining.

A significant decline in on-chain exchange users appears to have halted. The number of active deposit addresses, across all exchanges, peaked at 287k per day for bitcoin in May, and is currently 145k per day. For Ethereum this peaked at 50k per day in May and is currently 16.5k per day. Such large declines show just how much activity has been taken out of the market but at least activity has now stabilised.

Bitcoin has started to flow from traders to investors again, reducing liquidity. This may bring more stability to prices after liquidity increased suddenly as prices fell in May and investors sold to traders.

You can sign up for the Market Intel Newsletter, published weekly, https://markets.chainalysis.com/ (here).

Music by https://www.tylerbeckwithmusic.com/ (Tyler Beckwith)

The bitcoin price is now back at levels from late January 2021, the time that large, new bitcoin investors started to sell after their rapid acquisition of 1.1 million bitcoin from late September propelled the bitcoin price from $11k to as high as $43k. Were prices above $50k since then supported by more than hype?

Realized losses since 10 May have been limited, at $2 billion for investors acquiring in the last 3 months and $10 billion for services (primarily exchanges), while being minimal for other investor groups in aggregate. So overall, investors appear to be holding, even if they are not buying much, suggesting conviction in bitcoin from earlier in the year continues.

However, outflows from crypto-to-fiat exchanges to self-hosted wallets declined from mid-March. So when prices were at their highest, investor accumulation was at its lowest. This suggests the price in April was driven by an illiquid market and a lot of hype, rather than institutional buying.

Listen to Philip on the https://open.spotify.com/episode/67UrN2E4Ty0CxZmJ3TNzjg?si=Tg84chY2Twmv9yGA53VPGQanddl_branch=1 (Money 20/20 MoneyPot podcast )on how cryptocurrency data is legitimizing the asset class and laying the foundation for future markets.

You can sign up for the Market Intel Newsletter, published weekly, https://markets.chainalysis.com/ (here).

Music by https://www.tylerbeckwithmusic.com/ (Tyler Beckwith)

Summary

Cryptocurrency prices recovered but remain well below recent all-time highs, with the bitcoin price recovering to the average cost of bitcoin held by investors who entered in the last 12 months, which typically provides a price floor and is currently $37.8k.

Despite the price recovery, significant losses were made last week, of at least $3.2 billion for bitcoin sent on-chain at a loss. This is the largest one-week USD loss but percentage losses were below those of the late 2017 and mid-March 2020 price falls.

The announcement of tighter regulation on cryptocurrency mining and trading in China raised questions in the industry about the importance of miners in the market. Chainalysis data, providing the most complete view of on-chain activity, suggests they provide relatively little liquidity, at just 1% of exchange inflows in May 2021 so far. While miners sent more to exchanges at the end of last week so did others, suggesting miners did not drive further price declines.

You can sign up for the Market Intel Newsletter, published weekly, https://markets.chainalysis.com/ (here).

Music by https://www.tylerbeckwithmusic.com/ (Tyler Beckwith)

Summary

Cryptocurrency prices have plunged, with bitcoin falling as low as $36k and Ethereum as low as $2,200. Elon Musk may have started, and stopped, the fall but a decline of this magnitude demonstrates that other buyers have concerns, potentially after hoping for more robust answers to questions about environmental impact, use cases, illicit activity and regulation, now they see crypto as a mainstream asset.

This is unlikely to be the end of the bull run. Prices are historically high and much more is at stake than in past price declines. $410 billion has been spent to acquire current bitcoin holdings. $300 billion of this has made a loss at a price of $36k, but the remaining $110 billion in profit is greater than all that had been spent to acquire bitcoin in mid-March 2020, the last major price fall.

Bitcoin inflows into exchanges are relatively low compared to past sell-offs, at 412k bitcoin in the last three days, compared to 412k on the 13 March 2020 alone, while investor whales bought 34k bitcoin on Tuesday and Wednesday, 18 and 19 May, after reducing their holdings by as much as 51k bitcoin in the last two weeks. This suggests much of the selling pressure is occurring from sellers already on exchanges, likely retail.

You can sign up for the Market Intel Newsletter, published weekly, https://markets.chainalysis.com/ (here).

Music by https://www.tylerbeckwithmusic.com/ (Tyler Beckwith)

Summary

The market is hot right now, with the Ethereum price rocketing above $4k. People are making big bets, and doing so with limited information and uncertain cash out strategies. Whether you are in crypto to invest in the technological vision and fundamental uses or trading sentiment, rocketing prices are raising the stakes for either strategy.

The buying pressure for Ethereum is coming from DeFi, with 10 million Ethereum entering DeFi since May 2020, and new investor whales, who have acquired 6.3 million Ethereum since November 2020.

New investor whales are deeply involved in DeFi, with DeFi the source and destination of much of the Ethereum that these whales receive and send. It feels like Fear Of Missing Out is taking hold of the market but these new investor whales may bring enough investment and interest to advance technology and adoption before the hype wanes.

You can sign up for the Market Intel Newsletter, published weekly, https://markets.chainalysis.com/ (here).

Music by https://www.tylerbeckwithmusic.com/ (Tyler Beckwith)

This Week's Episode Summary

Ethereum’s price rise to above $3,400 comes from its growing use in DeFi. 40% of Ethereum moved on-chain in the last 12 months is to, from, or between DeFi, compared to 7% in the prior 12 months.

As the average % USD gains of Ethereum holders approach that of bitcoin holders, the differing value propositions of Ethereum and bitcoin are ever clearer in the data. The price of Ethereum is rising because Ethereum is being used, while the price of bitcoin is rising because it is scarce.

Dogecoin’s price rise demonstrates that cryptocurrencies are experiments in branding for financial assets, plugged directly into the craziness and creativity of the internet. While this may seem counter to traditional financial brand values, it may be that traditional financial brand values are out of step with consumers.

You can sign up for the Market Intel Newsletter, published weekly, https://markets.chainalysis.com/ (here).

Music by https://www.tylerbeckwithmusic.com/ (Tyler Beckwith)

This Week's Episode Summary

The bitcoin price recovers to its largest level of on-chain support of just under $55k, suggesting that cost curve analysis helps us understand the medium-term price floor even if news drives the price in the short term.

Exchanges are the primary venues where prices are determined and exchange inflows are closely watched to understand how much cryptocurrency is about to be sold. The majority of inflows originate from other exchanges, 81% for bitcoin and 61% for Ethereum, illustrating the opportunity that exists for those who provide liquidity across exchanges.

There are on average 132k on-chain bitcoin users of exchanges per day versus 23k for Ethereum. Ethereum not only has a smaller number of on-chain exchange users than bitcoin, but the top ten users deposit 53% of Ethereum inflows, compared to 22% for bitcoin. Ethereum inflows have become more concentrated since DeFi and decentralized exchanges became established, suggesting these markets are more dominated by a few insiders than centralized exchanges are.

You can sign up for the Market Intel Newsletter, published weekly, https://markets.chainalysis.com/ (here).

Music by https://www.tylerbeckwithmusic.com/ (Tyler Beckwith)