Bitcoin - How Deep Does The Rabbit Hole Go? An On-Chain Analysis

Bitcoin has entered the final and deepest phase of the bear market where maximum pain levels are achieved. Long-term holders are now in significant loss as BTC hits the 20k support zone. Given the historical bear market context, this phase can take anywhere between 8-24 months.

Bitcoin has now sold off to around the realized price (average price paid for a bitcoin), 23.5k. This is a long-term bear market floor model that has been used to mark previous bear market bottoms. Price tends to dip under the realized price for some time, doesn't have to but has in the past.

“...shrimps (< 1 BTC) are increasing their buying as the price drops lower...”

Whales (>10k BTC) are providing support and continuing to accumulate but without much success. Whale buying last week (6 June 2022) significantly softened. An interesting on-chain observation is that shrimps (< 1 BTC) are increasing their buying as the price drops lower, obviously seeing opportunity in the lower 20ks. This is more "interesting" than relevant at this stage. Shrimps account for around 20k BTC monthly currently, Whales typically are at around 140k monthly. These are the 2 groups predominately buying BTC today with the Whales obviously overshadowing the little baby shrimp.

“The battle here is between smart money buying BTC and removing to cold storage and new BTC coming onto exchanges.”

Smart money during 2020/21 began selling into the bull market, reaching a peak in august 2021. We then saw this begin to reverse as smart money began to accumulate again, at first aggressively, but softening over time. Likely due to the growing macro uncertainty that still persists today a year after. "Smart money" accumulation surged at the 30k support level, softened, and is now again back in accumulation mode. The battle here is between smart money buying BTC and removing to cold storage and new BTC coming onto exchanges. Currently, "smart money" is not able to curb the difference and the price will continue to decline until this changes. The change will come when certainty/confidence returns. Adding to this, players are leaving the market, becoming disinterested in the space as the price declines. It's like a football team that constantly takes a beating, eventually, the defenders just stop turning up to the games.

“Holders are in the process of restructuring, while some continue to accumulate others are redistributing their coins amongst the market.”

We are seeing a purging of even the strongest hands in the market right now, but it's just the beginning. Holders are in the process of restructuring, while some continue to accumulate others are redistributing their coins amongst the market. Bottoms usually form when these tokens find a new "home". A "home" is a type of holder that accumulates and assists the market to regain a bullish structure by holding and removing the coins from circulation, ending the redistribution phase of those particular coins - this process can take a long time depending on the macro conditions, the previous bear cycle saw this phase last ~500 days. In the 1930s, economist John Maynard Keynes said: “Markets can stay irrational longer than you can stay solvent".

Fundamentals (RVT) are equivalent to previous bear market bottom levels. This means that transactions compared to the market cap are very, very low. This signifies extreme bearishness and the fundamentals are not good - i.e. the market is too expensive/overvalued relative to the utility. If these values continue to decline past current values that will signify further network decay, and emphasize that hardened long-term holders are leaving the market. "Network decay" in this context is not an indication that Bitcoin is under threat of collapse - decay is a natural part of the bear market cycle and is healthy in the long run. When any network or asset is tested to the limits it can be a strong catalyst for change and innovation, and eventually expansion. With each bear market Bitcoin has strengthened and core values are reinforced.

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