Bitcoin Market analysis May 16th-22th
Observing the Bitcoin market last week, we saw some kind of stability towards the weekend after a relatively dramatic first few days. While it was slow progress, by the time the week closed out, the volatility we had observed over the week prior had started to at least reduce in range, and the BTC market started to pick back up to where it started the week. With that said, crypto in general is still reeling from the events that occurred with TerraUSD and LUNA, and markets still have a way to go before they truly stabilize — including Bitcoin.
Bitcoin’s value over the week ranged between the $28.6k and $31.3k mark over the previous week. While largely a bear market, some short term opportunities arose for those looking to buy the dip, and traders on an automated strategy may have had some joy towards the end of the week also. Nonetheless, it was a bit of a wild ride for the world’s most popular cryptocurrency, and only those that moved fast would have benefited from the market’s movements.
Last week, the pressure on centralized exchanges remained. From May 16 to May 22, the BTC balance of the exchange increased from 2.495 million to 2.516 million, with more than 21,000 net coins charged through the week. Huge inflows in mid-May created huge selling pressure, pushing the price of Bitcoin down from $40,000 to as low as $28,000. However, compared with the week of May 7 to May 15 selling pressure, last week’s coin charging pressure has been much smaller.
The proportion of Bitcoins held for more than a year hit a record high of 65.43%, indicating that nearly two-thirds of the Bitcoins in circulation have not moved in more than a year. The fact that such a large number of Bitcoins are holding suggests that long-term investors still have faith in the market — or at least think it can bounce back to some degree. Long-term investors believe that the price performance of selling chips at the current price is very low, so they are not willing to sell, which will inevitably cause a mismatch of supply and demand in the market. As the supply side continues to shrink and become increasingly scarce, once the market creates long term enthusiasm, the imbalance between supply and demand chips will trigger a sharp rise in prices.
During last week’s market session, we observed signs of an abnormal surge in BTC’s mempool size. Mempool is a record of all transactions (TX) that are broadcast on the chain but are not yet packaged. In a down market, the mempool is usually small and lower fees can be packaged into the block by miners. However, when the activity on the chain increases, the mempool size will increase. At this time, due to the accumulation of a large number of unpackaged transactions, the miners will choose to package the transactions with higher gas fees. Therefore, the mempool size can be used to observe the level of chain activity, which usually occurs during a bull market or a surrender event at the bottom of a bear market.
Last week’s abnormal increase in mempool volume is related to last week’s market crash. Due to a large number of panic orders, which led to an increase in activity on the chain, which further led to an abnormal increase in mempool size. At this time, because the chips that have not been sold for a long time are sold collectively in panic, this group of investors is often the group of long-term investors with weak mind. When the group finished selling, the chips that can be sold have been basically cleared in this round of decline, and it is easy to form a mid — and long-term bottom at this time.
As activity on the chain increases, the fee share of a miner’s income rises. By looking at the miner’s Fee ratio at the end of 2018 when Bitcoin crashed from $6,000 to $3,000, we can see that the current share of miners’ fee income is also showing signs of rising, which is a reflection of the panic selling in the chain caused by the market crash. That fee increase at the end of 2018 directly contributed to the $3,000 iron bottom.
Looking towards the week ahead, the way the market moves over the coming days will be critical for determining how long the shadow of Terra will hang over crypto. One thing is for certain however — Bitcoin will lead the way, regardless of the direction the market travels in.