Bitcoin Market Analysis : May 2022

In Brief

Bitcoin, just like the rest of the crypto market, was left reeling by the events that took place throughout the month in respect of Terra. The LUNA collapse caused a huge blow to the whole market in May, causing a large number of investors to lose confidence and for selling pressure in exchanges to increase sharply. This meant the price of BTC fell sharply too. At the same time, the market’s concern about UST also led to a large number of USDT redemptions, which tested the otherwise weak market confidence and capital.

The LUNA event has driven BTC’s valuation index to historic lows, yet we see plenty of smart money still holding or even adding holdings to BTC. Some pessimists in the long-term holder group sold more frequently in May, but the size of the selling was not large — suggesting that this is only a subset of the group, not representative of the majority of long-term holders.

Overall, the LUNA crash created a temporary fear emotion, but it didn’t derail Bitcoin’s fundamentals. Mining and computing markets continue to maintain positive growth, and on a technical level the current daily BTC level is showing signs of a bullish bottom divergence — relative to RSI — indicating that BTC has become seriously oversold at the current level.

Fundamentals

When observing historical Bitcoin data, bottom divergence in the market tends to lead to a reversal of the upside K-line, as we can see below:

Over the long term, the monthly RSI is currently down near the support formed since late 2018 at 46, indicating that month-level weakness is at a historically rare level of undervaluation. This could make Bitcoin a more appealing asset to invest in if traders consider it to be well below its ‘typical’ value.

Throughout the month of May, the Bitcoin reserve balance of the centralized exchanges increased significantly from 2.46 million to 2.54 million, and the net coin charged in a month was about 80,000 — wiping out the number of coins withdrawn in April, as seen below:

Even though BTC balance on exchanges is significantly higher, reserve balances are still at a low level, which is related to intensive funding at a low level. The main force driving this trend came from long-term investors, whose holdings remained stable in May and currently stood at 13.47 million coins.

The LUNA crash in May brought about extreme panic selling to the market, with more than 70,000 BTC flowing out of the exchange in the last 30 days. This brought huge selling pressure to the market, with prices falling from $40,000 to as low as $25,000. As a result, the FGI index (Fear and greed Index) dropped as low as 8, and the mood of “extreme fear” remained below 15 for more than 20 consecutive days, which is extremely rare in history. At present, as the LUNA crash gradually continues to pass, the market selling pressure is gradually being digested and the current BTC price has started to stabilize.

Since long-term holders usually collect chips in bear markets or volatile markets, they distribute chips to stop gains in rising markets, while the market is still not at the stage of mass distribution. This can be seen below:

Global institutional holdings held steady in May, with a combined holding of 156.5 bitcoins — down by 4,000 from April but not too much of a dramatic shift. Among these holdings, 816,000 are currently held by category ETFs, 271,000 are held by national governments and public servants, 202,000 are held by private companies and 266,000 are held by public companies.

Crypto fund demand remained weak in May. Global crypto funds saw a slight increase in holdings through the month, with BTC holdings now creeping up to 852,000 from the end of April.

In May, the increase of miners’ holdings was accelerated. The balance of miners’ wallets was about 1.864 million pieces, an increase of more than 3,000 pieces compared with April. At present, the total amount of BTC held by miners still remains high and has not been significantly reduced.

Looking Ahead

As previously discussed, the events that unfolded with LUNA definitely impacted the market, and created downward selling pressure. With that said though, the fundamentals of Bitcoin did not shift to any great degree, and we are already seeing signs at the very end of the month that would indicate a reversal in the fortunes of the world’s most popular cryptocurrency. While it is way too early to determine whether these reversals will last long term, they are a positive sign amongst what has been a hard month for Bitcoin and the crypto market in general.

Traders will be looking for Bitcoin to start climbing towards the mid-$30k mark in the coming month, or at the very least gain an upward trajectory with some kind of stability. With the fundamentals of Bitcoin not being shifted too drastically through a very difficult month, there is reason to be optimistic about BTC’s ability to roar back. While the bull hasn’t awoken yet, it may just be stirring…

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