The cryptocurrency market sell-off on May 19 saw a $ 1.2 trillion value wiped from total market capitalization as the foam and excessive leverage of the over-the-top markets were quickly removed.
But similar to a forest fire, the destructive power of which is essential to the rejuvenation of a forest ecosystem, dramatic market shocks are a vital part of the full life cycle of a developing market, as the excesses that have been accumulated are burned and removed in order to set the stage for a new round of growth.
According to data from Glassnode, last month saw a “historically large decline” in on-chain activity, “moving rapidly from booming chain economies at ATH prices, to almost completely liquidating mempools and declining demand for transactions and settlement.”
This removal of congestion helped address the rising cost of fees on the Ethereum (ETH) and Bitcoin (BTC) networks, which have now “returned to mid-2020 levels of around $ 3.50 to $ 4.50” after experiencing short-term spikes as high as $ 60 in April and May, but given the persistent price action of BTC and Ether, traders are also concerned that the market has gone from bullish to bearish.
The drop in activity has resulted in a 65% decrease in the total USD-denominated transfer volume settled by the Bitcoin network and a 60% decrease in the value transferred in Ethereum, marking the second largest drop for the networks behind the 80% drop for Bitcoin in 2017 and the 95% drop for Ethereum in 2018.
Long-term headlines accumulate
While activity in the chain paints a grim picture for some, given that short-term holders were hit the hardest by the recession, a closer look shows that long-term (LTH) holders have started to accumulate again, a sign that the worst of the shaking may be over.
As seen in the chart above, the supply held by long-term BTC holders has started to accelerate to the upside following a distribution period that occurred when the price rose from $ 10,000 to $ 64,000. This rising figure indicates that “LTH supply is now in a strong uptrend” and is similar to the trend seen during the “late 2017 bullish and early 2018 bearish”.
“This fractal describes the tipping point where LTHs stop spending, start to accumulate again and accumulate what are now considered cheap coins.”
More optimism can be found in the fact that the amount of BTC currently held by LTHs is 2.3 million more than at the peak of 2017, indicating that the long-term view of these token holders is that the market is heading up.
A final indication that the market may be consolidating in preparation for its next bullish move can be found by looking at the change in liquid and illiquid supply of BTC over the past 6 months.
As seen in the graph above, 160,700 BTC went from illiquid to liquid circulation during the month of May, representing only 22% of the total supply that went from liquid to non-liquid since March 2020.
This means that 78% of the BTC acquired since then remains unspent, indicating an overall positive outlook from long-term holders.
While it is impossible to be certain about the next steps for the cryptocurrency market thanks to factors such as unpredictable volatility, erratic tweets from influencers, and rumors of surprise government action, the on-chain data indicates a positive long-term outlook. it should resume once the current restructuring and consolidation periods subside.
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