By Marcus Sotiriou, Analyst at the UK-based digital asset broker Global Block
Bitcoin fell over the weekend below the ATH hit in 2017 at around $19,600. Coinglass, a trading and information platform, shows that there were $600 million in liquidations as Bitcoin fell to a low of around $17,600. Bitcoin suffered around $300 million in liquidations while Ethereum suffered $200 million.
Despite this downward price action, Bitcoin closed the week strong above $20,000 and some on-chain metrics suggest a macro bottom, or temporary bottom, may be near.
Why are many altcoins showing strength against Bitcoin and Ethereum?
We don’t see a relatively similar cascade of selloffs for altcoins, and they’ve generally shown strength over the past week. Indeed, Bitcoin and Ethereum are the main uses of collateral for leveraged positions, and the fact that we can see the different liquidation prices on a chain means that a cascading drop can be premeditated. I also think that one of the main reasons we haven’t seen buying pressure for Bitcoin and Ethereum over the past couple of weeks is because the top buyers can see each other’s liquidation levels.
What do the on-chain metrics suggest about the recent drawdown?
glass knots On-chain analysis shows that the liquidation cascade over the weekend resulted in the largest USD-denominated realized loss in Bitcoin’s history. There were over $7.325 billion in Bitcoin losses blocked by investors, and around 555,000 Bitcoins changed hands between $18,000 and $23,000. Investors with year-old coins capitulated as Glassnode data shows higher momentum for “supply revived for last active BTC year.”
Finally, as Bitcoin hit the low of $17,600, only 49% of the supply was in profit. We can see in this chart from Glassnode that historical bear markets have bottomed out and consolidated with between 40% and 50% of the supply in profit.
Based on historical data, all of these indicators suggest either that Bitcoin may have reached a temporary low or that it has started a bottoming process for this bear market. It is important to note, looking at this historical data, that Bitcoin has not gone through a period of persistent inflation. We may be nearing a generational low as more forced liquidations occur, but we can’t be sure of a sustained uptrend until inflation convincingly cools.