Is the Sell-Off Over Or Will There Be More Pain?


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To investors,

Will Clemente breaks down the volatility from this week using on-chain metrics to separate the signal from the noise. You can follow Will on Twitter or sign up for his email by clicking here. Here is Will’s analysis:

Hope all is well and you had a great week. Last time we spoke we discussed the price drop of Wednesday 5/19 and how outlook was moving forward. At the time I didn’t have a strong opinion on the speed of the recovery. I still hold don’t have a strong opinion, but this week has shown some positive signs and I would now expect that full recovery will take place sooner rather than later. 

Some key takeaways from this week’s recap:

  • There is a clear rotation of supply from short-term holders to long-term holders

  • Exchange flows have reversed from being bearish recently, now showing net outflows

  • Accumulation is in process 

  • After a big drop off earlier this month, new entities are coming on the network, possibly attracted by lower prices; mostly retail

  • Miners not accumulating as heavily as they had been recently 

In the shorter term, some key price resistances to the upside are the 200DMA (~$47,750), $50K, $53K, and $59K. In terms of support, the strongest zones are $30K of course, but then $20K after. If $30K is broken I would see $20K as the next likely support level based on price structure and on-chain volume.

One interesting theme that has taken developed is seeing long-term holders and accumulation addresses stacking through this dip. Let’s break this down; first with a quick overview of who is selling on the other side and then the buy side. 

This metric looks at the different age of coins selling every day. Running a simple 7 day moving average over this can smooth out the picture. This week there was a larger amount of selling coming from coins aged 1 day to one week old than usual. Coins aged this young are traders moving in and out of the market. Perhaps this spike is highlighting some swing trading while Bitcoin ranges between the low $30K’s-$40K and traders are not confident in taking a directional bet at this time. 

Also, you can see a lot of recent selling has been done by coins aged 1 month to 3 months old, and also 3-6 months old. These coins were last moved in the green zone highlighted below.

At the same time, long-term holder have been steadily accumulating.

The chart below compares short-term holder supply to long-term holder supply. You can see short-term holders take up a larger portion of supply between November to mid-April. On the right side, you can see the divergence that we are currently in. This is showing the following: long-term holders are adding to their positions, short-term holders are selling, some entities in the short-term cohort have now reached the 155-day threshold for this metric and are now in the long term cohort.

On a similar note, another way to illustrate convicted buyers stacking through the dip is looking at accumulation addresses and accumulation balance. An accumulation address is defined as an address that has received at least two BTC txs but has never moved funds out of the address. This cohort continues to climb, with 7,430 new accumulation addresses in the last 7 days.

These new accumulation addresses are likely overlayed with this next metric: net entity growth. Glassnode clusters addresses together forensically to identify entities, they then subtract the new entities from dormant entities with 0 balance. This shows a v shaped recovery in new users coming onto the network after a downtrend since early March.

Meanwhile, supply held by entities with .001 BTC to 1 BTC continues to grow. Overall, it seems that retail is accumulating while whales sell-off. 

Regardless of who is exactly buying/selling, the market is no longer selling at a loss on aggregate. This sharp uptick is a sign of a recovery.

The behavior from miners has slightly changed from the previous letters sent out. For the last 1-2 months miners have been stacking heavily. However, in the last week this trend seems to be stalling out. This plateau in miner unspent supply can be seen in the chart below.

This miner selling looks to be coming primarily from China. One of the most constant sellers over the last week has been Poolin, the second largest mining pool in China. This can be shown in the chart below by looking at larger than usual transfers to exchanges. 

General exchange flows are no longer bearish, exchanges are down 14,207 BTC in the last 7 days. However, it appears the broader trend of coins moving off exchanges has come to a halt. 

Looking forward to touching base Monday. Hope you have a great weekend. Cheers!

That is it for today’s analysis. Hopefully you found this helpful. I highly suggest you subscribe to Will Clemente’s email where he breaks down on-chain metrics multiple times per week: Click here

This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 180,000 other investors today.