3rd October 2022 > > CryptoQuant.

tl;dr

CryptoQuant provides some positive analysis for BTC.

Market Snap

Market Wrap

Markets are all very quiet, so no change there.

Curious Cryptos’ Commentary – BTC bull market buyers have already capitulated

CryptoQuant is one of many on-chain analytics firms who can help to provide insight into market mentality. Anyone with enough patience and computing power can track the movements, or otherwise, of BTC.

One such metric is Exchange Inflow Spent Output Ages Bands, or SOAB for short, though neither description rolls off the tongue.

Essentially what this metric can do is to identify cohorts of coins that have been bought and then sold again.

Why could this be of interest? Well, a large portion of all BTC in existence is held by diamond hands. The definition of this varies, but the concept aims to identify long-term holders, whose investment might reasonably be assumed to be non-speculative, and less prone to concerns about daily price moves. Estimates of diamond hands vary between 60% and 80%, which is truly an extraordinary number.

There does tend to be a correlation between early buyers and diamond hands, presumably because those early to the crypto revolution had a natural interest in this technology.

But that does not mean the recent buyers cannot also be diamond hands, but one might expect that during periods of price appreciation, speculators looking for fast gains are more likely to get involved.

This assumption appears to be borne out by analysis of SOAB. First up, here is the chart:

According to analyst Edris:

“Looking at the chart, it is evident that coins aged between 6-18 months ago have been sold aggressively recently. These coins have been bought between April 2021 and April 2022 at prices above $30K. This signal means that many holders who have entered the market during the 2021 bull market and above the $30K mark, have recently capitulated and exited the market at an approximate 50% loss.”

Capitulation is a useful idea in financial markets. Speculators, and especially leveraged buyers, provide the most selling pressure during bear markets, or during long squeezes. As the proportion of these market players diminishes, so does the supply of coins for sale.

Of course, if you subscribe to the view that BTC is “rat poison squared” (Warren Buffett) such analysis means nothing to you, and rightly so.

If you are a BTC enthusiast, this analysis might give you some confidence that absent external market shocks (Putin and his threats for example is the obvious one), downward price pressures on BTC might be easing.