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The unbearable stability of bitcoin

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Bitcoin is doing well. Thank you for your inquiry.

After months of market volatility, the world’s favorite cryptocurrency has been remarkably stable, trading in its narrowest range since late 2020.

We may have different views on this depending on prior information such as whether, when and in what quantity we purchased. Perspectives include:

It’s also possible that being an adult investor in solid assets such as UK government bonds, I’m not keeping a close eye on bitcoin’s day-to-day fluctuations.

No matter how you approach it, for a currency that has done this during the pandemic—

Line chart of Bitcoin's wild ride showing Bitting the Dust

— The flatness of the last few months has been a bit… spooky.

Volatility is also contained:

bitcoin volatility line chart showing low bit shuteye

what happened? Morgan Stanley strategists Sheena Shah and Kinji Steinmetz examined the notes issued Thursday.

Their big takeaway is that most of the people who got their hands on bitcoin since the beginning of 2021 are now carrying (or HODLering) bags, and the token itself hasn’t moved much. That’s it.

Almost a year into Bitcoin’s bear market, most people who bought bitcoin in 2021 are facing heavy losses and appear to be waiting for the upside to close their positions. . The record number of Bitcoin units that have not been traded in the past six months is now 78% of the total, and this number continues to grow (Figure 1).

What this means, oversimplified a bit, is that anyone who bought/received bitcoin more than 6 months ago may be holding a position and waiting for the price to recover. For the remaining 22% of Bitcoin units held by short-term investors who have traded Bitcoin in the last 6 months, we estimate that the average break-even price is slightly above $22.3k (currently +7%, but there were a few investors who were as high as 20%). a few days ago, see Attachment 2)

(Shah and Steinmetz note that there are several important caveats here: first, they assume that each wallet is owned by a different entity; is the inability to account for transactions outside the blockchain.)

As expected, this lack of movement coincides with low activity on most exchanges, with the exception of market leader Binance.

The elephant in the room is of course Ethereum. publicity boost Last month, the blockchain survived the update. good! ETH currently tracks the stock market more closely than Bitcoin, suggesting it may be the more normalized risk asset of the two. Morgan Stanley says that as a result of ETH’s move to a proof-of-stake model, Bitcoin “may start questioning the trading dynamics.”

Analysts have noted that Bitcoin is likely to find strong support just above $18,100, suggesting traders are buying dips below this level.

news during the summer $20,000 identified as a critical support level, below which required mandatory liquidation of leveraged positions. We speculate that recent dynamics suggest that $18,000 could be a similar problem. (If you’re big on Bitcoin whales, get in touch.)

Public Bitcoin miners, on the other hand, do not mine as much, but they should also provide some support. In fact, they are having a very tough year (even by crypto standards) amid soaring energy prices. The stock prices of some of the biggest publicly traded companies — Marathon Digital, Riot Blockchain, Core Scientific — are terrifying.

Top Bitcoin Miners Line Chart Has A Bad Year Showing Diggy Diggy Hole

(Core Scientific announced that it might file for bankruptcy while writing this article! )

It’s a situation where highly leveraged holders want this kind of stability backed by serious long-term investors holding BTC. Shah and Steinmetz:

With lower trading volumes and fewer market participants, intraday traders and market markets have a greater impact on prices. Their activities are more likely to be affected by technical prices and momentum than long-term asset managers.

Efforts for corporate-led bitcoin adoption will likely lead the UK to first prime ministerThe MS team is a little skeptical about how important it is.

In recent months, traditional financial firms have increasingly launched new crypto products to provide market exposure to their clients, allowing them to buy, sell and hold the underlying crypto…

Both companies say they have introduced products in response to customer demand, but looking at the recent flow of exchange-traded products in and out, and the trading volume trend above, it seems unlikely that prices will rise unless there is significant volatility. , we continue to believe that it is possible. It is difficult to see a significant recovery in real demand.

Stability looks good, at least compared to what’s happening elsewhere. But reducing volume in a market that has no utility beyond a store of value, where the behavior of a small number of active daily participants is determined by technical resistance and support levels, is not a sign of healthy sanity. . Too tired to say the best has passed for the mother of all cryptocurrencies, but the plateau after the plunge may mean nothing more than that it is now a life-supporting asset class. not.

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