Bitcoin was down early Thursday for a second straight day, in a move that appeared synced with a recovery in the U.S. dollar and sinking gold prices.
The growing number of long-term bitcoin investors might be the cryptocurrency's most simple bullish indicator, more so than "600,000 asteroids."
Traders sent more bitcoins to crypto exchanges as prices failed to hold above $12,000, potentially a bearish sign that elevated selling pressure might be in the offing.
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PRICE POINT
Bitcoin was down early Thursday to about $11,250, extending Wednesday's sell-off and falling to its lowest price since early August.
The cryptocurrency tumbled 4.4% on Wednesday, the most in a month, leading to a heightened level of margin calls and position liquidations. Prices appeared to fall in sync with gold and silver prices, which tumbled as the dollar rebounded following a recent slide.
"Failure to hold at the $12,000 level has turned the milk sour," the crypto trading firm Diginex wrote in a note to clients. "Leveraged longs have been forced to drink it."
The conversation around bitcoin is very different. The assumption among many digital-asset investors is that the cryptocurrency's price will definitely, inevitably go higher, much higher. It's only a matter of time.
Nobody really knows if any of that will pan out, of course. What's clear is that a lot of investors have bought bitcoin because they see it as a deep out-of-the-money option (with no expiration date) on financial armageddon, severe currency debasement or at the very least an inflation rate well above the Federal Reserve's 2% annual target. According to CoinDesk Research's monthly review published this week, bitcoin's price appears to be rising whenever the dollar falls in foreign-exchange markets.
Bitcoin costs $11,200 now, and it might be possible to lose it all, but it also might be worth $500,000 at some point. That's the general gambit anyway.
Invented just 11 years ago, bitcoin is exceedingly difficult to value partly because it has such a short track record. Similar to gold and many other commodities, the cryptocurrency offers no yield, so bond math won't work. Bitcoin has no earnings or dividend, so stock analysis won't work either.
Bitcoin longer-term holders are increasing as speculators decline. (Grayscale)
Philip Bonello, director of research for the money manager Grayscale (owned by CoinDesk parent Digital Currency Group), says his favorite chart for thinking about bitcoin's price trajectory might be one showing "holders" versus "speculators." A holder in this case is defined as a bitcoin that has not moved for one to three years, while a speculator coin has moved in the past 90 days.
An increase in holders is considered "likely bullish," while an increase in speculators is "likely bearish," according to a recent Grayscale report. The idea is that it's positive for the market if more investors appear to be holding the cryptocurrency for the long term, versus those who merely appear to be in it for a quick volatility ride.
Right now, the chart shows holders increasing and speculators decreasing. According to Grayscale, it's a "similar structure to that of early 2016," just before bitcoin went on a bull run toward its all-time high around $20,000.
"It's reassuring," Bonello said Wednesday in a phone interview, "that the sentiment of the investor base is growing day by day." The holders appear to have been unfazed by the volatility witnessed in March, when the spread of the coronavirus quickly sent bitcoin prices swooning from above $9,000 to below $5,000. "It's probably unlikely that they're going to sell right now at $11,000," Bonello said.
All of this might mean nothing for the future price of bitcoin. It just shows that a growing number of investors are holding onto their tokens in a bet that the cryptocurrency's price will — or even that it might — eventually go up. By a lot.
So-called HODL waves. In this chart, the declining lower edge of the yellow band in the middle signals an increase in bitcoins that haven't moved in at least a year. (Glassnode)
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Bitcoin inflows to exchanges climb to highest in over a month, suggesting the likelihood of increased selling pressure. (Chainalysis)
Bitcoin may extend Wednesday's price pullback, as exchange flows indicate increased selling pressure in the market.
While the top cryptocurrency fell by 4% on Wednesday, it defended the long-held support zone of $11,100-$11,200.
The cryptocurrency may breach the support zone, as exchanges witnessed an inflow of 92,000 BTC on Wednesday – the biggest-single day rise in 37 days, according to blockchain intelligence firm Chainalysis.
"Inflows surged as people rushed to sell at near $12,000," Philip Gradwell, chief economist at Chainalysis, tweeted early Thursday. In other words, the number of coins on exchanges, potentially poised for liquidation, increased.
"I think there is still sell pressure to work through," Gradwell said.
A violation at immediate support at $11,170 would confirm a bearish reversal pattern on technical charts.
Ethereum, the world's second-largest cryptocurrency by market capitalization, is expected to undergo a radical system-wide upgrade to improve network scalability and efficiency this by early next year. Join CoinDesk Research on Sept. 10 at 1:30 p.m. ET for a live discussion as we examine the potential market impacts of the launch of what’s known as Ethereum 2.0.
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First Mover: As Bitcoin Falls for Second Day, Long-Term Holders Probably Won't Care