Bitcoin drops below 2017 ATH but are sellers getting exhausted?

GB Market Commentary 20/06/2022

by Marcus Sotiriou

Bitcoin plummeted over the weekend below the ATH reached in 2017, at around $19,600. Coinglass, a trading and information platform, shows that there were $600 million in liquidations as Bitcoin dropped to a low of $17,600 approximately. Bitcoin suffered around $300 million in liquidations whilst Ethereum endured $200 million.

Why are many altcoins showing strength against Bitcoin and Ethereum?

We are not seeing a similar cascade in liquidations for altcoins relatively, and they have generally shown strength over the past week or so. This is because Bitcoin and Ethereum are the primary uses of collateral for leveraged positions, and the fact we can see on-chain the various liquidation prices means that a cascade lower can be premeditated. I also think one of the main reasons why we have not seen buy pressure for Bitcoin and Ethereum over the past two weeks is because major buyers can see other peoples’ liquidation levels.

What do on-chain metrics suggest about the recent drawdown?

Glassnode’s on-chain analysis shows that the liquidation cascade over the weekend resulted in the largest USD denominated realised loss in Bitcoin’s history. There were over $7.325 billion in Bitcoin losses locked in by investors, and approximately 555k Bitcoin changed hands between $18,000 and $23k. Investors with 1 year old coins capitulated as data from Glassnode shows an impulse higher for ‘Revived supply last active 1+ years BTC’.

Lastly, as Bitcoin reached the low of $17,600, just 49% of the supply was in profit. We can see in this chart from Glassnode that historical bear markets have bottomed and consolidated with between 40% and 50% of supply in profit.

Based on historical data, all of these indicators either suggest Bitcoin may have reached a temporary bottom or it has started a bottoming process for this bear market. It is important to note when looking at this historical data, that Bitcoin has not gone through a period of persistent inflation. We may be edging closer to a generational bottom as more forced liquidations occur, but we can not be confident of a sustained uptrend until inflation convincigly slows down.