Investors Fear Recession Whilst Percentage of Long-Term Holders Grow

GB Market Commentary 09/05/2022

by Marcus Sotiriou

Bitcoin continues to fall as it reaches a key level of support around $33,000. After the Federal Reserve raised rates by 50 basis points last week, Bitcoin rallied suggesting that this was priced in. However, this was nothing more than a relief bounce as Bitcoin has fallen almost 18% in 5 days. Investors are clearly concerned about the aggressive monetary policy from the Federal Reserve, as they will also begin Quantitative Tightening (removal of liquidity from the market) in June.

In addition to macro headwinds, there is fear in the crypto space too with UST – the biggest decentralised stablecoin. UST lost its peg on Saturday after an allegedly co-ordinated attack on the stablecoin. Do Kwon, the founder of Terraform Labs who created UST, has since reassured people that any claims against Terra’s security is ‘fud’ (fear, uncertainty and doubt) and that the protocol is indeed robust to withstand these kinds of attacks. UST has now regained its peg as it is climbed back to $0.995.

A negative sign which preceded this sell off is the Coinbase spot price for Bitcoin having a discount compared to the Binance spot price. This is telling as a greater percentage of institutions use Coinbase compared to retail, whereas the opposite is the case for Binance. Therefore, the price mismatch mentioned suggests institutions are not currently as interested as retail. This will be good to keep an eye on going forward and if/when this reverses it could coincide with some relief in the market or a reversal.

Technically, Bitcoin’s structure is bearish as lower-lows and lower-highs persist, but Bitcoin is now approaching the bottom of the 16-month range. The region near the low of the range, from $28-32k, could be a good region to add to long term holdings from a risk-reward perspective.

On-chain metrics remain incredibly bullish, as the percentage of Bitcoin which has not moved in a year is now at an all-time high. Every time a macro bottom has formed in the market previously when this has happened, it has marked a bottom in the crypto market. This shows that the proportion of Bitcoin holders who are long-term HODLers is increasing, which is positive as it shows that short-term holders are selling to those with long-term conviction.