With 8 million bitcoins priced above $30,000, where is the bottom of the market?

The market, which had been falling since the beginning of 2022, saw a brief rebound in February. However, the strength of the rebound always gave people a feeling of weakness. Coupled with the expectation that the Federal Reserve will start raising interest rates in March, many investors are pessimistic about the future market trend and believe that this rebound is just a technical "oversold rebound."

In our original article: "Bitcoin loses its absolute dominance, has the bull market come to an end?", we mentioned the super cycle theory that the "small bear market" between the long bull and slow bull is usually 3 to 5 months. The decline that started in early November last year has just lasted for more than 3 months. In the next two months, if there is no black swan event, it may be a key node for the market to change.

If the above view is true, then where is the bottom of Bitcoin in this round of market? Is the market in 2022 still worth looking forward to? As a weathervane of the crypto market, the bottom of Bitcoin is likely to be the bottom of the entire market, so it is crucial to recognize the bottom of this round of Bitcoin market. Of course, there are many ways to judge the bottom of Bitcoin. This article mainly analyzes it from the perspective of the number of Bitcoins at different prices.

First of all, it should be stated that different people may come to completely different conclusions about the use of a certain model or theory due to different cognition, experience, or even expectations. In this regard, it is better to adopt an attitude of listening to both sides, listen more, and then draw your own conclusions.

What does it mean that there are 8 million bitcoins worth more than $30,000 ?

According to data from the third-party data website glassnode, the number of bitcoins costing more than $30,000 has now reached 8 million, an increase of 60% compared to the approximately 5 million bitcoins during the "5.19" crash last year.

If we combine this with the market trend over the past six months, the increase in the number of bitcoins above $30,000 not only means the turnover of high-priced chips, but also the surrender of low-priced long-term chips or even ancient coin holders. In other words, many investors who bought bitcoins at low prices sold their coins during this period, such as investors who bought bitcoins before and after the "5.12" halving.

We know that if enough chips gather at a certain price or if there is a dense turnover, this price may become an important support/resistance level. If Bitcoin continues to be bullish in the future or even reaches a new high, it is necessary to lay a solid bottom now. The most important way to lay a solid bottom is for institutions and professional investors to promote and use market fluctuations to make a large number of retail investors leave the market and gather chips.

According to data from qkl123, from May last year to the present, the Bitcoin Coin-Day Destruction Index has repeatedly reached high levels, and recently reached a new high since 2021, indicating that a large number of long-term chips were sold during the "5.19" crash and this round of continued decline.

As can be seen from the figure below, during this period, there were at least 5-6 large-scale selling waves by long-term holders. In terms of intensity, it is second only to the lowest point of the bear market in December 2018; in terms of density, it is second only to the period when Bitcoin was about to break through the historical high of 20,000 US dollars at the end of 2020. And from the results of these two times: after December 2018, in 6 months, Bitcoin rose from US$3,155 (European and American data, the same below) to a maximum of US$13,971, an increase of 342.8%; after December 2020, Bitcoin broke through the previous high of US$20,000, and then in more than 4 months, it rose to a maximum of US$64,846, an increase of 224.2%.

BTC coin-day destruction index (source: qkl123)

Back to this round of market, such a dense and intense selling wave by long-term coin holders shows how strong the two rounds of shocks since "5.19" have been in "cleaning" the market chips. It goes without saying that the main force has spent so much effort to "clean" the chips. What is the purpose behind this?

Of course, there is a "hidden danger" in the market now, that is, there are about 10 million bitcoins with a price below $10,000. If we remove the 2 million or 3 million bitcoins that are recognized as permanently lost, there are still 7 million bitcoins, of which about 4 million cost $6,000-10,000. According to the age distribution of Bitcoin UTXO, it can be roughly judged that this part of the chips was bought around the "5.12" halving, and $6,000-10,000 is also considered to be the main price for the main force to build positions in this round of halving. If Bitcoin continues to rise in the future, breaking the previous high or even setting a new record high, these 4 million bitcoins are potential sellers, which can be said to be the biggest obstacle to the bull market in the future.

Bitcoin UTXO age distribution (Source: Blockchain 123)

In general, although the number of bitcoins above $30,000 has reached 8 million, there are still a huge number of low-priced bitcoin chips, which means that the subsequent rise of bitcoin will definitely not be smooth sailing, and there may be repeated tug-of-war, which will consume investors' patience. Until the low-priced bitcoin chips are exhausted, the development of the market will take this as a new foundation and enter a new stage.

Where is the bottom of the market? Is 2022 still worth looking forward to?

As mentioned above, the accumulation of chips of $30,000 and above may make the $30,000 mark an important mark for long and short parties to compete. So will the bottom of this round of Bitcoin bear market fluctuate slightly around $30,000? From the K-line pattern that has been shown, the "5.19" plunge to a minimum of $28,808 (European and American data, the same below), and the negative decline after November is currently as low as $32,928, which has indeed formed a bottom pattern of "slight fluctuations around $30,000". Of course, whether this conclusion is valid requires more time to verify.

Bitcoin monthly candlestick chart (Source: EURET)

If the above conclusion is true, then Bitcoin will have a chance to reach a new high in 2022 and lead the crypto market to a further step. However, the rise and fall of the investment market is not only affected by the distribution of chips, but also by the market participation and the external environment. 2022 is destined to be an extraordinary year, and the impact of the external environment may appear to be more important than ever. Among them, there is a well-known fundamental influencing factor, that is, the expectation of the Fed's interest rate hike.

We have already said in our previous article "The first interest rate meeting of the Federal Reserve in 2022 is about to be held. Why is the market welcoming a sharp drop?" that every time the Federal Reserve raises interest rates, the market will experience violent fluctuations. Once the Federal Reserve starts raising interest rates in 2022, its intensity and speed will be far greater than in the past, which may be the biggest negative factor in 2022.

However, in terms of the path of the Fed's interest rate hikes, the Fed's interest rate hikes have only just reached the late second stage, that is, the accelerated taper stage. Even if this round of interest rate hikes is more intense than in the past, it will take time for the market to digest the rate hikes. In the first half of the rate hikes, the market's reaction may be short-term and relatively mild. Of course, in the second half, the intensity of the rate hikes and the depth of penetration of the impact on the market will be long-lasting and intense. However, from a historical perspective, it is unlikely that the Fed's interest rate hikes in 2022 will proceed to the second half so quickly.

If the Fed's interest rate hike is the biggest negative factor in 2022, then the biggest positive factor for Bitcoin and the crypto market may be that the Bitcoin spot ETF has the opportunity to pass the US SEC approval.

I will not elaborate on the huge benefits that the Bitcoin spot ETF may bring to the market if it is approved, because there are already a lot of articles in the media interpreting it. Here I will mainly talk about the reasons why it may be approved this year. In short, it can be summarized into four reasons:

First, the SEC has repeatedly solicited public opinions on the application of Bitcoin spot ETFs this year. For example, the SEC recently collected comments and feedback on the application of Grayscale Bitcoin spot ETF, and the result was that 95% of investors expressed support. The SEC's collection of public opinions itself is a loosening of attitude, and the public basically supports this matter, so the possibility of passing it within this year is relatively high. Second, from the perspective of Bitcoin spot ETF itself, this is a trend and something that the market needs. Even the SEC cannot keep dragging this matter out.

Third, many banks in Europe and the United States have begun to provide crypto investment services to their customers. There are more and more crypto asset investors in the United States, which is a broad user base. As capital-oriented societies, Europe and the United States cannot leave real money unearned. Fourth, from the development of Bitcoin itself, the entry of large institutions and professional investors has brought about the formalization of the overall market. The current market value of Bitcoin is large enough, and the development of the derivatives market is also rich enough.

Judging from these factors, the probability of Bitcoin spot ETF being approved by the SEC in 2022 will be unprecedentedly high, and the previous approval of Bitcoin futures ETF and mining ETF may lay the foundation for the approval of spot ETF.

In summary, 2022 is a crucial year for the crypto market and the world. Although the current environment is treacherous, the centipede is still alive. After 2022, even if the crypto market or even the world goes bad, 2022 will at least be a year of "returning light" rather than a year of collapse. Of course, as mature investors, we will maintain cautious optimism before everything happens, and make various preparations at the same time.

Finally, this article is for reference only and not as investment advice. The market is risky and you should be cautious when entering the market.