Data Analysis: Who is driving this record-breaking drop in Bitcoin?

Bitcoin’s recent market weakness is caused by a combination of whales, miners, and retailers.

After a rapid recovery in the market, Bitcoin appears to be losing its upward momentum, encountering resistance as it approaches the $40,000 mark, but nothing can push it past without two major news events.

At the time of writing, BTC is trading at $37,663, moving sideways on the shorter timeframe. On the longer timeframe, the top crypto asset by market cap has seen a correction of 13.6% and 24.6% on the 7-day and monthly charts, respectively.

This was one of BTC’s most brutal sell-offs, a correction that caused the price of Bitcoin to drop from around $60,000 to its current level. Most people believe that it was caused by a tweet by Tesla CEO Elon Musk stating that Bitcoin’s carbon emissions were too high.

While the event was a catalyst, on-chain data suggests otherwise. A report from Arcane Research shows that Bitcoin’s daily spot trading volume reached an all-time high on May 19.

The study estimated Bitcoin’s trading volume during this period at around $35 billion, a figure that suggests spot traders played a major role in the sell-off.

Arcane Research added: “The record volume is due to massive selling as the market crashed, but whales were buying, with Coinbase alone processing nearly 2 million transactions on May 19.”

As analyst William Clemente noted, most of the selling was done by spot buyers who harvested Bitcoin during this bull cycle. Between December 2020 and April 2021, Bitcoin's average price was $35,000, $45,000, and $60,000, respectively.

Who is behind the Bitcoin sale?

Analyst Ben Lilly conducted a more detailed analysis of the sell-off, pointing out that whales, miners and other market movers were the drivers of this incident. The "trio" of these roles, especially the behavior of whales, contributed to what happened a few days ago.

The analyst used on-chain data to prove that the increase in the number of accumulated addresses has a negative reaction to Bitcoin’s price, and this metric has been rising since February 8. As the analyst put it, it was not until May that the total accumulated balance “stagnated.”

Therefore, the data shows that these bitcoins have "changed hands". Ben Lilly also showed some evidence that the holdings of some whales increased during the sell-off, while some decreased. The figure below shows that on February 1, there were 550,000 addresses with 1,000 to 10,000 BTC, and as of May 24, these addresses were about 100,000.

The analyst noted: “The huge wallets that were accumulating are no longer accumulating, the wallets that once held large amounts are selling, while some of the slightly smaller wallets are accumulating. This is not sustainable in terms of price over time. It takes huge wallets to drive demand to get higher prices.”

Ben Lilly noted that, in addition to this, miners began to “spend Bitcoin” on May 11. Miner sales increased from May 11 to May 16. Based on this data, the analyst said, “It is important to look at the price on May 11 because this is when the sell-off really started.”

JarvisLabs noted on May 23 that ByteTree data on miners (the best reliable source of miner spending and power generation) indicated that their spending has exceeded their output for the past few weeks.

So, what happened over the weekend had actually been building up for months, with the added factor of “market movers” “smashing” the price of Bitcoin just when it needed critical support.

Ben Lilly outlined it as follows: “Now, what this all boils down to is that whales have been selling for a while, while miners started selling before Musk’s tweet and whale sales, and at the same time, some sharks (market movers) shorted the market, which together with the whales and miners selling led to market weakness.”