Numbers Don’t Lie: Bitcoin Short Selling Pressure Is Easing

Last week, the cryptocurrency market saw a surge in selling transactions, which peaked on March 13 and caused the price of Bitcoin to plummet to below $4,000. On the other hand, a large number of Bitcoins flowed into cryptocurrency exchanges for selling, especially on March 12-13, when the number of Bitcoins received by the exchanges was 475,000 more than the average daily inflow. Many people believe that the short-selling pressure in the cryptocurrency market may increase further, but according to data from the cryptocurrency and blockchain analysis company Chainalysis, the short-selling pressure on Bitcoin may be easing.

With a large number of Bitcoins being bought and sold, the trading activity of cryptocurrency exchanges has increased significantly, but Bitcoin trading is still relatively "concentrated" because nearly two-thirds of the Bitcoins entering the market are concentrated in seven spot cryptocurrency exchanges for trading. For comparison:

1. Before March 9, the seven major cryptocurrency exchanges processed an average of 249,000 bitcoins per day;

2. After March 9, seven major cryptocurrency exchanges processed an average of 790,000 bitcoins per day.

The increase in trading volume and the increase in inflows of this cryptocurrency exchange are basically consistent, indicating that the recent high volatility of Bitcoin prices is not much related to those who hold Bitcoin for several years or even longer, that is, those who have been "stored" for a long time and have not moved funds due to price fluctuations in 2019 or 2020. If more "stock" Bitcoin is traded on the exchange in recent days, it is expected that the ratio of Bitcoin trading volume to the number of Bitcoins received on the chain will be higher.

The data does not lie. Short-selling pressure is easing.

The amount of Bitcoin received by cryptocurrency exchanges has gradually declined since the beginning of this week and now remains at about twice the average level.

From the beginning of 2020 to March 8, the average daily inflow of Bitcoin to cryptocurrency exchanges was about 52,000 Bitcoins, but in the eight days from March 9 to March 16, cryptocurrency exchanges received a total of 1.1 million Bitcoins. However, only 40,000 to 240,000 Bitcoins are currently traded on cryptocurrency exchanges, that is, of all the "extra" Bitcoins that have flowed into exchanges, only 6-34% have not been sold, or have been sold but quickly bought by new traders. In other words, most of the Bitcoin that has flowed into cryptocurrency exchanges has been sold, the oversupply situation seems to have ended, and short-selling pressure is easing.

Although the market has been working hard to wash the "extra" Bitcoins that were sold, the fact is that this amount of Bitcoin only accounts for a very small portion of the available Bitcoins on the market, which means that most people prefer to continue holding Bitcoin rather than choose to sell it.

In fact, although the price of Bitcoin has been "halved" in the past two weeks, the sentiment of Bitcoin supporters remains firm. From the perspective of "value storage" alone, during the historic plunge in the financial market caused by the epidemic, the price of Bitcoin also plummeted simultaneously, but all this did not defeat Bitcoin.

According to estimates, approximately 721,000 bitcoins flowed into cryptocurrency exchanges last week, which actually only accounts for 5% of the total available bitcoins on the entire network.

Bitcoin holders remain confident, with selling mainly coming from professional traders

According to relevant analysis data, during last week's Bitcoin price plunge, the main driving force did not come from HODLers who held the currency for more than five years, nor from retail investors, but from those who had only stored Bitcoin for half a year or less, who drove the current selling phase of transactions, as well as some professional traders who were able to manipulate large transactions. These powerful professional traders and investors still dominate the cryptocurrency market, but with a large number of retail investors joining the buyers and sellers, the investment trend of the crypto market is changing.

Since March 9, the volume of small Bitcoin transactions of 0.1-10 BTC has almost doubled, but the volume of transactions between 10-100 and 100-1,000 BTC accounts for about 70% of the total volume, of which about one-tenth of the Bitcoin transactions exceed 1,000 BTC. On the other hand, the recent market fluctuations are not caused by holders who have held Bitcoin for more than five years. If the time span is extended to the past year, it will be found that the proportion of HODLers who have held Bitcoin for more than five years has actually increased from 20.37% to 21.65%, an increase of about 233,800 BTC.

Although the simultaneous plunge in the financial and cryptocurrency markets last week has raised questions about whether Bitcoin can play the role of "digital gold", in fact, the decline of Bitcoin this time is almost in line with the financial market, which also shows that the largest cryptocurrency by market value is increasingly related to traditional industries. As more and more traditional institutional investors begin to add digital assets to their portfolios, this may be a good thing for the crypto industry.