So, that a capitulation worthy of the name has taken place, the holders of BTC, ETH and stablecoins withdraw their capital from the centralized exchanges in a massive way. This exodus, coupled with the difficulties faced by some market makers, has caused a liquidity crisis across the BTC and ETH markets. On-chain analysis of the situation.
Rebound at the $15,000 level
Following the invalidation of the $18k support two weeks ago, the price of Bitcoin (BTC) is moving uncertainly, forming a temporary floor at the $15,000 level.
Plunging a significant portion of BTC holders into a state of latent loss, the recent bearish move has caused a wave of loss realization of historic magnitudewith more than $1 billion in daily losses over the past week.
Figure 1: Daily price of BTC
Furthermore, participants’ search for security has fostered a visible exodus of BTC, ETH and stablecoins off exchangescreating favorable conditions for a liquidity crisis on several platforms.
This week, we’ll be leveraging data from Glassnode and French unicorn Kaiko to portray the current state of the cryptocurrency market.
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A historic capitulation
Regarding the recent wave of losses made by the entire market, we can be sure that it will be engraved forever in the books of Bitcoin history, so exemplary is its scale and course.
By observing the aSOPR, we can detect a second net discharge from the neutral zone (in red) at the beginning of Novemberinvalidating the potential change in the structure of the profitability of spending, as suggested during the analyzes of August 19 and November 8.
Figure 2: Expenditure profitability ratio
This pivot rejection resulted in a sharp drop in price and then aSOPR, indicating serious loss taking from many cohorts of investorsthe magnitude of which is similar to that of December 2018 and March 2020.
Currently, the average loss realized by a holder is -10.6%, symbolizing colossal financial pain that manifests only very rarely. Here is a worthy capitulation, which obviously released the selling pressure which remained until then.
The breakout of the $18,000 support on Bitcoin caused a visible sell-off, especially among holders who had accumulated the asset between $18,000 and $20,000.
The realized losses thus exceeded billion dollars dailywhich ultimately does not seem so consistent in the face of the other selling phases of the current bearish cycle.
Figure 3: Realized losses
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One of the reasons for this low volume of losses is that buyer exhaustionwhich have fewer and fewer losses to make as the bear market builds and the price of cryptocurrencies drops drastically.
At this stage, a majority of investors have their heads under water and although some are still resisting, many participants have already taken the exit door. From a relative perspective, we can also compare loss taking to previous cycles through the use of realized market capitalization.
Serving as a proxy for measuring the value invested in the market, realized capitalization, when it factors realized losses, gives rise to the RLV (Realized Loss to Value) ratio, which measures the magnitude of sales compared to the value injected into the network.
Figure 4: RLV Ratio
This indicator is very useful when it comes to comparing profit/loss over time because it corresponds to the change in scale of the money supply circulating in the market over market cycles.
Thus, it appears that the recent sales phase destroyed nearly 3.71% of the value present on the network, a figure very close to that recorded in December 2018 (3.55%)indicating that the magnitude of destroyed value is reaching a cyclical low.
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The exodus off the exchanges
In response to the mistrust caused by FTX and the ongoing debt contagion, Bitcoin and cryptocurrency holders at large have opted in a coordinated way for security through autonomous guarding.
This paradigm shift, visible on the channel, is symptomatic of the will of the holders ofregain their sovereignty to the detriment of a higher yield, the origins of which were sometimes doubtful.
Figure 5: BTC reserves of exchanges
Thereby, the market has witnessed the highest flow of BTC leaving the exchangesreaching a peak of nearly 120k BTC withdrawn per day in the past week.
The ongoing exodus to hardware and software wallets is real and, although it was triggered by a very painful event, represents a healthy takeover for the ecosystem if the trend continues.
A similar dynamic can be identified for Ether, which is even more steeply sloping, signaling broadly sustained pullback momentum since early November.
Figure 6: ETH reserves of exchanges
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With nearly 1.81 million ETH withdrawn from exchanges last week, the rate of outflows is the strongest ever recorded in the history of the Ether market.
Finally, the four major stablecoins (USDT, USDC, BUSD and DAI) are showing a similar trend, a sign that holders and investors now favor independent childcare solutions and decentralized finance versus centralized service providers in which trust is eroding.
Figure 7: Reserves of stablecoins (USDT, USDC, BUSD, DAI) from exchanges
A record of flow of stablecoins leaving the exchanges was recorded within the last week, with $2.79 billion in volume, marking by far the largest pullback phase in market history.
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Drop in exchange liquidity
With all the prime collateral (BTC, ETH, and stablecoins) leaving exchanges and flowing into the peer-to-peer economy, a liquidity crisis is underway through centralized exchangeswhich impacts the fluidity of exchanges and market making throughout the sector.
Indeed, data from the French firm Kaiko indicate that the overall depth of the BTC-USDT pair has seen a noticeable pullback since the collapse of the FTX platform and the firm Alameda Research.
Figure 8: Market depth of BTC-USDT pairs
This means that for a given spot price, the quantity of buy/sell orders within +/- 2% of the average price has decreased significantlycreating friction that makes it more difficult to settle transactions.
This dynamic does not seem to be an epiphenomenon but rather a response from all the market places faced with the drop in liquidity necessary for the proper functioning of financial operations:
“Liquidity typically declines during periods of volatility as market makers remove bids and asks from order books to manage risk and avoid toxic flows.
But the decline in liquidity we have seen over the past week is far greater than any previous market decline, suggesting that the air pocket created by Alameda in terms of liquidity could be here to stay, at least in the short term. – Kaiko »
Figure 9: Market depth of BTC-USDT pairs for different exchanges
Finally, it seems that the state of the ether (ETH) market was also deeply impacted by the bankruptcy of Alameda Researchwhich incidentally was an important liquidity provider for many decentralized protocols.
Here too, the record withdrawals of the past few weeks as well as the difficulty in which certain market makers such as Wintermute, Amber Group and Genesis find themselves have had the effect of reducing market liquidity, in a potentially temporary but very palpable way.
Figure 10: Market depth of ETH-USDT pairs
The side effects of the fall of FTX are only just beginning to be felt and the stability of some structures considered unshakable show how young and developing the ecosystem is.
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Summary of this on-chain analysis
In sum, this week’s data indicates thata worthy capitulation took place following the fall of FTXcausing a multi-billion dollar loss realization, similar in magnitude to December 2019 in terms of relative destroyed value.
In response to the mistrust caused by FTX and the ongoing debt contagion, bitcoin, ether and stablecoin holders opted for security through self-custody and massively withdrew their capital from centralized exchanges.
This exodus, coupled with the difficulties faced by certain market makers, has caused a liquidity crisis across the BTC and ETH marketswhose first signs of recovery are showing themselves timidly.
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Sources – Figures 2 to 7: Glassnode; Figures 8 to 10: Kaiko
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On-chain analyst, fervent fighter of informational asymmetry.
My goal is to inform everyone about the state of Bitcoin (as an asset and a distributed network) through the prism of on-chain analysis.
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