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Crypto Market Signals Go Bearish But Long-Term Investors Still Accumulate

Crypto Market Signals Go Bearish But Long-Term Investors Still Accumulate 101
Source: AdobeStock / Patrick Baas

Many of the key crypto market indicators have turned bearish during the past few weeks, with the last month bringing historically large declines by most on-chain activity metrics, according to on-chain activity and digital asset flow data. That said, it's still the new entrants who are selling, while the hodlers continue accumulating.

James Butterfill, Investment Strategist at digital asset investment firm CoinShares, said that investors remain cautious on bitcoin (BTC), but that ethereum (ETH) and altcoins remain popular.

In it latest Digital Asset Find Flows Weekly report, Coinshares said that USD 94m has left digital asset investment products last week, but only one product provider witnessed significant outflows, while the rest saw inflows.

Additionally, the weekly BTC investment product trading volumes fell by 62%.

The report stated that bitcoin outflows totaled a record USD 141m last week, and were equivalent to 8% of the net inflows this year. Still, they remain minimal on relative terms compared with the outflows seen in early 2018.

On the contrary, ETH continues to be a popular choice among investors, as the asset saw inflows of net USD 33m.

Meanwhile, XRP investment products added USD 7m, while cardano (ADA) got additional USD 4.5m.

Additionally, Arcane Research said today that the contango for the 3-month bitcoin futures, or the difference between the futures price and the expected sport price, is now almost gone and the spot price and the 3-month futures contract are almost trading at the same price.

"This indicates a more bearish sentiment among futures traders," they added.

Hodlers hodling more

A report by cryptoasset on-chain analytics firm Glassnode noted that the supply held by long-term holders is continuing to accelerate upwards, while newer entrants are letting go of their coins at a loss that is “much larger than the market on average.”

Per the report, “the market remains uncertain,” following large falls in on-chain activity, settled volume, and transaction fees, for both BTC and ETH, returning them to the 2020 and early 2021 levels.

“By almost all on-chain activity metrics, the recent month has been a historically large decline, transitioning rapidly from booming on-chain economies at ATH [all-time high] prices, to almost completely clear mempools and waning demand for transactions and settlement.”

Glassnode also claims that during the recent selloff, the Bitcoin network saw an 18% reduction in active addresses from the recent ATH of 0.94m, along with 33% reduction in active entities, down from 375,000 to 250,000.

What's more, the USD denominated transfer volume settled via the Bitcoin network fell 65% in the last two weeks. As other metrics, this one too is similar to the 2017 bear market, Glassnode noted, when on-chain settled volume fell by 80% in 3 months.

Ethereum USD denominated transfer volume fell by over 60% during the last two weeks, compared to 2018's -95%.

The fall in on-chain activity has also led to a significant decrease in the network fees for both blockchains, returning to mid-2020 levels, Glassnode said. Yesterday, Bitcoin median transaction fee was USD 1.72, while Ethereum's was USD 2.3, per BitInfoCharts.com.

When it comes to supply dynamics, only 22% of all BTC acquired during the last 14 months were sold.

“The 744k BTC that were withdrawn to cold storage (or equivalent) over the last 14-months, 78% of them have remained unspent despite this recent volatility,” the analysts said.

The slowdown is not limited to BTC and ETH, as “the aggregate on-chain activity like on-chain transfers and USD valued moved for Compound (COMP), Aave (AAVE), Uniswap (UNI), and yearn.finance (YFI) protocols have dropped significantly as well, stated Glassnode.

Also, ETH has surpassed BTC volume on most of the major exchanges. However, per crypto intelligence firm Coin Metrics, BTC still leads on the Chicago Mercantile Exchange (CME), a preferred destination for institutional investors.

"CME only introduced ETH futures in February but they have been gaining momentum since then. Although it appears retail investors trading on exchanges like Binance and Coinbase have favored ETH over the last month, it appears that institutional investors are still favoring BTC," Coin Metrics said in their latest report today.

Meanwhile, a recent survey conducted by Goldman Sachs suggested that institutional investors are not keen on investing in bitcoin.

During two CIO (chief information officer) roundtable meetings, attended by 25 CIOs, the survey showed that their least favorite investment was bitcoin. 35% of respondents said BTC was their least favorite, followed by new initial public offerings with 25%, and rate sensitivities with 20%.

Besides, Bank of America’s global fund manager survey found that 43% of the surveyed investors said long bitcoin was the most crowded trade in May.

At 14:14 UTC, BTC is trading at USD 32,412, after it fell almost 11% in a day and nearly 14% in a week. ETH dropped over 13% in a day and almost 11% in a week, to the current price of USD 2,418.
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