Recent on-chain data provides insights into the factors contributing to the decline in Bitcoin’s value, especially in the midst of increased participation from institutional players.
Contrary to expectations following the approval of the Bitcoin spot ETF, Bitcoin witnessed significant declines over the past week. Although the approval had initially propelled Bitcoin close to $49,000 on January 11, the asset has since experienced a 17.7% drop, falling from a brief peak of $48,650 to approximately $40,500 within the last 24 hours. Seeking to unravel the mystery behind this unexpected downturn, market intelligence firm IntoTheBlock delves into the data.
One notable observation is the continuous inflow of Bitcoin into centralized exchanges (CEXs) over several weeks. According to IntoTheBlock, CEXs have seen consistent Bitcoin deposits for six consecutive weeks, totaling almost $2 billion in net deposits since December. Traditionally, sustained deposits into centralized exchanges often signal sell-offs, providing a direct path to fiat. However, the identity of the specific entities exerting selling pressure on the Bitcoin market remains a critical question.
Insights into Bitcoin’s average holding time for transacted coins revealed a key aspect. IntoTheBlock noted that this metric reached an all-time high on Monday, marking the second-highest weekly duration. This suggests that long-held Bitcoin tokens have started circulating, with individuals exiting the Grayscale Bitcoin Trust (GBTC) contributing to the renewed outflow.
Additionally, the Balances by Holdings metric unveiled an interesting trend. Addresses holding over 1,000 BTC increased their wallets, while those with fewer than 1,000 BTC reduced their holdings in January. Notably, addresses holding Bitcoin for 1-12 months are among those decreasing their balances.
Simultaneously, long-term holders, who have historically been influential, have adopted a more subdued position, reflecting a slight decrease in their overall Bitcoin holdings. In contrast, short-term Bitcoin holders have increased their positions consistently since October 2023, a period typically associated with bullish markets.
Despite concerns about a shift from long-term to short-term holders, IntoTheBlock suggests that the current scenario differs from previous market tops. Factors such as lower volume compared to previous bull markets and a limited decrease in long-term holders’ balances lead the analytic platform to propose that Bitcoin may be experiencing a temporary setback rather than entering a bearish trend. The platform anticipates a strong comeback for the asset into bullish territory.
