Long-term Bitcoin holders did not sell during market crash: Coinbase Research

Long-term bitcoin owners have not thrown their holdings into the market weakness, as short-term speculators are mainly responsible for the heavy sales that exacerbate the asset’s nosedive, according to Coinbase’s latest monthly report.

Miners and crypto companies forced to wind up their positions to stay solvent in the middle of a liquidity exodus have shown that the industry is in a credit-related risk rather than a crypto-specific crisis, the newspaper also noted.

True believers hold

Entitled “The Elusive Bottom”, the report looked at the general market situation in June when the primary cryptocurrency revealed signs that it was close to the bottom. According to data from the chain, holders who had owned bitcoin for more than six months still accounted for 77% of the 21 million bitcoins ever available for recovery, despite a small drop from 80% recorded at the beginning of the year.

It demonstrated a relative strength of the asset as the ownership percentage of long-term owners exceeded the 60% level at the top of the previous cycle in December 2017. The report looked at such a phenomenon as a positive indicator that true believers were less likely to go deeper. sales pressure during turbulent periods.

A credit crunch

In particular, the ongoing carnage has been driven primarily by Fed-induced rate hikes and over-leveraged crypto firms, as well as miners who were forced to relieve their holdings when their lost collateral was in danger of liquidation.

The report claimed that CeFi lenders drastically increased short-term debt when the beef market was in government. They took huge loans from DeFi protocols and lent the capital to counterparties who paid even higher interest rates. Some counterparties had “duration mismatches and severe re-mortgaging of assets in their books”, which were lent to crypto hedge funds and other entities.

The snowball continued to roll until the violent correction hit the market, which led to an intensified contagion effect quickly spreading across the market. In particular, the OTC trading desks were largely responsible for the liquidity pressure that forced margin requirements or direct repayments on some of the loans.

“These OTC desks tend to expand their balances and simplify trades by borrowing without collateral to try to maximize capital efficiency. Such unsecured loans will be granted on the basis of these OTC desks’ data in the chain and outside the chain. Nevertheless, when these loans are repaid or revoked, the desks are forced to show customers their wider bid-spread spreads or smaller trade sizes. “

To exacerbate the ongoing credit crunch, listed miners – who had taken out huge loans secured by bitcoin holdings or mining machines under the beef market – were forced to sell their positions amid falling asset prices. But since the 28 best public mining companies only represent 20% of bitcoin’s hashrate, their sales will not drastically affect trading volume.

“Even if the bitcoin price were to go to $ 10,000, they would have to liquidate 16 bitcoin from their reserves to pay the gap every day, which means they can still last ~ 120 days. We think it is unlikely that it will have a significant impact on the price given that it is ~ $ 6B in average daily BTC volume on exchanges. “

Stablecoin concerns

In connection with the Fed’s commitment to raise interest rates to combat violent inflation, investors tend to withdraw capital from DeFi protocols to seek higher returns from traditional finance. The effect is shown in the decline in the total market value of stack coins, falling from $ 162B in early May to $ 149B in late June.

$ 12.6 billion in capital may have left the crypto ecosystem due to the pursuit of higher returns. Given that the CPI for June reached 9.1% – well above what Wall Street expected – the Fed is set to follow a new 0.75% increase this month. As such, the outflow of stablecoin is expected to increase correspondingly.