The cryptocurrency market is down by more than 10% over the last two days. Bitcoin came back down to its previous 43-44k levels, and others, as usual, followed its price movements. Fundamentally, there were no changes observed, and we are still on the right track.
But what the hell happened, you might ask? The major reason for this sell-off is the equity-market crisis rollover. Evergrande, China’s second-largest developer, is on the brink of default.
As the company’s debt crisis is over $300 billion and employs more than 200,000 people, investors globally are nervous it might be another one of those ‘Lehman Moments.’ In this article, we are going to break down some on-chain metrics to see if this debt crisis has changed anything fundamentally for bitcoin moving forward. Let’s get started!
Evergrande’s Debt Crisis
Before we get to the on-chain stuff, we first need to understand the present market conditions globally. The Dow Jones industrial average lost 500 points, making it the biggest fall since July. We saw London’s FTSE 100 have a similar trading session. It fell below 7,000 for the first time since July. The Europe Index was down by 2% and Hang Seng by 4%. This is the effect of economic contagion.
It affects all the investors involved, but more importantly, it will rob people of their jobs and livelihood. This real estate company creates 4 million jobs annually, and all of sudden- it is not going to continue that way. We have also learned that Evergrande took short-term loans from its employees, and if anyone refused, they flat out cut their bonuses.
The solution here is a bit tricky. If the government bails out the company, then there will be a similar financial meltdown like the 2008 insolvency of Lehman Brothers. This will not only cause a setback for the world, but it puts us back to square one. Due to the pandemic, we have seen markets crash, and we are now progressing, hoping for better economic conditions. That is why now is a bad time for the world to experience another financial collapse.
On the other hand, if the Chinese governments let Evergrande collapse, there will be roiled credit markets, widespread financial distress, and largely affected GDP growth. Some analysts are predicting a liquidity squeeze in crisis mode, as banks seem to be stockpiling yuan. The sell-pressure is not escaping as we would expect, so we have to wait and watch how quickly the government will take action.
From an On-Chain Perspective
The price of bitcoin is down by more than $5k, but it doesn’t change much with respect to on-chain data. We have seen similar trends continue over the past few weeks. When associated with bitcoin, this equity-market correlation is a false narrative, so recent price movements are completely based on market sentiment. With that being said, let’s move on to some on-chain metrics.
Whale Holdings
In the last two months, we have seen entities with more than 1000 BTC add 184,699 bitcoins at an average price of $48k. We are closely watching this trend, as it shows big players’ interest and their accumulation power. If we see long-term holders or whales continue to accumulate, it is a very good sign moving forward.
The ASOL charts of bitcoin also show older market participants are simply waiting on the sidelines as we know that spending from older entities highlights a bearish picture. Well, that is not the case right now.
Supply held by Retail
It is always important to zoom out. The percentage of total supply held by Retail is an important factor to consider, as it drives the middle of a bull market. Here, the Retail or ‘little guys’ are market participants who own less than 10 BTC.
As we can see, the supply held by retail is rising like crazy, and we do not want to see this go down. The interest from retail players is still growing, so we can expect to see some major upticks in the coming weeks.
Binance’s BTC Balance
Binance’s bitcoin balance suggests a sell-off from China, but the overall exchange balance remains neutral.
We need to monitor this trend and verify if this is showing up in any other exchanges as well. The other metrics relating to inflows still project a bullish macro case.
Percent of Entities in Profit
If we draw out zones for understanding the cost basis concentration, we find out that 8.6% of on-chain entities have a cost basis of $43k and $48k. When we hit a new peak ($52.6k) a couple of weeks back, 92% of the entities profit, now that number has come down to 78%.
Miner Recovery
While the price of bitcoin faced a little turbulence, its network continues to stay resilient. The miners are coming back online, reaching 137 Exahash on a 7-day MA basis. This is a good sign moving forward because the decline of hash power after China cracked down on mining was more than 50%. With this 52% recovery, we can expect less sell pressure from miners, but we still have a long way to go.
We know that when miners sell off their share of BTC, it is a major problem. The previous pullback in June also happened for the same reason. But that is not the case right now. The miners accumulated 14,000 BTC in 6.5 months, and they spent just over 1,300 BTC in late August.
Closing Thoughts
The supply dynamics haven’t changed much, despite what is happening in the equity markets. Evergrande’s debt crisis needs to be monitored, for sure, as it can indirectly impact the price of bitcoin and other asset classes. Other than that, we remain rock solid from an on-chain perspective. Long-term investors continue to capitalize on these pullbacks, and retail remains unshaken. Even with all the trends showing positive signs, predicting anything in the short term is difficult, so it is better to watch the metrics mentioned above more closely in the next few weeks.
Born and brought up in India, Karthikeya Gutta is a crypto journalist and freelance contributor for ItsBlockchain. He covers various aspects of the industry with in-depth analysis and research. His passion towards blockchain and crypto ecosystem is mainly because he believes it can really change the world and help millions of people.
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