Key Insights Behind the Market-Wide Crash: A Data Perspective by IntoTheBlock

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Every week, IntoTheBlock brings you on-chain analysis of top news stories in the crypto space. Leveraging blockchain’s public nature, IntoTheBlock’s machine learning algorithms extract key data that provide a deeper dive into the major developments in the industry. 

This week, we cover patterns that had been emerging prior to the market crash that offer a data-centric perspective of the recent action. Specifically, we dive into on-chain metrics for Bitcoin and Ethereum that also provide an insight into where the market may be heading next.

Bitcoin Hodlers Stay Strong Despite Prices Likely Falling Further

With traditional and crypto markets crashing simultaneously, the total market capitalization in crypto dropped by 20% within a week. Bitcoin was no exception, dropping over 15% so far in September. The crash coincided with high large transactions volume, suggesting whales and institutional players have likely sold Bitcooin at least partially.

IntoTheBlock classifies large transactions as those with a value of over $100,000. As can be seen in the graph above, this amount surpassed $24 billion as Bitcoin prices peaked on August 17 and again on August 31. 

The fact that these dates coincide with a local top and precede the recent crash point to the likelihood of institutional players taking advantage to sell prior to price dropping. Despite this, long-term holders seem to be impervious to volatility.

IntoTheBlock classifies a hodler as any address with a holding period of over one year. As shown in the graph below, the number of hodlers has increased steadily over the past year, even during the much sharper March crash. Overall, this suggests that long-term players are more likely to add to their positions than to sell during periods of high volatility. 

Finally, by observing areas where a high amount of addresses have previously bought in, we can derive an idea of key areas where holders are expected to buy/sell. Using machine learning to identify the most relevant clusters of addresses’ positions, IntoTheBlock is able to determine the number of addresses and volume of tokens profiting (in the money) or losing money (out of the money) at a given price. Based on the aggregate of these positions, we can then validate support and resistance levels and determine the strength of these using on-chain data.

As can be seen in the graph above, the In/Out of the Money Around Price (IOMAP) indicator detects that 1.45 million addresses previously bought 608,000 BTC at the $10,000 mark. This area had previously been high support and recently turned into strong resistance as holders will look to sell near this key price point.

On the other hand, strong support is expected between $9,100 and $9,400, where 1.69 million addresses previously bought 917,000 BTC. This level also matches the 0.618 Fibonacci retracement, making it a likely area for price to find support if prices drop lower. Ultimately, on-chain data is helpful at identifying and validating these key levels.

Ethereum Exchange Inflows & Large Transactions Spike Prior to Prices Crashing

Leveraging Ethereum’s permissionless nature, IntoTheBlock is able to extract key data and formulate valuable insights about the recent market crash.  With the price of ETH reaching levels not seen in over two years, on-chain data suggests traders “FOMO’d” into buying throughout July and August. This is evidenced by the number of short-term ETH holders reaching yearly highs.

IntoTheBlock categorizes traders as those addresses that have been holding a crypto-asset for less than 30 days. As demand for Ethereum and DeFi protocols has risen significantly over the past few months, the number of ETH traders has been hitting yearly highs for three consecutive months. This trend broke in September as prices incurred a sharp correction.

While the number of addresses with a holding period of under one month hit a yearly high by the end of July, the volume of ETH held by traders continued to rise into August. With 14.59 million ETH being held by traders, approximately 13% of the circulating supply changed hands within thirty days, the highest in over two years. This would suggest that speculative activity had been rising along with ETH’s price. 

Moreover, it appears that institutional players and whales have been the ones driving the recent volatility. This may come as no surprise following the exuberant price action and the recent risk-off sentiment echoed in traditional markets. 

IntoTheBlock classifies large transactions as those that have a value above $100,000. These act as a proxy for transactions coming from institutional investors and whales. Large translations had peaked during the March crash, with $1.5 billion in ETH large transactions taking place on Black Thursday, but this has been overshadowed with multiple days hitting $3.0 billion in September.

As prices peaked on September 1, $3.63 billion in ETH large transactions took place within 24 hours. This is the highest volume in ETH large transactions since January 2018, pointing to a considerable number of institutional investors taking profits as prices began to crash. 

Exchange net flows subtract the volume of ETH entering exchanges minus the amount leaving exchanges. In general, inflows into exchanges should be taken as a precaution of holders potentially looking to sell. 

In this case, significantly more ETH had been flowing into exchanges than out of them before the crash. As a matter of fact, $326 million more ETH flowed into top exchanges than out of them in the week between August 25 and September 1. This was the highest weekly net inflow of ETH in 2020, even surpassing when traders panicked in mid March.

This trend reversed sharply shortly after, with a net $221 million in ETH leaving exchanges on September 5. On that same day, large transactions also spiked to $3.39 billion, pointing to whales likely withdrawing ETH from exchanges. This could potentially signal accumulation by large players following the 20% drop. However, it does not necessarily indicate that prices have reached a bottom. 

Overall, on-chain data suggests that ETH holders had been overconfident throughout August as short-term traders reached their highest levels in years. At the same time, approximately 1.5 million addresses appeared to have taken profits since the last time ETH was at approximately $340. Spikes in large transactions and exchange inflows point to institutional investors and whales having sold prior to ETH crashing, but the sudden drop in outflows may point to many of them buying back following the drop of over 20%.

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This article is intended to be used and must be used for informational purposes only. It is important to do your own research and analysis before making any material decisions related to any of the products or services described. This article is not intended as, and shall not be construed as, financial advice. 

The views and opinions expressed in this article are the author’s own and do not necessarily reflect those of CoinMarketCap.

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