Bitcoin price has experienced a remarkable 80% recovery from where it started on the 12-Mar before the Black Thursday sell off. In the newsletter from 15-Mar (link) we covered many of the on-chain metrics that were signalling extreme over-sold conditions and that probability was on our side to expect a strong bounce.

Importantly, price retested the Realised price which we have been taking about since way back in June 2019 (video link) usually occurs after a bear market to launch into more bullish conditions. We also have not seen an uptick in on-chain transaction volume which in part has to do with Tether migrating over to Ethereum.

The core thesis back in 2019 was that we did not see signals of coins being withdrawn for the long HODL, increasing demand for block-space and price appreciation was ‘unnaturally fast’.

It was later revealed that the PlusToken Ponzi scheme in China was responsible for a large volume of Bitcoin demand and we ultimately returned to the ‘mean’ as that demand turned to liquidation supply.

Has the situation changed?

Short answer is yes.

Doc has been calling for a major capitulation since early 2018 and if I recall correctly, was not overly impressed with the volume we got in Dec 2018. It took another 15months but we finally got a capitulation with the volume and the long angry wick the Doctor ordered.

During the sell-off, we managed to hit all four of the primary capitulation signals using on-chain analysis. Coupled with the high volume on exchanges, long wick and 80% recovery to date, things are actually looking pretty strong.

Coinmetrics undertook an excellent study of which coins actually moved during the Black Thursday sell-off. The data revealed that it was predominantly driven by coins aged 30 to 90 days old, suggesting most sellers were weak hand, new market participants. The chart below shows this ‘revived supply’ coloured by coin age.

This also shows that strong hands were unphased by this move, the market deleveraged itself and buyers were likely those who have conviction for the long hold.

https://coinmetrics.substack.com/p/coin-metrics-state-of-the-network-30a

The mining market also took a temporary hit as the difficulty adjustment wound down by 13.5%, one of the largest in Bitcoin’s history. This suggests that a number of weak miners became unprofitable during this time and gives us insight into what will likely occur come the halving in 23-days. Hash-rate has largely since recovered which may also be in part since BCH and BSV halved and their block-reward is no longer profitable.

New signals

There are a number of new and promising signals appearing that are indicative that we may have now put a bottom in. Despite the macro outlook, it appears there is new interest coming in from both retail and institutions attracted to Bitcoin and crypto at large.

Coinbase released a report on 31-Mar where they documented that not only was there an increase in buy volume and unique people buying BTC and ETH, they also saw a 2x increase in user sign ups. This shows positive signs for retail interest in crypto.

https://blog.coinbase.com/on-crypto-markets-and-bitcoins-value-proposition-2fbbca5349dd

Glassnode also presented a study looking at the outflows of BTC from exchanges. The number of BTC on exchanges has fallen from around 2.6Million coins before Black Thursday to around 2.3M, meaning 300k coins were withdrawn whish around 12% of the exchange supply. This is exactly the kind of behavior that indicates accumulation and withdrawal for the long hold.

The report also notes that across multiple exchanges, similar new signups and inflows of new customers peaked during and after Black Thursday, further cementing that retail interest remains strong.

https://insights.glassnode.com/bitcoin-sees-influx-of-retail-interest/

The chart below from Glassnode shows the balance between exchange inflows and outflows. Keep in mind that the data is a bit delayed as I do not have a Tier 2 subscription but we can clearly see that outflows have been dominating inflows for the last few weeks.

Grayscale’s institutional product GBTC, which is similar to an ETF for Bitcoin, has also seen a doubling of inflows over the last quarter. This suggests there is increasing demand from the larger institutions and the Q1 2020 bar clearly dwarfs previous quarters.

https://messari.io/article/grayscale-s-q1-report-highlights-a-record-500-million-inflow-to-crypto-investment-products