In its latest weekly report, Glassnode states that the Bitcoin (BTC) hash rate has continued its recovery, after the record drop that occurred at the end of June. It is also noted that outgoing BTC flows from exchanges have started to emerge again.
In the Week On-chain # 28 report, which covers the period from July 5 to 11, Glassnode reports that inventories on exchanges have decreased by about 40,000 BTC in the last three weeks, which yields a daily outflow of close to 2,000 BTC.
In the graph below, the incoming (green) and outgoing (red) flows of BTC from the exchanges are shown next to the bitcoin price.
BTC outflows from exchanges are dominant as of this July. Source: Glassnode.
After a predominance of inflows, after the correction of the price of BTC began in mid-April, outgoing net flow of BTC from exchanges kicks off in July, as seen in the graph.
Change in BTC inventories on exchanges
The report highlights that, during 2020 and in the first quarter of 2021, there was a significant decrease in BTC inventories from exchanges, although that pattern changed in May. “This trend reversed dramatically in May, with a large flow of BTC to exchanges, while intensive selling led to a 50% price loss,” the report states.
The following graph shows that in April of this year the minimum levels of BTC are reached in the exchanges, and the incoming flows begin, in correspondence with the deterioration of the price.
The trend of net inflows from BTC to exchanges reversed at the end of June. Source: Glassnode.
The local high of 2.60 million BTC inventories on exchanges was reached in May and, after a fluctuation in June, it starts to decline until closing the week at 2.56 million BTC. That 40,000 BTC decline represents 28% of the total inflow to exchanges since the April low, Glassnode says.
Lower BTC price volatility
Glassnode alludes to the reduction in bitcoin volatility in the mentioned week, in which the price starts at $ 35,128 and reached a local low of $ 32,227. “It seems that calm is coming before the storm, with low activity in both spot prices, derivatives and on-chain metrics.”
The variation between the maximum and the minimum of the week was less than USD 3,000. Source: Glassnode.
Bitcoin’s volatility, while peaking at 25% in 2021, dropped to 10.96% in July, according to charts.wobull.com. The lowest level this year was reached in May, when a volatility of 5.32% was registered, considering a moving average of 60 days.
Signs of recovery for bitcoin miners
Glassnode’s previous weekly report, commented on by CryptoNews, reflected a record drop in the Bitcoin hash rate at the end of June, between 38% and 49%. This, according to Glassnode, it was an indicator of the proportion of the network that was offline, due to the Chinese government’s restrictions on miners.
The speed of the hash rate recovery is key to establishing whether there will be bullish or bearish expectations regarding the bitcoin market, the latest report says.
The percentage of decrease in the Bitcoin hash rate went from -55% to -39%. Source: Glassnode.
If this level of hash rate, close to 110 EH / s is maintained, 29% of the processing would be online again, says Glassnode. This recovery may be due to the fact that part of the miners that had closed their operations in China, would have located their operation outside of that country, the report says. It is also possible, according to the study, that mining equipment has been put into operation that had been retired due to obsolescence.
Bitcoin derivatives on the decline
Regarding bitcoin derivatives, a decrease in the volume of transactions is observed, the report points out.
In derivatives markets, we see relatively calm conditions as open interest stagnates, and trading volumes continue to decline. Given the strong influence of derivatives markets on May’s leverage, this suggests a lower appetite for leveraged speculation.
The authors note that since the selloff in May, open futures interest has remained limited to between $ 10.7 billion and $ 13 billion, with few notable spikes or drops within that range, as the chart below shows.
Bitcoin futures open interest is down nearly 60% from its all-time high in April. Source: Glassnode.
On the other hand, Glassnode highlights in said graph that open interest remains 57% below its historical maximum, established in April when Coinbase went public, as reported in CriptoNoticias.
Bitcoin futures volumes
Volumes in the futures markets also declined to $ 45 billion traded per day, a level that was recorded in the first quarter of this year.
Decreased volume of bitcoin futures. Source: Glassnode.
In that period, prices moved in a similar range, between USD 29,000 and USD 38,000. As can be seen in the previous graph, current futures volumes are 62.5% and 49% lower than May and June capitulations, respectively.
Bitcoin options open interest
Regarding open interest on options, a 67% slowdown is observed from the highs of USD 13.2 billion in March and April, as can be seen in the following graph. Open interest on current options is $ 4.4 billion, the same level it was in December 2020, the study says.
The open interest on bitcoin options fell almost 70% compared to March and April. Source: Glassnode.
Taking into account this steep decline in all derivatives markets, it is increasingly likely that market volatility will be driven by spot or spot volumes, Instead of contractions from long or short positions, or leveraged sell-offs, study says. “So the direction of the next big move is likely to strongly reflect underlying supply and demand (rather than a speculative premium or discount),” he says.
It had also been pointed out in the previous report that, although the income of the miners had decreased, these funds would be distributed among a smaller number of miners, close to 50%, due to migration. The fact that this represented a relative improvement in the income of the miners who remained operational, led to a decrease in selling pressure, and they began to accumulate BTC again.
In the chart below, the bars in red represent the BTC sold by the miners. The most recent period of sales was in the month of June, while as of July 5 the accumulation was restarted (bars in green).
The miners have restarted the accumulation of BTC. Source: Glassnode.
Dynamics of bitcoin supply
Glassnode analyzes the behavior of various groups of BTC held, according to their age, or the period they have been without movement. The first two groups correspond to coins held for 2 to 3 years and those held for 3 to 5 years.
Those in the first group accumulated BTC in the bear market, at the end of 2018, until the peak of 2019, and together they own 9.8% of the supply, according to the study. The 3- to 5-year-old group accumulated between July 2016 and July 2018 and represents buyers from recent bullish cycles, the report says. “This group continues to grow and represents 13.1% of the supply,” the authors note.
Retained BTC bands of 2-3 years and 3-5 years. Source: Glassnode.
The study then focuses on two younger age groups: 6 months to 1 year, and 1 year to 2 years. These groups of BTC represent, respectively, 13.3% and 9.0%. Disregarding a decrease in the first segment in the first quarter, in both middle-aged groups no expenditure is currently perceived, the authors affirm.
The behavior of these two groups in the coming months is key to appreciate how much of the institutional acquisitions of the last year is kept in “firm hands” or if it has been sold recently.
Finally, the study addresses the so-called «young coins» from 1 week to 1 month, 1 month to 3 months and from 3 months to 6 months that, together, went from November 2020 to May 2021 from 22% to 32% of the supply. However, since the intensive sales in May, the 3 groups have declined, largely due to “maturation,” the report says. This means that they pass to the group of coins held over a longer period of time.
Coins held between 1 week and six months. Source: Glassnode.
Glassnode argues that it is favorable for the price that the number of young BTC continues to decline, which would indicate that they are maturing, while the oldest coins are still retained. The large rallies of the young currencies, on the other hand, would indicate that there is intensification of the sales which is of a bearish sign, says the study.
Among the highlights of this weekly report, compared to the record drop in the hash rate at the end of June, 29% of the drop in processing returned to the network between July 5 and 11, while the trend of the net inflows of BTC to exchanges. This accumulation was estimated at 2,000 BTC per day, which includes accumulation by miners.