Crypto Markets Analysis: Is Bitcoin Heating Up? Looking at On-Chain Data for Clues

Sure, there's been a bit of a mini-rally this week in BTC. But an analysis of blockchain data highlights the recent months' slowdown in institutional crypto investing.

AccessTimeIconJan 11, 2023 at 8:59 p.m. UTC
Updated Jan 11, 2023 at 9:39 p.m. UTC
Consensus 2023 Logo
Join the most important conversation in crypto and Web3 taking place in Austin, Texas, April 26-28.

Glenn C Williams Jr, CMT is a Crypto Markets Analyst with an initial background in traditional finance. His experience includes research and analysis of individual cryptocurrencies, defi protocols, and crypto-based funds. He owns BTC, ETH, UNI, DOT, MATIC, and AVAX

Consensus 2023 Logo
Join the most important conversation in crypto and Web3 taking place in Austin, Texas, April 26-28.

In Tuesday’s column we looked at technical analysis highlighting signs of increasing volatility in crypto markets. Thursday’s conversation will likely deal, at least in part, with the release of the U.S. Consumer Price Index (CPI) report for December, as investors seek clues on the outlook for Federal Reserve monetary policy based on the latest inflation reading.

On Wednesday we are looking at a few pieces of on-chain data for signs of hope or concern on the bitcoin (BTC) market. Like many things in financial markets, we’ll likely find a bit of both.

At stake is whether bitcoin's mini-rally this week above $17,000 is sustainable.

An initial area of potential concern is a recent downturn in new bitcoin addresses. Data from Glassnode shows that higher prices for BTC tend to result in more bitcoin wallets as interest increases, and vice versa.

CoinDesk - Unknown

Bitcoin New Addresses (Glassnode)

What may be concerning is the decline in addresses in November while BTC traded relatively flat. This could signal a couple of things:

  1. Markets at the time didn’t yet think bitcoin prices had reached a bottom.
  2. Whether BTC had bottomed or not, investors felt better opportunities existed elsewhere.

What ultimately may be more useful is to examine when the number of new addresses starts to move higher again. Optimism seemed to appear in August, when the number of addresses began to increase with BTC at $22,000. The pivot downward appears in November, shortly after the FTX fallout began.

Bitcoin transfer volumes

Declines in transfer volumes on the Bitcoin network also warrant concern, particularly related to institutional investment in crypto assets.

Higher aggregate amounts of BTC being transferred implies that larger investors are purchasing bitcoin. Between August and now, the total amount of BTC transferred declined from $48 billion to $5 billion, implying that large investors have slowed participation substantially.

CoinDesk - Unknown

Bitcoin Transfer Volume (Glassnode)

Part of this is certainly a byproduct of declining prices, but the 90% decline in transfer volumes significantly exceeds the 23% decline in price since August.

Transfer volume by size also implies that larger players are on the sidelines, with transactions in excess of $1 million falling from 68% of daily activity in August to 45% of daily activity currently.

CoinDesk - Unknown

Bitcoin Transfer Volume by Size (Glassnode)

The recent increase in prices certainly provides short-term gains for bullish investors.

Ultimately, the verdict is still out on what bitcoin does next.

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

CoinDesk - Unknown

Glenn C Williams Jr, CMT is a Crypto Markets Analyst with an initial background in traditional finance. His experience includes research and analysis of individual cryptocurrencies, defi protocols, and crypto-based funds. He owns BTC, ETH, UNI, DOT, MATIC, and AVAX


Learn more about Consensus 2023, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.


CoinDesk - Unknown

Glenn C Williams Jr, CMT is a Crypto Markets Analyst with an initial background in traditional finance. His experience includes research and analysis of individual cryptocurrencies, defi protocols, and crypto-based funds. He owns BTC, ETH, UNI, DOT, MATIC, and AVAX