Bitcoin (BTC) is in a long-term bear market that has lasted since at least November 2021. The drop in BTC price has devastated most portfolios, and many on-chain indicators have led to historic lows. Despite this, some data suggests another brutal sell-off could be on the horizon.
Today’s on-chain analysis looks at several indicators that, on the one hand, suggest that the bitcoin market today enjoys record levels of investor confidence and low risk. So far, the $18,500-$19,000 area appears to be solid support and market participants believe it will bounce. On the other hand, however, there is reason to believe that the declines are not over and a final, deeper sell-off is imminent.
Reserve risk – high investor confidence and low risk
The reserve risk is defined as the price relative to the so-called HODL bank. It is used to assess long-term holders’ confidence in the price of the native coin at any given point in time. When investor confidence is high and the price is low, there is an attractive risk/reward tradeoff. The reserve risk is low. When confidence is low and price is high, the risk/reward trade-off is unattractive at that point. Then the reserve risk is high.
Looking at the long-term chart, we can see that Reserve Risk made lows in the green between 0.0025 and 0.0001 in historical bear markets. In contrast, the all-time historical highs (ATH) in bitcoin price correlated with the indicator’s spikes in the red range of 0.02-0.06.
Currently, reserve risk is making an all-time low (ATL) near 0.0009, an extreme low that falls below the green zone and has never been seen before. Data suggests that Bitcoin’s price today offers the best risk-reward ratio in history.
Glassnode reserve risk chart
Another brutal sell-off?
Despite Reserve Risk readings definitely upbeat, some analysts are still warning about the possibility of another brutal sell-off in the bitcoin market. In a recent tweet from @woonomic, we see a graph of maximum pain expressed as a percentage of BTC supply underwater (tally of a loss).
The famous analyst marked (in red) the periods when longtime hodlers and whales dumped their coins on the bleeding market. In all previous cycles, they have correlated with the early stages of bear markets. The exception on the chart is the current cycle, which doesn’t see this kind of increase in supply in losses early in a downturn.
Willy Woo concedes that hodlers and whales behave differently in this cycle. He says that the explanation for this phenomenon is that their activity has shifted to the futures markets, which do not translate to the on-chain activity of the Bitcoin network. However, should there be another sharp sell-off, support is near $10,000 today, according to Woos Chart.
Everything in the hands of the whales
Another possibility can be found by looking at the on-chain activity of bitcoin whales holding more than 10,000 BTC. Their number is very small, ranging from 81 to 125 as of 2013.
Nonetheless, one can see some fractal similarities between the largest whale chart from the 2017-2019 cycle and the current one. While the price of bitcoin rose in 2016-17 and 2020-21, the whales gradually retreated. On the other hand, whales started accumulating again after BTC price peaked (red and green arrows).
Addresses holding more than 10,000 BTC surged in bear markets. In both cases they reached the level before the beginning of the phase of dynamic increases (blue line).
However, the biggest difference is seen towards the end of this fractal, when whale numbers dropped dramatically between November and December 2018 (purple area). This correlated with bitcoin price collapsing from its long-term support near $6500. The drop of more than 50% led to the all-time low of the previous cycle at $3150.
The current Bitcoin chart saw a similar drop of around 40% in early June 2022. However, it did not correlate with the sell-off of whales, which numbers remained at the same level.
Should the late 2018 scenario repeat itself now, a brutal whale sell-off could propel the price into the $10,000 area. This would remain consistent with Willy Woo’s long-term peak pain chart.
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