On May 19, the Bitcoin market lost $1.2 trillion in value because people sold quickly to get rid of market bubbles and excess leverage.
In the same way that the destructive power of a forest fire is required for the renewal of a forest’s ecology, spectacular market shake-outs are required for the clearing away of accumulated excesses and the planting of fresh growth seeds in a developing market.
Fees on the Ethereum and Bitcoin networks have “returned to mid-2020 levels of roughly $3.50 to $4.50” following short-term increases as high as $60 in April and May, but traders are still confused if the market has switched from bullish to bearish given the continuous price action of BTC and Ether.
Due to the drop in activity, the total volume of USD-based transfers cleared by the Bitcoin network has gone down by 65%, while the value of transfers on the Ethereum network has gone down by 60%. These are the second-greatest decreases for the networks, behind Bitcoin’s 80% decline in 2017 and Ethereum‘s 95% decline in 2018.
Long-term Investors Gather
Short-term investors were hit the hardest during the downturn, so on-chain activity may appear bleak at first glance. But a closer look shows that long-term holders (LTH) have started to buy again, which suggests that the worst may be over.
Based on the information, the number of long-term BTC holders has only recently started to grow at a faster rate. This comes after a period of distribution when the price of BTC went from $10,000 to $64,000. This number going up shows that “LTH supply is currently in a steady uptrend,” which is the same pattern that was seen during the “bull market in late 2017 and the bear market in early 2018.”
The fact that LTHs now have $2.3 million more BTC than they did at the market’s peak in 2017 adds to their long-term optimism about the market.
Finally, the recent shift in BTC liquid and illiquid supply suggests that the market is consolidating ahead of its next move higher.
Even though it’s impossible to know what the cryptocurrency market will do next because of things like volatility, unpredictable tweets from influencers, and rumors of unexpected government crackdowns, on-chain data points to a positive long-term outlook that should resume once the current shake-out and consolidation periods are over.