Return to the July Bitcoin market

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The following is an excerpt from the monthly recap for Deep Dive, Bitcoin Magazine’s premium markets newsletter. To be among the first to receive this and other on-chain bitcoin market analysis straight to your inbox, subscribe now.

Supply re-accumulation

The overall trend for Bitcoin since early 2020, but more broadly throughout Bitcoin’s history, has been that an increasing amount of the network’s verifiable supply has become illiquid.

Supply hoarding, or as bitcoiners call it, “retention” creates a virtuous circle of adoption as an ever-increasing number of supporters / adopters compete to acquire an ever-tighter supply float , which in turn attracts more curious individuals. to learn more about bitcoin and the attributes that objectively make it the best monetary asset humanity has ever seen.

This general trend of increasing illiquid supply is causing what some bitcoiners call ‘rise in numbers’ technology, which is a big simplification of what bitcoin has historically done better than any other asset – accumulating value. further, in exponential waves of adoption and price appreciation. .

With an absolutely scarce supply and an ever-increasing number of network participants, betting on bitcoin to stop its trend of exponentially increasing value over time is extremely unwise, even if the percentage growth is less explosive than it is. it was not during the network. First days.

Illiquid supply

Read here for more information on the classification between liquid and illiquid supply.

With the onset of July, a sudden and marked increase in the previously illiquid supply turning liquid helped push prices down as sentiment quickly shifted and over-leveraged speculators sold their positions at a loss or were entirely liquidated.

Our view has remained unchanged since mid-May, that a deviation from the general trend of upward illiquid supply (hence more dollars changing for the marginal unit of bitcoin) does not mark the conclusion. of the trend, but rather a momentary pause as coins are re-accumulating from weak hands.

Change of liquid supply

One of the hardest things for many market participants to understand about bitcoin is that the price doesn’t go up with the good news; the price increases when the marginal seller is exhausted, which may or may not be influenced by the news cycle. Yet this is the first point that is fundamentally important to understand.

In a global market with some liquidity in all of the technologically capable markets on the planet, the price is entirely set by the marginal buyer and seller; and in the face of an ever-growing passive daily buyer base, the marginal seller is very often the price driver.

This is why examining the illiquid supply can provide value to investors who seek to visualize changes in trend and in holder behavior.

On May 18, in the previous 30 days, 248,529 bitcoins re-entered the cash supply, as investors in 2021 capitulated to historic levels of realized losses on the chain in May and June. On July 6, we said the following regarding the chain re-accumulation that was taking place:

“When a breakout occurs, it seems extremely likely to be a positive one, as the powerful hodlers have again started to pile up aggressively.” – The Daily Dive # 016 – Price consolidation continues

The price has since risen by around 20% and we expect further upward momentum in the third and fourth quarters of 2021.

Aggregate bitcoin balances between exchanges are highly correlated with changes in the liquid / illiquid supply. While not all purchases / sales go through an exchange (i.e. a settlement between two counterparties directly in the chain for goods / services), the BTC / USD exchange rate is set by demand for bitcoin cash for bitcoin on various exchanges.

The sharp increase in the supply of liquid during the month of May was accompanied by a corresponding increase in bitcoin balances between exchanges.

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