Cryptocurrency newbies, who bought digital assets at their all-time highs at the end of 2021, “almost completely capitulated” at the end of last month.
These recent adopters were more prone to panic-selling in times of crisis. As paper hands capitulate to HODLers, would the market become less risky and volatile?
Fearful newbies, unfazed OGs
On 22 February, the day when Russia’s President Vladimir Putin ordered troops into Ukraine’s Donetsk and Luhansk regions, cryptocurrencies – like equities – plunged. The military build-up has been growing for weeks leaving both equities and cryptocurrencies in jitters.
In the crypto market, short-term holders – with coins held in the wallet for less than 155 days – were “the most fearful cohort”, Glassnode analyst Chechmate noted at the time.
“Amidst kinetic conflict in Ukraine, investors who purchased around the BTC ATH have almost completely capitulated,” Chechmate wrote six days later on 28 February. “On the flip-side, the cohort of HODLers continue to accumulate, seemingly unfazed by macro and geopolitical risks.”
The shift in ownership preluded bitcoin’s rally, which seemed to interrupt the link between crypto and equity market performance. With an army of convinced HODLers, would BTC become more of a safe haven asset than a risky one less vulnerable to panic sell-offs?
By the end of the month, BTC had outperformed gold and most other traditional assets including the US Treasuries and safe-haven currencies, which are generally perceived as a geopolitical hedge – Clara Medalie, Kaiko’s head of research
‘Healthy shift of assets’
Coins are being exchanged from paper to diamond hands – paper hands being short-sellers and diamond hands being veteran crypto players.
“This activity suggests a healthy shift of assets to long-term holders, decreasing any future sell-side pressure which pushes crypto prices higher,” says David Moreno Darocas, research analyst at cryptocurrency market provider CryptoCompare, commenting on the ownership distribution change.
“Prices have been steadily decreasing over the last three months, and many cryptocurrencies are now over 50% below their all-time highs,” he says.
“Much of the sell-side pressure from the previous months has come from short-term traders. For example, BTC traders (addresses that have held bitcoin for under a month) held a yearly high of 2.7m BTC on the 7th of December last year. This has since dropped to 1.6m BTC as of the 27th of February, suggesting short-term holders have been liquidated and assets have moved to long-term holders.
“This same trend can be spotted in ether addresses, with long-term holders (addresses that have held ether for over one year) rising from 48m ETH at the end of 2021 to 52.9m ETH as of the 27th of February.”
$11,000 price swings?
Some market watchers are, however, expecting further volatility in the market, including possible price swings in the days to come.
BTC Range Report by GNY predicts that “BTC traders could face potential price swings of more than $11,000 with a low range of between $34,600 and $39,500 and a more consistent high range of between $44,100 and $45,900 over the period from 1 March to 7 March.”
Written by: Daniela Ešnerová
Originally published: March 3, 2022