The state of crypto – August, 2022 The state of crypto – August, 2022 The state of crypto – August, 2022

The state of crypto – August, 2022

Cryptocurrencies 4 minutes to read
Mads Eberhardt

Cryptocurrency Analyst

Summary:  It seems that sophisticated long-term Bitcoins holders are acquiring more Bitcoins, whereas Ether was likely liquidated in August by long-term holders upon a surge in Ethereum’s price. Though, Ethereum saw an inflow compared to Bitcoin’s outflow in exchange-traded products.


In this new monthly publication series, we look at important indicators for the crypto markets both for short-term and long-term trends. Charts are found below each section.

Immediately upon interacting with a blockchain, much data becomes publicly available on a public ledger. Analyzing this data may provide crypto traders and investors with helpful insight into the present state of the market. In “The state of crypto”, we take a look at the most important metrics to observe the market based on transaction and trading activity. Our main focus is the two largest cryptocurrencies Bitcoin and Ethereum.

Short-term

In the month of August, Bitcoin exchanges experienced a net withdrawal. Around 9% of the total supply is now left on exchanges in comparison to 12% at the beginning of the year. A lower exchange balance is usually associated with a decrease in potential selling pressure.

As a by-product, the lower exchange balance likely means that the ownership of many Bitcoins has moved from less to more sophisticated crypto holders since the latter often stores them away from exchanges. This is in line with our knowledge that particularly retail investors have left the crypto market this year. It suggests that long-term holders have been interested in acquiring Bitcoin at these prices, while they have not moved existing Bitcoins, as stressed by the moving average for dormant circulation. It may indicate that long-term holders are not willing to sell at this price.

On the other hand, Ether was net sent to exchanges in August. As a result, slightly more than 14% is held on exchanges. This is likely due to the surge of Ethereum in July and August, in which Ethereum surged by over 100% from its low in June, which has increased selling pressure. This is further stressed by the dormant circulation, which shows that more old Ether were moved in July and start-August. It has, though, decreased to the level prior to the notable price increase. Yet, this might likewise have been impacted by the upcoming Ethereum merge, in which event holders are arguably more comfortable in holding Ether on exchanges.

For the past months, both Bitcoin and Ethereum have been priced higher compared to their daily transacted volume. This means that the market values their utility higher, effectively meaning there is more room for a downward trajectory but less room for an upward trajectory when looking at this metric.

Exchange Balance in Percent. During times when crypto investors are more inclined to sell crypto, they often store it directly on an exchange to prepare for a potential liquidation of their position. On the contrary, they often move the funds to wallets when they are less likely to liquidate them. In other words, low exchange balances are often perceived as valuable for a potential upward trajectory. Source: Santiment
Network Value to Transaction (NVT) Ratio with Circulation. The network value to transaction (NVT) ratio portrays the relationship between the market capitalization relative to the amount of the given cryptocurrency transacted daily. A high NVT ratio may indicate an overvalued asset, whereas a low NVT ratio may indicate an undervalued asset since it hints at the utility of the crypto relative to its price. Source: Santiment
Dormant Circulation. Shows how many Bitcoins and Ether that were moved in a given day but that had not been moved in 365 days prior to that. This may express eagerness from long-term holders to liquidate their portfolios. Source: Santiment

Long-term

Although both Bitcoin and Ethereum constantly issue new coins, the supply that has been moved over the past 5 years continues to plunge. Speaking of a time horizon of 5 years, the average Bitcoin and Ethereum holder seems to be underwater on their investment in this period. Interestingly, the average Bitcoin holder is estimated to be down by 28.3%, whereas the average Ether holder is only down by 10.3%, following Ether’s surge in July and August.

The flow into exchange-traded crypto products e.g., ETPs and mutual funds has been pretty stable in dollar terms in August with a minor inflow. This was mainly the result of a great inflow into Ether, whereas there was an outflow from Bitcoin. This has presumably been due to the anticipation of the upcoming Ethereum merge.

Circulating Supply (5 years). For Bitcoin and Ethereum, there are continuously issued new Bitcoins and Ether to the supply, respectively. However, it may be the case that someone is permanently unable to access their wallet, which means the supply is technically lower. By looking at Bitcoin’s and Ethereum’s supply that has moved in the past 5 years, we might better interpret the authentic supply and whether large inactive wallets suddenly turn active. Source: Santiment
Market Value to Realized Value (MVRV) Ratio (5 years). Based on when each token last moved over the past 5 years, the market value to realized value ratio (MVRV) calculates the average profit or loss of all holders. For example, if the MVRV ratio is 1.5, holders are on average estimated to be up by 50%. As the crypto market is primarily driven by retail investors, it might be indicative of the sentiment going forward whether they are keeping their heads over or under water. Source: Santiment
Daily Active Addresses. This expresses the amount of active Bitcoin and Ethereum addresses daily. It illustrates the utilization of the two blockchains, respectively. It is perceived as valuable with many active addresses. Source: Santiment
Inflow and Outflow in ETPs, mutual funds, and OTC trusts. CoinShares publishes a weekly report on inflow or outflow into crypto ETPs, mutual funds, and OTC trusts. Since these products are particularly popular among less-sophisticated crypto investors, an inflow or outflow may describe the sentiment among this group of crypto investors.

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