Bitcoin on chain analysis: Investors buy dips as the supply shock intensifies

Bitcoin investors’ position remains solid despite the sharp fall on September 7th. In addition, Bitcoin’s supply shock is worsening as the amount of BTC on exchanges dwindles.

The growth of the Bitcoin network is illustrated by the increase in the number of addresses holding BTC during the recent decline. On-chain data confirms that the massive September 7 price move was mainly triggered by over-indebted derivatives traders.

BTC price promotion

Last week, Bitcoin hit a local high of $ 52,956 on September 7, just above the 0.618 Fib retracement level. On the same day, there was a flash crash that brought the BTC price down to $ 42,900. One of the reasons for the 19% decline was the overuse of long leverage, which has already been liquidated with a total value of $ 4 billion.

BTC / USDT daily chart | Source: TradingView

Immediately after the sharp drop, the price rebounded and is currently trying to rally around $ 45,000. Despite the near-term recovery, the technical indicators are starting to signal bearishly on the higher time frames.

It is worth noting, however, that the decline served to confirm the 0.382 Fib retracement level as support. This area also coincides with Bitcoin’s horizontal support and highs and January 8, 2021.

Investors are actively buying Dip

On-chain data can explain how investors behaved during the sharp decline. It turned out that many BTC holders showed no significant movement during this flash crash.

This was pointed out by on-chain analyst Willy Woo, who said in a tweet that “the market is selling with leverage, but investor buying is getting stronger”. In addition, he compared the recent drop to the drop caused by the COVID-19 crisis in March 2020. Woo said:

“The most recent BTC crash was caused by the liquidation of leveraged positions, and the COVID crash was similar. The only difference is that the COVID crash is preferred by investors while the most recent crash shows accumulation at a lower level. This is reflected in the increase in outflows from stock exchanges and short-term and long-term investor positions. That means the supply shock is getting worse. “

The source: Twitter

Investors are actively withdrawing Bitcoin from the exchange

Willy Woo’s observations are confirmed by on-chain analyst TXMCtrades, which publishes the 14-day Illiquid Supply Market Gradient Indicator. It is used to gauge when long-term investors are firmly in position when prices move.

“Long-term investors are not shaken by the decline and have even increased their holdings,” said the analyst. This is confirmed by the divergence between the rise in investor positions and the fall in BTC price, as well as the two orange bars at the bottom of the graph below.

The source: Twitter

An additional argument was provided yesterday by analyst Will Clemente, who also pointed to a worsening supply shock for Bitcoin. He encouraged people to “ignore the short-term noise” and focus on Bitcoin’s macro uptrend as the number of BTC on the exchange declines.

The source: Twitter

All 3 analysts highlight the long-term optimistic outlook for Bitcoin, as the BTC balances on the exchanges have steadily declined since the COVID-19 crisis (red circle).

The source: Glass knot

BTC’s rise on the exchanges only occurred twice. One was when BTC price skyrocketed in July 2020, and particularly during the recent decline in May 2021. In addition, the amount of BTC available on the exchanges just hit a 3-year low. The last time exchanges saw such low BTC balances was in late August 2018 (green circle), with Bitcoin trading at around $ 7,000.

Private investors are also piling up

The last indicator worth mentioning during the recent decline is the number of addresses holding small amounts of BTC, from 0.01 to 1 BTC.

All 3 groups in this area are trending upwards (green rectangle), although the Bitcoin price has decreased in the last few days (red rectangle). The number of these addresses has increased since the middle of the merger between May and July 2021 (orange arrow). The latest flash crash only reinforces this trend.

The source: Glass knot

We see more diverse behavior in the second group of addresses, which collect positions from 10 to 10,000 BTC (gray rectangle). There was an increase in addresses with more than 10 BTC and over 10,000 BTC. The decline can be seen in addresses with over 100 BTC and over 1,000 BTC. In addition, since the consolidation of Bitcoin between May and July 2021, the trend towards a large number of addresses has been flat (orange arrow).

The source: Glass knot

Conclude

Today’s on-chain analysis shows that investors are still accumulating after the recent sell-off. This is evident from the increase in the number of addresses with BTC and the balance of BTC on the exchanges.

Hence, the recent decline is simply a correction to the uptrend and BTC could continue to move higher in the short term.

You can see the BTC price here.

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Disclaimer: This article is for informational purposes only, not investment advice. Investors should research carefully before making a decision. We are not responsible for your investment decisions.

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