On May 19, the cryptocurrency market lost $ 1.2 trillion in total market capitalization as the foam and excess leverage of the overvalued markets were quickly removed.
But like a forest fire, the devastating power of which is essential for the rejuvenation of a forest ecosystem, dramatic market shocks are an integral part of the entire life cycle of a developing market as the accumulated surpluses are burned and cleaned to pave the way for a new round of growth.
According to the data from Glass knot, last month there was a “Historically large decline” in on-chain activity, “moving rapidly from booming on-chain economies with all-time highs to almost completely empty mempools and declining trade and settlement demand.”
This congestion removal helped to compensate for the rising commission costs in both networks Ethereum (ETH) What Bitcoin (BTC), that now “Have returned to mid-2020 levels of around $ 3.50 to $ 4.50” after experiencing short-term spikes of up to $ 60 in April and May, However, given the ongoing price movement of BTC and Ether, traders are also concerned when the market turns from bullish to bearish.
The decline in activity has resulted in a 65% decrease in the total volume of USD-denominated transfers processed by the Bitcoin network and a 60% decrease in the value transferred in Ethereum. This marks the second largest drop for networks after the 80% drop for Bitcoin in 2017 and the 95% drop for Ethereum in 2018.
Long-term investors accumulate
While on-chain activity paints a bleak picture for some as short-term owners have been hardest hit by the downturn, A closer look shows that the long-term holders (LTHs) have accumulated again, a sign that the worst upheavals may be over.
As can be seen in the graphic above, Supply in the hands of long-term BTC holders has accelerated upward after a distribution phase that saw the price jump from $ 10,000 to $ 64,000. This increasing number indicates that the “LTH offer is now in a strong upward trend”, and it is similar to the trend seen during the “Bullish in late 2017 and Bear in early 2018”.
Glass knot said:
“This fractal marks the turning point where LTHs stop spending, re-accumulating, and holding what are now considered cheap currencies.”
Another bullish data is found in the fact that The amount of BTC currently held by LTHs is 2.3 million more than its 2017 high, suggesting that the long-term view of these token holders is that the market is going up.
One final note that The market could be consolidating in preparation for its next uptrend, as you can see from the change in liquid and non-liquid supply of BTC over the past 6 months.
As can be seen in the graphic above, 160,700 BTC went from illiquid to liquid circulation in May, which is only 22% of the total supply that has moved from liquid to illiquid since March 2020.
This means that the 78% of the BTC acquired since then remain unused, which indicates a positive overall outlook for long-term owners.
While factors such as unpredictable volatility, irregular tweets from influencers, and rumors of surprising government action make it impossible to be sure of the next steps in the cryptocurrency market, On-chain data suggests a positive long-term outlook that should resume once the current periods of shake and consolidation wear off.
The views and opinions expressed are those of the author only and do not necessarily reflect the views of Cointelegraph. Every investment and trade move involves risk, you will need to do your own research when making a decision.