Most long-term Bitcoin holders are currently in profit, which increases the likelihood of profit taking and a drop in BTC price.
The price has rebounded about 18.50% in a week after falling to a six-month low of around $49,755. However, the cryptocurrency could experience further correction in the coming weeks due to a combination of technical and on-chain indicators.
BTC/USD daily price chart.
Over 80% of Long-Term Bitcoin Traders Are Still Profitable
Calculated on a 30-day moving average, BTC’s ongoing correction cycles are accompanied by a decline in the profit percentage of long-term holders.
As of August 16, nearly 83% of these expired Bitcoin holders, who have held the cryptocurrency for more than 155 days, were in profit. In March, the percentage of profitable long-term investors was around 96%.
30-day average supply percentage profit for long-term Bitcoin holders.
Holding a large amount of profitable BTC is often seen as a sign of FOMO, which usually precedes or coincides with a price correction. Due to this upward signal, if LTH decides to book profits, the price of Bitcoin may see a pullback in the coming days.
Ascending triangle breakdown could push BTC price to $50K
Bitcoin’s ongoing consolidation move appears to be presented within an ascending triangle. This setup forms after a strong downtrend and technically, it suggests a possible reversal or weakening of downside momentum.
However, in some cases, the ascending triangle can become a continuation pattern within a downtrend. If the price fails to break out of the resistance line and breaks below the uptrend line, the downtrend is likely to resume. This will indicate that the sellers have regained control.
If Bitcoin holds the current resistance level with the 50-4H exponential moving average (50-4H EMA; red wave) around 59,280, there will be downside risks. A decisive breakout below the lower trendline of the triangle will likely trigger a breakdown setup.
BTC/USD four-hour price chart.
If this happens, Bitcoin price will likely fall towards the ascending triangle’s downside target of around $50,000, which is also a psychological support level.
Bitcoin May Not Eventually Collapse
As mentioned above, ascending triangles are considered bullish reversal patterns in a downtrend. Therefore, a decisive close above the 50-4HEMA for Bitcoin could increase the probability of a move toward the triangle’s uptrend line, which coincides with the 200-4HEMA (blue wave) at around $59,240.
Related: Bitcoin Price Must Flip $62K to Avoid Worst Death Cross Consequences
Meanwhile, a successful close above the uptrend line will likely trigger an ascending triangle breakout scenario with an upside target of around $70,000.
BTC/USD four-hour price chart.
This optimistic outlook fits with the outlook put forward by Charles Edwards, founder of digital asset fund Capriole Investments.
Edwards believes that the price of Bitcoin is behind its safe haven, gold. He superimposed the chart of BTC on that of gold and realized that BTC's trend was three months behind gold's. Gold has broken out of its previous consolidation trend to the upside, which may have prompted Bitcoin to do the same.
BLX vs. Gold daily price chart. Source: Charles Edwards
“As a rough rule of thumb, bitcoin’s macro trends tend to lag gold by a few months,” Edwards said, adding that the cryptocurrency’s upside prospects “look promising.”
Potential rate cuts from the Federal Reserve could further boost Bitcoin’s upside prospects. Lower interest rates reduce the opportunity cost of holding yield-bearing assets such as U.S. bonds, boosting investor appetite for riskier assets such as stocks and cryptocurrencies.
The views expressed in this article do not constitute any investment advice
What is a prediction market?
The prediction market is a trading market. Compared with general betting platforms, the prediction market focuses mainly on "events". Users can buy and sell "contracts" on the "outcomes of future events". It is essentially a binary options market. The winners gain profits from the losers' betting amounts according to a proportion, while the losers lose all their principal.
By buying and selling contracts, users are actually "betting" on what they think is the probability of an event, so the price of the contract reflects the market's view on the probability of an event occurring.
The goal of the prediction market is to use the collective wisdom of many users to accurately assess the probability of an event. For example, if the contract price of the event "Trump is elected as the US President" is 60 yuan, it means that the market believes that there is a 60% probability that this will happen.
Disassembling Polymarket, the hottest prediction market
Polymarket is a prediction market built on Polygon, which allows users to purchase USDC for betting directly through Moonpay using traditional payment methods. There is no need to bind a wallet or perform other complicated operations. It does not involve concepts such as Gas and signatures, and is friendly to non-Web3 users.
Currently, Polymarket's data is performing well, with bets reaching $387 million in July and daily trading volume reaching millions of dollars. There are more than $550 million in unsettled contracts for the US presidential candidate alone. At the same time, according to Dune's data, the number of active users of Polymarket has continued to grow this year, with the highest weekly active users exceeding 23,000. Currently, Polymarket has become an important reference for public opinion in the presidential election, and even Trump himself has repeatedly forwarded data on his leading winning rate on Polymarket.
The rise of Polymarket is inseparable from some favorable conditions, such as:
The topic continued in 2024, covering major events such as Bitcoin and Ethereum ETFs, the US election, and the Olympics, attracting a lot of attention.
The crypto market is increasingly closely connected with policies, regulations and the economy. In the past one or two years, the main factor affecting the price fluctuations in the crypto market is often not the progress of crypto technology itself, but the changes in the external macroeconomic environment. This has led more Crypto Native users and funds to pay attention to macroeconomic trends and participate in prediction markets, because these markets provide concise "conclusions" for many macroeconomic issues.
The infrastructure is more complete: Compared with when the prediction market concept was popular in 2019, today's custodial wallets, fund entry and exit services, and public chain technology have all been greatly improved. At that time, many prediction markets relied on the Ethereum platform, but the user experience was limited due to difficulties in recharging and frequent betting problems. Today, these issues have been significantly resolved.
In addition to the right time and place, Polymarket has also made many product optimizations compared to the prediction markets in previous cycles.
Past prediction markets usually have the following pain points:
The entry barrier is too high, the infrastructure is not perfect, and you need to understand the concepts of wallet use, etc.
The product is complex and difficult to understand. The prediction market is a combination of casino, options and other models, which is easy to be designed too complicated
Insufficient liquidity and counterparty
It is difficult to strike a balance between freedom and clear standards in event creation
Regulatory risks: Prediction markets have existed since ancient times, but they have always been restricted by centralized power.
...
Although Polymarket has not been able to completely solve the above problems, it has still made some innovations or optimizations to address these pain points.
1) Optimize product UIUX as much as possible to lower the threshold for use
We can collect some data pictures to compare the user experience of Polymarket a few years ago and the user experience today.
Comparing the Beta version of Polymarket with the current version, you will find that the current Polymarket is easier to use and has a smoother path. For example, the current homepage directly includes all the most popular "events" on the platform, and users can place orders directly without entering the secondary page; at the same time, the user's participation logic revolves around "how much to invest & expected returns" rather than the "cost" of each bet; the probability of winning each bet, expected returns, pool size and other data that may need to be referenced before placing an order are also fully displayed. The platform also supports the use of Web2 registration and payment methods to create wallets and deposit funds, and there is no need to understand the concepts of blockchain and Gas when using it.
2) Abandon mechanism innovation and provide liquidity through incentives
Prediction trading and the NFT market are similar in some ways: any event can be traded on multiple prediction platforms, and liquidity becomes one of the key factors for users to choose a platform. Sufficient liquidity not only allows users to profit by correctly predicting the outcome of an event, but also to gain benefits from the market's fluctuations in response to the event.
Polymarket uses the order book model as the main settlement method. Market makers provide liquidity and receive rewards by placing limit orders. The closer the order price is to the market price, the more rewards you get. This model is similar to Blur's strategy. It is worth noting that all positions held by Polymarket users are presented in the form of ERC1155, and its liquidity incentive mechanism is actually inspired by dYdX.
3) Increase content supply as much as possible and adopt decentralized settlement
In the Polymarket community, there is a dedicated channel for community members to submit event suggestions to ensure that the team always pays attention to various global events, thereby maintaining the continuity of the platform's content supply. At the same time, the platform uses UMA's oracle to decentralizedly solve the settlement problem of events. A rich supply of events is the basis for ensuring the long-term development of the platform. Popular events such as the US election and the Olympics are not common, and "events" are essentially "content" rather than "gameplay", unlike "slot machines" or "baccarat" that can exist for a long time. Therefore, the ability to continuously and quickly provide consumable content will directly affect user retention.
From these aspects, Polymarket has to some extent solved some of the challenges faced by the Crypto trading market in the past and laid the foundation for its explosion. In addition to the product itself, Polymarket has also invested a lot of money in user marketing, including promotion on Reddit channels and WallStreetBets and other platforms.
Although Polymarket has made a lot of efforts in various aspects, it still has some shortcomings. The innovation of the prediction market in the future may start from the following aspects:
Insufficient liquidity will be a long-term problem
Events will eventually have clear results and cannot be completely controlled. Market makers need to have a deep understanding of the events, and blindly making markets may lead to losses. The requirements of the prediction market for liquidity providers are different from other markets, and this problem may exist for a long time.
Token utility is difficult to design
Stablecoins must be used for betting, otherwise fluctuations in the value of the note will affect the prediction results. Therefore, when designing tokens, it is difficult to empower them and integrate them into the core gameplay of the platform. If the platform token is only used as a governance token or liquidity incentive, the token price may continue to fall, which will affect the platform traffic.
Low conversion rate and difficulty in acquiring customers
At present, the conversion rate of the prediction market is not high. For example, the number of independent visitors to the Polymarket website in July was close to 200,000 per day, but the highest weekly active users was only 20,000. The conversion rate from visits to new users is low, and the conversion rate from new users to transactions is also low. The number of active users increased significantly in May, but the transaction volume did not increase accordingly, which shows that the high threshold for participation in the prediction market and the gameplay close to gambling may be the potential reason for the low conversion rate.
4) Still far from decentralization and fairness
Polymarket currently uses a settlement mechanism based on the decentralized oracle UMA for fairness. UMA resolves disputes based on token voting and confirms the results of events. This has certain centralization risks and can only be relatively fair. A famous controversial event was about whether the ETH ETF would be approved. In the end, the community did not foresee in advance that only the 19b-4 form was approved at the time, but not the S-1. In the end, it was unanimously agreed that 19b-4 was also considered approved under the UMA mechanism. Since events are usually off-chain and sometimes do not have a clear settlement point, similar events will occur repeatedly.
5) Event Gaming is not pure Gambling. It is difficult to increase participation in non-election related events.
Data shows that as of the end of July, election-related event transactions on Polymarket accounted for 61.63% of the platform's transactions this year, and this proportion has recently continued to increase with the influx of new users, reaching a maximum of around 82%. Before May, the platform's election-related event transactions were around 50%, which may mean that a large number of new users are focusing on election-related events.
We believe that the core reason behind this is the difficulty of event prediction, which leads to a high threshold for participation. Participating in event gaming may even be more difficult than MEME hype, because event gaming is not pure gambling. On the one hand, stable and mature fields such as sports and e-sports already have too many competitors and fixed audiences, and the prediction market has no advantage in competing for these users; on the other hand, events outside of sports and elections are often "different from each other", which increases the difficulty for users to participate.
It is inevitable that the popularity will decline after the US election, but the platform has long-term stickiness, and this round of explosion has left a lot of accumulated
Considering the recent election-related event trading volume, which can account for up to 80% of all event trading volume on the entire platform, it is almost inevitable that the prediction market will decline in popularity after the US election. However, even so, the prediction market is by no means a flash in the pan. This category will continue to develop while constantly solving the above problems. The reasons are as follows:
1) Prediction markets have a solid user base. Prediction markets are not new. The earliest modern form originated from the Iowa Electronic Market in the 1980s, which was used to predict the US presidential election. Subsequently, prediction markets gradually attracted the interest of academia and business, and were applied to finance, business decision-making, and public policy. With the development of the Internet, online prediction markets such as Intrade and PredictIt have become more and more popular. There are similar platforms all over the world. However, due to regulatory issues, these platforms are generally either closed or can only be bet with worthless points, which cannot reach their maximum potential. As the Crypto version of the prediction market gradually improves, the golden age of the prediction market is bound to come.
2) The election will end, but political topics will not. Therefore, although the attention to the event will decrease, the supply of events will never be a problem, and prediction markets such as Polymarket have come in cycles. On the other hand, the world is moving forward in instability, geopolitical conflicts, economic crises, etc. are all affecting people's nerves. In the turbulent and information-exploding era, people's demand for "conclusions" will always keep a certain amount of traffic in the prediction market.
3) User stickiness is getting stronger, and 15% - 25% of users are converted into long-term users. Starting from Q3 in 2023, the long-term retention of new users has increased significantly, indicating that the product logic has been verified before the explosion; in addition, with the influx of a large number of new users, the average number of transactions completed by users has not It has declined, and even had an upward trend in July. This can also indicate that the retention rate and participation level of new users on the platform are high, and the average number of transactions for overall users has not been lowered due to the increase in the proportion of new users.
The prediction market deserves long-term attention. In our opinion, the prediction market based on Crypto still has three major potentials that have not been fully explored:
Anyone can create events with sufficient liquidity
Dragonfly's Schmidt once said, "The ultimate killer feature of Polymarket is that the platform will allow participants in the ecosystem to create new bets autonomously, which is difficult for competitors in the traditional financial field to replicate. It's like YouTube to TV." However, as of now, this function has not been fully realized on Polymarket. We look forward to a platform in the future that can successfully combine the contradiction between event creation and liquidity provision, and perhaps we need to wait for further intervention of AI.
Everything is predictable in the media
Prediction markets still face ethical and policy limitations. In June 2023, tweets about the disappearance of the Titan submersible were widely circulated online, and users on Polymarket bet more than $300,000 on whether the submarine would be found before June 23. This triggered criticism of the prediction market from an ethical perspective, believing that it was "making money from death." This ethical pressure limits the creation of events. But if you look at it from another perspective, and regard "profit-making" as a fee for calling on group wisdom, the range of topics that the prediction market can accommodate may become wider. The prediction market has the potential to become a platform that provides rich thematic content, and even evolve into a new social media, allowing discussions and predictions to take place in the same space.
As a supplement to search engines, prediction markets provide the “conclusions” needed in the information age
Many supporters of prediction markets believe that prediction markets can provide the "truth" that people need, but this statement may exaggerate its role. Although there is still a distance between collective wisdom and the "truth", prediction markets can still provide a key thing, namely "conclusion". In our view, the "win rate" is similar to the "K-line". It only provides a number, but contains all the analysis and is the crystallization of collective wisdom. In many cases, this clear conclusion with probability is enough to help people make judgments.
Other lessons from the popularity of Polymarket
Although the end of the prediction market has not yet arrived and it remains to be seen whether Polymarket will be the ultimate winner, its development history provides many insights for market participants, such as:
Focus on applications, not the perfection of infrastructure: In the past, prediction markets were indeed limited by Ethereum’s price and performance issues, but now there are enough alternatives. For example, Polymarket is built on the previous generation of scaling solutions, Polygon. Therefore, although the current infrastructure may still not meet the needs of tens of millions of daily active users, it is enough to support excellent products that verify demand among a small range of users.
The infrastructure threshold has been greatly lowered, and it is time to pay attention to users outside the Crypto circle: whether it is fiat currency exchange, email registration, or gas-free interaction, these infrastructures are basically sufficient, and entrepreneurs should focus on user groups outside the Crypto circle.
Focus on specific markets instead of targeting the global market from the beginning: Before Polymarket was banned by the United States, more than 80% of its users and traffic came from the United States. Although the openness of Crypto makes entrepreneurs often target "global users" from the beginning, in the end, due to limited manpower, the promotion target is easily narrowed to "global on-chain users." This user group grows slowly, has relatively simple demands, and is highly competitive. Therefore, perhaps entrepreneurs can focus on a certain market to verify product demand first.
Choose the right time to disclose financing news: For startups, opportunities to attract attention are limited, and it may be wiser to keep a low profile until the product is ready.
