Original author: Murphy, on-chain data analyst.
The chip structure determines the lower limit of BTC price corrections.
Every event that drives changes in market sentiment is accompanied by a sudden surge in on-chain trading volume. After data screening, removing transfers from the same entity address cluster, the daily on-chain real trading volume is usually around 100,000 BTC (7-day average), slightly more on weekdays and less on weekends; if it exceeds 150,000 BTC, it's considered 'abnormal' data.
For example, the extreme panic and anxiety brought to the market by the Luna crash in May 2022, the FTX crash in November 2022, and the collapse of US banks such as Silicon Valley Bank and Signature Bank from March to April 2023 led to on-chain trading volumes peaking at over 300,000 BTC (as shown in Figure 1).
(Figure 1)
From this perspective, we should no longer doubt whether on-chain data can truly reflect 'trading' behavior. It can even be considered that on-chain settlement of BTC is a barometer of overall activity in the cryptocurrency market, as well as a certain quantitative form of macro sentiment.
We can see that after November, as Trump won the presidential election, market sentiment peaked, with an average daily settlement volume of 200,000. In this cycle, only this March has seen a similar level, and high trading volumes indicate a massive influx of capital in the short term. However, after December 17th, sentiment began to cool down significantly, and by the 25th, the average daily settlement volume was around 120,000. Historically, after experiencing a peak period, a retreat in activity also indicates that the market enters a cooling phase, which is the time when corrections are most likely to occur.
By tracking UTXO, we can distinguish on-chain trading by different realized prices, allowing us to derive a very intuitive distribution data of the chip structure, namely URPD (as shown in Figure 2).
(Figure 2)
From the current data, the on-chain structure is gradually forming an accumulation zone within the $92,000 to $100,000 range, where a massive volume pillar of 600,000 BTC has formed at $97,000, tapering off towards both sides.
The emergence of a massive volume pillar indicates two points:
1. This is likely not the absolute top price of a bull market cycle.
2. This price range has led to intense long-short battles, with substantial trading creating an accumulation of chips.
Where there are sellers, there are buyers, indicating that some feel the price will drop further and want to hedge, while others think the price is attractive and want to buy the dip. It is precisely because of a large number of buying behaviors that a strong support effect has been established in the $92,000 to $100,000 range. Thus, we say that accumulation zones have a 'damping effect' on prices, meaning that prices face resistance as they try to break through (making it not easy to penetrate), and when prices move away, a gravitational pull appears (pulling prices back).
In a major cycle peak, there usually aren't many divergences, only 'consensus'. When most participants have a consistent recognition that prices are 'too expensive', selling exceeds buying, leading to a 'peak'. Therefore, divergences are not necessarily a bad thing; it's a necessary process for market self-correction.
If an example must be given, a similar chip structure appeared in July-August 2024 (as shown in Figure 3).
(Figure 3)
At that time, an accumulation zone was formed in the $64,000 to $69,000 range, where a massive volume pillar of 520,000 BTC was established at $67,000, tapering off towards both sides, forming regional price support. I believe friends still remember that for a long time after that, BTC's price never effectively broke through this price range. Even on August 5th and September 7th, when prices began to move away from that range, the chip structure in that range remained intact. After some time, BTC prices would return to that range (creating gravitational pull).
If we compare the current structure with July's horizontal comparison, the patterns are very similar, only not thick enough. However, they can already produce a very noticeable support effect. As time goes on, the more fully trading occurs here, the stronger the support effect will be. Of course, to continue breaking upwards, unless there is a quick surge away from this price range, it will also be hindered by 'gravity' (short-term high-position chips will generate massive selling pressure).
We can also observe similar conclusions from another perspective through CBD data (as shown in Figure 4).
(Figure 4)
Unlike the URPD that tracks the original UTXO, CBD (BTC Cost Basis Distribution) calculates data by each address. It better represents the overall behavior of network participants and clearly shows the trend changes in cost basis over time.
From Figure 4, we can see that when BTC's price pulled back to below $100,000 on December 8th, the color changed from green to red, and supply began to increase (Label 2). This indicates that a large amount of buying activity occurred at this time. The chips from this entry, after experiencing a rebound on December 16th and a drop again on December 23rd, have not shown a significant reduction, with costs roughly between $97,000 and $100,000, forming effective support.
Additionally, the chips bought at the $96,000 low during the pullback on December 10th were sold when the price rebounded to $105,000 on December 16th, hence we see the color change from red to green (Label 1); however, when it retraced to around $96,000 again on December 21st, funds began to buy again. This portion should be short-term trading behavior, which is also the main group involved in recent on-chain trading (STH).
There are also a considerable number of chips locked in at high levels between $100,000 and $102,000, but they are relatively firm, and no significant reduction has been observed. In summary, the current market sentiment is gradually recovering to calm, and liquidity is gradually decreasing. However, the chip structure remains in a 'healthy' state, with effective price support formed in the $92,000 to $100,000 range. As time goes by, the more fully the trading occurs, the stronger the support (determining the lower limit). Whether it can reach new highs or reverse the trend decay will depend on the impact of macro policies on market expectations after January 2025. This article is for communication and research purposes only and is not investment advice.
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