Bitcoin Prime on-chain analysis: retail investors are not yet in the market

21. Dezember 2021

Today’s on-chain analysis looks at market activity based on the number of new bitcoin addresses and the percentage of those in profit. The data suggests that individual retail investors are not yet the dominant force in the market.

The decline in the number of new Bitcoin Prime addresses and the decreasing number of market participants who are in profit are strong signals that the market is still far from a FOMO („Fear Of Missing Out“) phase, which typically occurs at the end of a bull market. At the same time, both indicators show bullish divergences, which suggest that the uptrend in the crypto market could soon come to an end.

Decline in Google searches for „Bitcoin Prime“

One of the easiest ways to measure the hype around the crypto market and Bitcoin in particular is Google Trends. The tool can be used to determine the search queries for „Bitcoin“ in a specific region and time period. At the end of the last bull market, searches for „Bitcoin“ were at record levels, peaking at 100 in December 2017 (yellow circle).

During the current upward phase, the Google Trends chart peaked in May 2021 with a value of 79 (green circle). Since the beginning of July, the indicator has been back in the 24-36 range and this week shows a value of 26.

New BTC addresses: Retail is biding its time

At the beginning of 2016, the number of new BTC addresses shows a picture that is in line with the data above. By new BTC addresses we mean the number of unique addresses that appear for the first time in a transaction on the Bitcoin network. The indicator is a good proxy for the growth momentum of the network and the influx of new users.

On the five-year chart, we can see that the peak of new addresses was reached at the end of the bull market in December 2017 (green arrow). A sharp correction was followed by a long and slow consolidation.

The last peak was reached at the beginning of January 2021 (blue arrow), after the Bitcoin price had completed a move from around 10,000 US dollars to the all-time high of 42,000 US dollars at that time. Since then, the new address price (red arrow) has been in a correction, although the BTC price has already reached higher levels.

Crypto analyst @OnChainCollege has spotted an interesting pattern in this chart. In a recent tweet, he compared the fractals of new addresses from 2017 and 2021. The chart shows that the number of new addresses is lower than when the cycle peaked.

He then divided the two charts into upward and downward movements. The similarity of the scenarios suggests that the large influx of new users in this cycle is still to come. Commenting on his interpretation, he said: „We know this. Retail is yet to come. This is nothing new.“

However, well-known on-chain analyst @woonomic disagrees and tweeted a different graph. This one suggests that retail investors are not as passive as suspected after all. According to him, the last time retail investors bought so heavily was at the time of the COVID crash.

Decline in the number of market participants in profit

Another on-chain indicator that suggests retail is far from a FOMO phase is the percentage of market participants in profit. The indicator takes into account all players whose assets were bought at prices lower than the current price.

From the all-time high of 69,000 US dollars to the current bitcoin price, the indicator has fallen by around 25%. The intensity of this decline can be compared to the crash in May. The percentage of market participants in profit almost reached a low point at the end of the BTC correction in the summer (dashed line).

The significant difference is the price of Bitcoin fell to US$29,000 at its July low. Today, with the Bitcoin price trading between US$46,000 and US$49,000, it appears that the same percentage of traders are currently making losses.

This divergence was highlighted by analyst @Parabolic_Matt, who compared it to a similar situation in 2020-2021. The bitcoin price is rising while the number of market participants making profits is falling (yellow lines). When this type of bullish divergence occurred in the past, the Bitcoin price experienced a dynamic uptrend.

Another way to interpret this divergence is that retail is entering the market. New players buy hopefully at the high of the market, only to capitulate at the low and sell at a loss. This leads to another accumulation opportunity for the so-called „smart money“ and the start of another upward wave. In this one, cheap bitcoins are sold more expensively to the next wave of new market participants.

The moment when the growth of new addresses goes parabolic and the vast majority of companies turn a profit is probably a clear signal of the peak of this bull market. The on-chain data suggest that this is not yet the case.