Q’s Midweek Peek On-Chain

Followers of the On-Chain Outlook should be well aware by now...

The available supply of Bitcoin on exchanges continues its months-long fall, with its trajectory looking to remain in this downward trend.

Be sure to catch up on the previous supply on exchange update for Bitcoin and Ethereum. Here’s a link to launch over to The story of the not-so stable Stablecoin, On-Chain Outlook, Edition #40 👉

Why is supply on exchanges an important metric in crypto? 

The answer points to insights into the attitudes and perceptions of market participants. Specifically to try build an understanding of how practitioners are deploying their precious Bitcoins.

Bitcoin | Supply on Exchanges

Dwindling supply on exchanges signals that traders prefer to keep BTC asset holdings in their own hands and instead use fiat currencies (i.e. dollars) as collateral margin to trade leveraged contracts (e.g. futures, options, CFDs). One explanation might be the market's growing appetite for trading derivative contracts over the asset. 

As the market continues to mature, it will be unsurprising to see the supply on exchanges continue its downwards trend. In particular, more investment in Bitcoin is likely to further the decline in available supply. 

The practitioner should note that exchanges only need to balance their order books with futures contracts, hence the funding rates.

Ethereum | Supply on Exchanges

In stark contrast, the available supply for Ethereum on exchanges has leapt considerably.

See the prices of ETH charted against the available supply on exchanges as a percentage of the total supply below.

Also note the ETH/BTC trading pair decays. Meanwhile, Bitcoin Dominance (BTC.D) advances steadily.

This analysis infers that speculators are swapping Ethereum for Bitcoin, as indicated by this bump in supply. 

Another possible reason for the increasing availability of Ethereum on the exchanges, especially futures-based supply, is to cover their positions as the market rate draws closer to its liquidation price. Massive liquidations have been occurring lately, which is sure to have unsettled many who hold open positions with leveraged buy-side exposure (long).

Ethereum vs. Bitcoin, ETH/BTC - Daily (D1)

The ETH/BTC daily chart seems to depict a breakdown and bearish retest scenario. 

Bitcoin Dominance Market Index, BTC.D - Daily (D1)

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On-Chain Outlook | NFTs

The past month has seen volumes drop off a cliff for each of the top ten Non-Fungible Token (NFT) marketplaces.

A plausible theory is that NFT activity picks up considerably at the top of a cycle, likely when risk appetite is at its peak greediness. 

In the face of adversity or bearish momentum, practitioners have likely reduced their portfolio allocations for NFTs and traded these artworks for digital assets such as BTC, ETH, SOL, AVAX, or other stablecoins. This suggests that NFTs may underperform relative to cryptocurrency assets in a risk-off scenario.

Did you learn something new in tonight’s research feature? Let us know in the comments to help us deliver more quality crypto and blockchain research 🤗

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Logging Off-Chain

To wrap up this on-chain update, recognise that the market is still very much spooked by the recent extreme price volatility. 

With uncertainty and fear rife across markets, the market looks to be in risk-off mode until the underlying sentiment begins to shift in a positive direction. 

The timing of this shift is unclear due to the US Federal Reserve's stance on inflation and intent to pursue aggressive monetary tightening in response to record levels of price increases. 

Of course, the reader can expect the latest coverage from Qluster Research as it unfolds in real-time. 

See you again for the next update.

- q

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