Market Commentary: Short-Term Shake Out As Bakkt Suffers

Bitcoin prices are continuing to fluctuate.  Despite a promising start, BTC lost the majority of its gains yesterday. Other leading coins are essentially following Bitcoin, with Chainlink’s +5% as the only voice outside the choir.

 

Cryptocurrency market dynamics since October 1. Source: Coin360 Weak hands shaken out?

A report published by Coinmetrics provided valuable insight into the late-September fall. Analyzing the metric of ‘realized capitalization‘, which assigns value to bitcoins according to their last on-chain movement, Coinmetrics was able to pinpoint which cohort of Bitcoin holders participated the most in the recent sell-off.

 

Distribution of bitcoins by price during last on-chain movement. Source: Coinmetrics.io

 

As evidenced by the graph above, the majority of bitcoins have been acquired at lower values than current price. Capitulation among the participants in the 2017 bull run is nearly complete, with very few bitcoins left that were bought for more than $13,000.

A strong peak around the $3,000-4,000 level seems to show that many people correctly called the bottom in 2018, and few of them sold so far. Some of these could include early birds from 2017 as well, though given how much time passed, they’re likely to be only a small percentage.

Coinmetrics notes that the majority of recent selling came from those who bought at the June-July peaks, between $10,000 and $12,000. These traders were most likely geared towards the short term, and as it became clear that their positions would not break even, they moved to cut their losses en masse.

But the overall bullish sentiment seems to not be changing among those who entered the market at lower prices. “These owners represent long-term holders with a strong long-term conviction in Bitcoin. Approximately 11.46 million Bitcoin belong to this cohort,” reported Coinmetrics. “Despite the extreme market movement, these holders have remained resolute in their market views — only 150,000 of the 11.46 million Bitcoin were seen to have moved on-chain.”

Derivatives amplified the strength of the fall Coinmetrics went on to analyze volatility figures for Bitcoin, which appear to largely follow cyclic feedback cycles. “Low periods of volatility are typically followed by high periods of volatility because under an environment of low volatility, traders extrapolate this state to the future and take on more risk in the form of borrowing or the use of leveraged instruments,” it noted. Bitcoin annualized volatility. Source: Coinmetrics Derivatives exchanges such as BitMex tend to exacerbate the natural price cycles, according to Coinmetrics. “As prices begin to move, margin calls and forced liquidations tend to reinforce the direction of the initial move, exaggerating the magnitude of the move and normalizing the level of volatility,” analysts wrote. “The same phenomenon works in reverse — when volatility is high, risk taking is reduced, eliminating this feedback loop. Thus, volatility exhibits mean-reverting behavior.” Bakkt continues to disappoint

While the slow start of Bakkt was likely just a spark hitting a rigged gunpowder keg, the anticipation that was built around it cannot be shrugged off as inconsequential.

According to data from Bakkt Bitcoin Bot on Twitter, the platform’s performance is hitting new lows.

Summary of Tuesday's Bakkt Bitcoin Monthly Futures: