THE HALVING IS NIGH If the demand for new bitcoins stays constant and the supply of new bitcoins is cut in half, this will force the price up. There has also been an increased demand for bitcoin before the halving event because of the anticipation of a price increase. Over the years we have stressed that the halving is a big event – but it takes years to play out. The typical trough is 1.3 years before the halving and, on average, the market peaks 1.3 years after. The whole process has taken 2.6 years to see the full impact. Bitcoin has historically bottomed 477 days prior to the halving, climbed leading into it, and then exploded to the upside afterwards. The post-halving rallies have averaged 480 days – from the halving to the peak of that next bull cycle. Categories RESEARCH BRIEFS WHITE PAPERS how can we help you? Stay in the know Stay abreast of the latest news, insights, and trends in crypto. contacts Archives November 2022 August 2022 IF history were to repeat itself, the price of bitcoin would trough November 30th, 2022. We would then see a rally into early 2024 and then a strong rally after the actual halving. The following chart shows what might happen if Bitcoin repeats the performance around previous halvings. BITCOIN HALVING :: STOCK-TO-FLOW PRICE PROJECTION The framework we’ve used for analyzing the impact of halvings is to study the change in the stock-to-flow ratio across each halving. The first halving reduced the supply of new bitcoins by 17% of the total outstanding bitcoins. That’s a huge impact on new supply and it had a huge impact on price. Each subsequent halving’s impact on price will likely taper off in importance as the ratio of reduction in the supply of new bitcoins from previous halvings to the next decreases. Below is a chart depicting past halvings’ supply reductions as a percentage of the outstanding bitcoin at the time of the halving. The 2016 halving decreased the supply of new bitcoins only one-third as much as the first. Interestingly, it had exactly one-third the price impact. The 2020 halving reduced the supply of new bitcoins by 43% relative to the previous halving. It had a 23% as big an impact on price. The next halving is expected to occur on March 22, 2024. Since most bitcoins are now in circulation, each halving will be almost exactly half as big a reduction in new supply. If history were to repeat itself, the next halving would see bitcoin rising to $36k before the halving and $149k after.

Crypto Market Cycle? Leveraging On-Chain Data to Contextualize Key Market Trends In this column, we leverage on-chain data on Bitcoin (BTC) and Ethereum (ETH), the two largest crypto assets, to evaluate where we are in the crypto market cycle. Specifically, we examine three key trends: geographical flows, positioning by investor type, and market sentiment. Crypto is especially suitable for such explorations because all transactions are recorded pseudonymously in a public ledger (aka the blockchain). By combining blockchain transaction data with additional datasets, it is possible to infer critical market trends in a way that is not possible for more traditional asset classes.   Geographical Flows: The Crypto Accumulation Trend by North American Entities—A Defining Trend of the Past Bull Market—Dipped and Stalled in Q2 2022 One amazing thing about on-chain data is that you can determine, to a reasonable degree, the geographical source of buying and selling pressure in crypto. By crossing blockchain transaction data, known addresses belonging to specific crypto entities, and web traffic flows, one can estimate which countries or regions are sending and receiving assets. A defining trend of the crypto bull market over the past couple of years has been the accumulation of crypto by North American (mainly U.S.) entities, with outflows coming from the Asian markets. According to Chainalysis’ data, between January 1, 2020 and November 9, 2021, when the crypto market reached its all-time high, the net flow into North American entities was north of 645,000 BTC and 4.5 million ETH, over 3% of the total outstanding supply of each asset. However, as the chart below shows, this trend has not only tapered off since then but also slightly reversed during last quarter’s crypto crash. Since May, when the market deterioration became more acute, the cumulative net flow into North American entities decreased by as much as 9.6% and 9.9% for BTC and ETH respectively, while the same metric for Asian and European entities was by and large on the rise. This is consistent with evidence from key players: Just two days ago, Coinbase, the leading North American crypto exchange, reported that a majority of Q2 trading volume took place in offshore exchanges, while the share of total crypto market capitalization held on its platform dipped from 11.2% in Q1 to 9.9% in Q2.  Categories RESEARCH BRIEFS WHITE PAPERS how can we help you? Stay in the know Stay abreast of the latest news, insights, and trends in crypto. contacts Archives November 2022 August 2022 Positioning by Investor Type: Outflows From Larger Entities, Inflows Into Smaller OnesAnother way to slice and dice blockchain data is to cluster it into entities by the size of their crypto holdings. Zooming in on entities with relatively low turnovers (to capture “investors” vs. “traders”), we can see the accumulated flows into entities that hold between 0 and 0.1 BTC or ETH, between 0.1 and 1, and so on. In this section, we’ll be focusing on entities that have a relatively low turnover, which are more likely to be investors instead of traders, and will exclude the entities with extremely large holdings, which are more likely to be exchanges.  As crypto prices started to tank more sharply in May, larger entities have been registering outflows while relatively smaller entities have been seeing inflows. The trend is stronger for BTC than for ETH: Since May, smaller investors have accumulated about 2% of the total BTC supply but less than 0.5% of the total ETH supply. This trend also marks a pause from the crypto bull market of the last two years, in which larger entities drove the lion’s share of crypto accumulation. The fact that this trend has been stronger for BTC than for ETH confirms our perception that the latter has been gaining traction in larger investors’ minds, as excitement around the upcoming upgrade and ethereum’s roadmap continues to build. Outflows From Exchanges and Other Larger Entities Into Smaller Entities Market Sentiment: Implied Unrealized Losses Suggest the Worst Is Behind Us The third and final analysis to consider is implied unrealized profit, or the current profit or loss of every held position, in entities that hold Bitcoin or Ethereum.  This metric has historically been most useful as a contrarian indicator: The higher the percentage of holders sitting on unrealized losses, the more likely the market is close to capitulation, and therefore the more favorable the timing for potential buyers is. As the old stock market proverb goes: “Buy at the roar of cannons and sell at the sound of trumpets.” The chart below shows the percentage of the total BTC and ETH supply that sits on an unrealized loss, broken down by the loss size (between 0 and -5%, between -5% and -25%, and so on). The percentage of the supply currently in losses stands at a tad below 50% for BTC and at over 60% for ETH. Perhaps even more striking, the entities that are currently sitting on losses of over 50% currently comprise over 40% for both BTC and ETH. Since 2017, such levels were seen only during the March 2020 COVID crash, the 2019 correction, and the worst parts of the 2018 crypto winter. Although further demand shocks cannot be ruled out, the historical record suggests when investor sentiment is this negative, reversals can happen relatively quickly. Bitcoin (top chart) and ethereum (bottom chart) percentage of supply by ranges of unrealized loss. Data from January 1, 2020 to July 18, 2022. The Percentage of Supply Currently in the Red Has Parallels Only to the 2018 Crypto Winter and the COVID Crisis Conclusion It is worth noting that on-chain data is not perfect. Geographical flows can be estimated only for entities that are known to be based in a specific location, and are based on web traffic data, which might not reflect actual transaction volume accurately. Positioning by investor type cannot be detected for entities that don’t touch the blockchain directly, and no blockchain analytics company fully describes the behaviour of all entities that hold crypto