Analysis of On-Chain Activity Surrounding Exchanges for the Year 2023
Introduction
2023 has been an epic year for Bitcoin, with its value soaring by over 140%. This surge has not only surpassed traditional rivals like gold but has also left other cryptocurrencies in its wake. In this analysis, we will delve into the on-chain activity and exchange buzz surrounding Bitcoin, trying to decipher the potential implications for the coming year.
Bitcoin’s Blast from the Past
Glassnode’s report indicates that the current Bitcoin cycle in 2023 bears similarities to the cycles experienced in 2015-2017 and 2018-2022. The drawdown from Bitcoin’s all-time high (ATH) is approximately -37%, comparable to the drawdowns of -42% in 2013-2017 and -39% in 2017-2021. Furthermore, since the November 2022 lows on FTX, Bitcoin prices have surged by a remarkable +140%, outperforming the +119% in 2015-2018 and +128% in 2018-2022.
Source: Glassnode
Exchange Activity: Bitcoin’s Trading Paradox
Despite the remarkable performance of Bitcoin in 2023, the number of transactions depositing funds to exchanges has surprisingly hit multi-year lows. However, on-chain volume flowing in and out of exchanges has skyrocketed, increasing by a staggering 220%, from $930 million to $3 billion, according to Glassnode data.
This contradiction raises questions about what is driving this intensified exchange activity if not retail investors. The decrease in deposit transactions suggests that investors may be more cautious about leaving their assets on exchanges, potentially due to security concerns or a desire for greater control over their funds. This cautious approach could account for the rising popularity of non-custodial exchanges like StealthEX, offering users the ability to hold their private keys.
Although deposit transactions have declined, on-chain volume indicates that trading and speculation are thriving. It appears that while investors refrain from depositing funds, they are actively trading and moving substantial amounts of money. This trend could signify growing institutional interest, supported by Glassnode’s observation that the average size of deposits to exchanges is approaching the previous all-time high of $30k per deposit.
Furthermore, the percentage of exchange deposits relative to all transactions has dropped significantly, from around 26% in May to just 10% currently. However, when adjusted for Inscriptions, the decline is more modest, around 20%. Undoubtedly, the blockchain sphere is experiencing a dynamic shift as new transaction types emerge and new players seek their share of the limelight.
Short-Term Holders Cashing In
Short-Term Holders (STHs) have made some shrewd moves, capitalizing on their Bitcoin investments at opportune moments. Glassnode’s data reveals that the STH-Supply Profit/Loss Ratio has remained consistently above ~1 since January. This indicates that these astute traders have played the ‘buy-the-dip’ strategy effectively, a classic move during uptrends. However, the sizable gap between their acquisition cost and selling price prompts them to move substantial amounts of coins to exchanges.
Source: Glassnode
In early December, when Bitcoin reached $44.2k, STHs seized the opportunity to take profits, riding the wave and capitalizing on the demand liquidity. This activity has temporarily halted Bitcoin’s upward climb, emphasizing the influence of STHs on crypto prices.
Closing Thoughts
Bitcoin’s story in 2023 is a combination of triumphs, challenges, and excitement. Its roller-coaster ride of recoveries and declines, reminiscent of historical patterns, continues to captivate us in its digital universe. The interplay between STHs and the unpredictable ebbs and flows of exchange activities weaves a complex yet intriguing narrative. Whether one is in it for the highs or the lows or simply out of curiosity, observing Bitcoin’s journey in 2023 is undeniably fascinating.
Hot Take:
Bitcoin’s surge in 2023, marked by its remarkable value increase and intensified exchange activity, highlights the growing institutional interest in the cryptocurrency. Although deposit transactions have declined, the significant rise in on-chain volume suggests a thriving trading and speculation environment. With STHs making smart moves and exerting influence over crypto prices, Bitcoin’s future in the coming year remains enthralling and full of possibilities.
