January 2022 Takeaways

• Since BTC crossed a record level of $69,000 in November 2021, the leading cryptoasset fell
roughly -52% to 6-month lows of $33,000 on January 24, 2022, and is down nearly -21% year-
to-date.

• On-chain data, like BTC’s HODL Waves, shows that long-term holding accumulation
slowed briefly when prices began falling in November 2021, but have since resumed trend.
Specifically, the number of coins held less than six months has dropped to all-time lows of
23.66%, suggesting that long-term holding sentiment remains strong despite recent price
performance.

• Bitcoin and Ethereum are seeing less on-chain activity, evidenced by a -8.4% and -16.2%
drop in active addresses, respectively, from local highs in November 2021. This decrease in
network activity supports the strong holding sentiment represented in BTC’s HODL Waves.

• Despite a slowdown in BTC’s network activity, on-chain indicators such as BTC’s spent
output profit ratio (SOPR) and ETH’s market value to realized value (MVRV) Z-score suggest
that the multi-year bull run isn’t necessarily over yet. Though BTC’s SOPR shows that market
participants are mainly trading BTC at a loss, the situation was much worse during Bitcoin’s
latest bull run retracement from $65,000 to $30,000 from May 2021 to July 2021 before its
rebound to new all-time highs. Moreover, ETH’s MVRV Z-score shows that the cryptoasset
is now in “oversold” territory, where it historically has struggled to remain for long periods
before a bounce in prices.

HODLer’s Last Stand

Following BTC’s more than +135% surge from $29,350 at the start of 2021 to all-time highs of
$69,000 in November 2021, with several blips in the road, BTC has since fallen over -52% to
6-month lows of $33,000 on January 24, 2022, and is down nearly -21% year-to-date in 2022. As
a reference point, BTC rose nearly +63% during 2021 to a yearly closing price of $47,747. Though
there appeared to have been strong support at the $40,000 level, BTC recently broke through
to the $30,000s range with conviction. Still, the market remains in a state of limbo as the bulls
continue to battle the bears in their fight to maintain the multi-year uptrend.

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Market participants contend that the latest market weakness stems from increased concerns of
hawkish policy from the Federal Reserve. Though prices have been falling since November, the
drop didn’t accelerate until the release of the Federal Open Market Committee (FOMC) meeting
minutes on December 14 to December 15, 2021. The meeting contained hints that an accelerated
pace of tapering, interest rate hikes, and potential quantitative tightening to lighten the central
bank’s balance sheet was coming. While the Fed’s hawkish tone has some convinced that a
bear market may be ahead, it’s crucial to observe on-chain data to paint a complete picture of
the crypto markets and where they are heading.

HODL Waves

BTC’s HODL Waves, which reflect the percentage of BTC’s circulating supply that hasn’t
moved over a specific time, lend insight into holding and spending behavior changes. When
plotted against BTC’s price, one can better understand which market participants — long-term,
medium-term, or short-term holders — may be fueling selling pressure. To differentiate between
long-term and short-term holders, we segment coins into the following groups:

• Ancient or Lost Coins (> 5 years) — Coins that have not moved in over five years are
often assumed lost since they haven’t moved despite BTC’s rapid appreciation. Though it’s
possible that some continue to hold and leave their coins untouched.

• Old Coins (6 months - 5 years) — Coins typically owned by long-term holders who
accumulate in bear markets or after big moves lower. Usually, they hold for a long time, sell
into bull market strength, and opportunistically buy back coins when the time is right. The
number of old coins usually fluctuates between market cycles, peaking after accumulation
and troughing as coins are spent but remain in a much larger uptrend.

• Young Coins (0-6 months) — Coins held by short-term holders, such as traders or those
using BTC as a medium of exchange. As demand from long-term holders outpaces short-
term holders, the number of young coins dwindles. This typically happens during bear
markets, as market participants expect future price appreciation and opt to buy and hold.

BTC’s HODL Waves show that long-term holders have been accumulating coins since April 2021
and may have begun taking profits during November 2021. From April 30, 2021, to November
24, 2021, young coins rapidly shifted into the long-term holdings category. During this period,

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old coins grew +12.6 percentage points to 52.97%, while young coins fell -13.61 percentage
points to 24.1%, the lowest figure since October 2015 when BTC was worth roughly $1,090. From
November 24, 2021, to December 24, 2021, the trend briefly flipped, and the number of old coins
held by long-term holders fell -0.77 percentage points to 52.2% as the young coins cohort grew
+0.66 percentage points to 24.76%. Considering that the old coin cohort grew an average +0.59
percentage points per month in 2021 while young coins fell an average -0.69 percentage points
per month, this indicates that long-term holders, who own most coins, slowed accumulation
during the period as prices fell. Though this suggested immediately marketable supply of BTC
was increasing, a departure from our previous observations that BTC was undergoing a “supply
shock,” the new trend failed to stick as long-term holdings accumulation resumed after the brief
stint. Since November 24, 2021, the young coins cohort has fallen -1.1 percentage points to all-
time lows of 23.66% despite the continued decline in prices.

Figure 1: Bitcoin HODL Waves (Young Coins vs. Old Coins)

Source: Kraken Intelligence, Glassnode

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Network Activity Remains Muted
In addition to a reduction in long-term holding behavior, on-chain data shows that network
activity for both Bitcoin and Ethereum fell month-over-month, evidenced by the drop in monthly
active addresses.

Monthly Active Address Count

Since early November 2021, Bitcoin’s number of monthly active on-chain addresses has fallen
meaningfully, ending a 3-month uptrend. Figure 2 shows that since November 5, 2021, the
number of monthly active addresses has dropped -8.4% from 18.34 million to 16.8 million.
Looking further back to January 2021, monthly active addresses have fallen nearly -24% from
22.06 million. This on-chain data reveals a loss in momentum, reversing an uptrend in active
addresses since late July 2021.

Figure 2: Bitcoin Monthly Active Address Count

Source: Kraken Intelligence, Coin Metrics

Ethereum’s monthly active addresses followed a similar trend. However, Ethereum demand
surged in mid-2021 rather than at the start of 2021 like Bitcoin. While Ethereum’s monthly active
addresses are down -9.6% to 7.57 million addresses since January 1, 2021, the metric is down
-42% since peaking in May 2021 before China’s crypto mining ban sent the markets into a
frenzy. Additionally, the latest market retracement also reversed a 2-month uptrend in network

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activity on Ethereum as the number of active addresses dropped -16.2% since November 2021.
Network activity offers a signal for demand in the underlying assets and a declining trend offers
a corresponding indicator for reduced market demand. Of course, over a long-term perspective,
it’s clear that the fundamentals are dramatically higher relative to the beginning of this macro
cycle in March 2020, and recent activity may only represent a local departure from this larger
trend.

Figure 3: Ethereum Monthly Active Address Count

Source: Kraken Intelligence, Coin Metrics

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Intact Bull Run or Hopium?
While long-term holding data tells a less exciting story, on-chain indicators such as BTC’s SOPR
and ETH’s MVRV Z-score provide hope that recent market activity may prove to be a healthy
retracement in the broader macro trend rather than a full-blown reversal.

Spent Output Profit Ratio (SOPR)

The SOPR is a metric used to estimate where a UTXO-based cryptoasset, like BTC, stands in a
bear or bull cycle. SOPR attempts to measure whether market participants are selling at a profit
or loss. It is calculated by taking a spent output (i.e., BTC sent in a transaction) and dividing its
realized USD value by its USD value at creation. In short, SOPR is the price “sold” (sent) divided
by the price “paid” (received). Note that the SOPR is only an estimate of profitable BTC sales as
not every on-chain transaction is a sale.

Consider the following framework when attempting to interpret a cryptoasset’s SOPR:

• SOPR < 1 — Indicates market participants are selling BTC at a loss, signaling a potential
bottom.

• SOPR > 1 — Signals that market participants are selling most BTC for a profit; history
suggests a local top might be close.

• SOPR = 1 — Implies market participants are selling a relatively high amount of BTC at or
around the price purchased, meaning market participants are uncertain about where price
may trend.

Bitcoin’s current SOPR indicator suggests a bearish sentiment with a reading below 1. Should
the metric break through a reading of 1 and hold above that level, it could signal the end of
the recent bull market correction. However, if Bitcoin remains below a reading of 1 while price
continues dropping, it might otherwise confirm BTC has entered into a bear cycle. Readers
should take note that Bitcoin’s SOPR dropped significantly lower than the current reading
during last year’s 5-month retracement from $65,000 in May to $30,000 by the end of July 2021.
This suggests that while the SOPR is currently signaling bearish, on-chain data painted a much
worse picture during the last similar market correction, after which BTC managed to make a
strong comeback. In other words, don’t count BTC out just yet.

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Figure 4: Bitcoin’s Spent Output Profit Ratio (SOPR)

Source: Kraken Intelligence, Coin Metrics

Market Value to Realized Value (MVRV) Z-Score

ETH’s MVRV Z-Score suggests that ETH is nearing “oversold” territory. As a reminder, the
MVRV Z-Score compares the difference between a cryptoasset’s market cap and realized
value relative to the standard deviation of its market cap to lend insight into how much ETH’s
market cap has deviated above or below its average market cap. MVRV Z-Score is calculated
accordingly:

The three metrics that comprise the MVRV Z-Score include:

• Market Value (MV): ETH’s price multiplied by coins in circulation, i.e., market capitalization.

• Realized Value (RV): The price of each ETH when it was last moved multiplied by coins in
circulation.

• Z-Score: A numerical measurement that explains a value’s relationship to a group’s average,

measured in standard deviations. For example, in a normal distribution a z-score of 0
means that a value is identical to the average, and a z-score of 1.0 means that a value is one
standard deviation above the average.

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The MVRV Z-score provides a signal for when ETH might be “overbought” or “oversold.” A
reading above 5 has historically indicated that ETH is “overbought,” while readings below 1
have suggested that ETH is “oversold.” With ETH down -49% from its all-time high of $4,867
on November 9, 2021, the MVRV-Z Score has fallen into “oversold” territory. History shows that
ETH’s MVRV Z-score tends to drop to the “oversold” zone during retracements but doesn’t stay
in that range long before prices revert. The last time Ethereum’s MVRV Z-score fell to this zone
was around the time of the Black Thursday market crash in March 2020. Though asset values
and network activity are retreating, historical on-chain data suggests that it’s not all gloom
and doom for ETH. Market participants have historically accumulated during “oversold” MVRV
Z-score readings.

Figure 5: Ethereum MVRV Z-Score

Source: Kraken Intelligence, Coin Metrics

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January Network Overview

Figure 6: Cryptoasset Infrastructure Matrix

Bitcoin (BTC) Ethereum (ETH) Cardano (ADA) Polkadot (DOT)
Monthly MoM Monthly MoM Monthly MoM Monthly MoM
Avg Change Avg Change Avg Change Avg Change
Onchain Economics
Active Addresses 927.1K -2.4% 586.8K -2.7% 174.6K 9.3% 26.8K -4.4%
Active supply 1 yr 7.9M -6.7% 70.8M -2.6% 25.5B -4.2% 870.9M 1.9%
Active supply 30 days 1.7M -14.1% 34.9M -9.6% 9.6B -2.1% 336.3M -3.2%
Transactions 252.4K -4.0% 1.2M -2.5% 134.5K 15.2% 173.0K -19.9%

Network Value

Market Cap $808.1B -15.7% 382.4B -21.4% 41.9B -8.7% 28.4B -14.6%
Free Float Supply 14.5M 0.0% 112.0M 0.1% 31.4B 0.9% 1.1B 0.7%

Total Issuance $39.9M -14.8% $44.1M -20.2% - - $8M -12.2%

Total Supply 18.9M 0.2% 117.7M 0.1% 32.9B 0.3% 1.1B 0.7%

Transaction Fees (USD) $501.5K -16.9% $44.1M 11.4% $48.6K 33.1% - -

Transaction Fees (Native Units) 11.6 -1.7% 13,771 45.1% 38.6K 48.6% - -

Network Security

Hash rate 183.7 EH/s 7.4% 0.9 EH/s 7.1% - - - -

Mean Difficulty 24.8T 6.3% 12.2T 5.5% - - - -

Miner Market Cap $189.0B -15.9% $75B -18.6% - - - -

Hodl Distribution

Addresses with balances > $100 15.3M -4.4% 12.5M -7.7% 1.6M 1.6% 387.3K 0.0%
Addresses with balances > $1K 6.3M -6.6% 3.4M -10.5% 704.0K -1.6% 105.9K -0.7%

Addresses with balances > $10K 2.0M -9.3% 645.3K -13.2% 176.9K -5.3% 23.8K -6.5%
Addresses with balances > $100K 383K -13.2% 113.5K -17.7% 30.6K -7.5% 4.6K -6.4%

Source: Kraken Intelligence, Coin Metrics

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On-Chain Highlights
Onchain Economics

• Network activity dropped materially across the tracked blockchains in figure 6 except for
ADA, which rose +9.3% in active addresses. DOT saw the most significant drop with a -4.4%
decline in active addresses, followed by ETH (-2.7%) and BTC (-2.4%).

• ADA was also the only asset that saw increased transactions, rising a notable +15%. DOT
transactions also fell the most out of the group, decreasing by -19.9%. BTC and ETH followed
behind with respective drops of -4% and -2.4%.

• ADA saw the smallest drop in monthly active supply at -2.1%. BTC’s monthly active supply
saw the most significant drop with -14.1%. ETH tracked behind with a -9.6% drop, followed
by DOT with a -3.2% reduction in monthly active supply.

Network Value

• Market capitalization is down across the board, with ETH in the lead (-21.4%), followed by
BTC (-15.7%), DOT (-14.6%), and ADA (-8.7%). Similar to on-chain activity, ADA’s market
value outperformed all cryptoassets seen in figure 6.

• While transaction fees grew significantly for ETH and ADA, BTC transaction fees fell -16.9%.
Notably, ETH saw nearly 5x the number of transactions of BTC, while ETH’s transaction
fees were nearly 88x more than that of BTC. Therefore, even though market participants
may expect ETH transaction fees to be greater than BTC due to the sheer number of
transactions, such an increase is disproportionate to differences in transaction counts.

Network Security

• BTC and ETH saw notable +7.4% and +7.1% increases in hash rate to 183.7 EH/s and 0.9
EH/s, respectively. However, both assets saw large outflows from miner wallets. BTC’s
miner market capitalization fell -15.9% to $189 billion (23.3% of total market capitalization)
while ETH’s market cap dropped a greater -18.6% to $75 billion (19.6% of total market
capitalization).

HODL Distribution

• While holders across almost all cohorts of all tracked cryptoassets have fallen with prices,
smaller ADA wallets with at least $100 saw an uptick of +1.6%, and DOT wallets with the
same amount of funds remained flat, despite significant drops in market capitalization.

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Conclusion and Outlook
After a strong bull run in 2021, the crypto market weakness in recent months has market
participants wondering if this is a full trend reversal or pullback within the broader macro trend.
Though BTC rose over +135% from the start of 2021 to all-time highs of $69,000 in November
2021, BTC price has fallen -52% from late November 2021 to late January 2022, and is down
nearly -21% year-to-date to 6-month lows of $33,000.

Additionally, on-chain data such as BTC’s HODL Waves suggests long-term holding
accumulation slowed in tandem with falling prices initially as the number of old coins spent by
long-term holders dropped -0.77 percentage points to 52.2% and the number of young coins
rose +0.66 percentage points to 24.76% by December 24, 2021. Because the old coin cohort
grew an average +0.59 percentage points per month in 2021 while young coins fell an average
-0.69 percentage points per month, this indicates a potential shift in sentiment from long-term
players. While long-term holding conviction appears stronger than ever, network activity shows
that both Bitcoin and Ethereum are seeing less on-chain demand, evidenced by a -8.4% and
-16.2% in monthly active addresses, respectively, from local highs in November 2021.

While long-term holding conviction and network activity are slowing, on-chain indicators such
as BTC’s spent output profit ratio (SOPR) and ETH’s market value to realized value (MVRV)
Z-score suggest that the broader macro trend isn’t necessarily over yet. Though BTC’s SOPR
shows that market participants are mainly selling at a loss, the situation was much worse during
Bitcoin’s latest retracement from $65,000 to $30,000 from May 2021 to July 2021 after which the
market made a strong comeback. Moreover, ETH’s MVRV Z-score shows that the cryptoasset
entered “oversold” territory, which is historically a short lived phenomenon. In sum, the crypto
space may seem dreary on the surface, but fundamental on-chain data suggests more mixed
sentiment. Market participants should closely watch these on-chain indicators to inform their
view on whether this is a trend reversal or healthy market retracement.

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 JANUARY 2022 CRYPTO ON-CHAIN DIGEST

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