UTXO Analysis Points to a BTC Price Bottom in Q1 2019
“When will the bear market end?” is the refrain of bored and frustrated traders across crypto Twitter. “Soon” is the answer suggested by Delphi Digital’s latest report. “Bitcoin Holder Analysis Through Cycles” seeks to determine when selling pressure that has deflated BTC prices over the past 12 months will alleviate, signaling that market recovery could be imminent.
Also read: BTC Gets a Health Check in ‘The State of Bitcoin’
Searching for Signs in Bitcoin’s UTXOs
There’s a myriad of narratives buried in Bitcoin’s UTXOs, the unspent transaction outputs that are combined every time BTC is sent. The inferences that analysts are able to draw from this information are growing ever more sophisticated, with Delphi Digital’s new supplementary report the perfect case in point. The 14-page document, which complements the research boutique’s original report, outlines the evidence to support the notion that the current bear market may be reaching its nadir.
Because each UTXO corresponds to the date when those coins were last moved, it’s possible to determine the age of bitcoins held in wallets by examining the blockchain. The frequency of UTXO movements can be used to identify cycles that turn hodlers into sellers. While selling sounds like it should be synonymous with downward price pressure, that’s not necessarily the case. Dormant BTC wallets being used for the first time in a long time may indicate that prices have climbed high enough to incentivize long-term hodlers to send their coins to an exchange. Delphi Digital’s report draws three largely bullish conclusions:
Selling pressure from long term holders, primarily those holding between 3-5 years, is almost exhausted.
We’re seeing another accumulation process by longer term holders begin, similar to the one at the end of 2014.
Using the timing of previous price bottoms relative to different bitcoin accumulation points, we are able to use current UTXO dynamics to strengthen our forecast of a rough date for a price bottom (sometime in Q1 2019).
Who’s Selling Bitcoin?
This might seem like a bad time to be selling bitcoin, with BTC currently languishing in the $3,600 territory. But while that represents a 74 percent drop from one year ago, that doesn’t mean that current sellers are offloading their coins at a loss. Adopters who acquired their coins up until early 2017 could sell them now for a minimum 3x profit – and potentially multiples more. The report notes “we can assume … older [BTC] owners have exhausted much of their selling efforts, evident in the flattening of … older UTXO bands, coupled with the 1 year UTXO band reaching a floor and staying flat through the first half of 2018.” It continues:
In the second half of 2018, the 1 year UTXO band began to exhibit a positive growth trajectory directly in tandem with the 1-2 year band as older UTXO bands remained flat. We’re seeing an accumulation process now similar to the one at the end of 2014. This would imply a bottom is in sight.
Using some clever calculations, based on historical analysis of the Bitcoin blockchain and the activity of UTXO bands, grouped by age, Delphi Digital has endeavored to predict when BTC is likely to next peak. The date it’s arrived at is April 2020. The authors believe this conclusion is bolstered by positive exogenous events such as “the scheduled launch of Bakkt (Early 2019) and Fidelity’s custody solution (being made generally available in early 2019).” Should Delphi Digital’s prediction come to pass, UTXO analysis will gain newfound respect among traders trying to time market cycles.