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24.11.2022 11:39 PM
Bitcoin: why HODLers shuffle coins

While the cryptocurrency market is trying to recover following the collapse of FTX, on-chain data seems to suggest that long-held Bitcoin (BTC) has started to see some activity. We'll look at what that means today.

Let's not overlook the issue of regulation, which seems to be a particularly hot topic this year and may be laying the groundwork for a change in the industry.

Before we get to the main issues, it is worth noting that BTCUSD remains flat, but the recovery from the recent collapse may or may not suggest that the cryptocurrency has already reached the bottom. Although this is still the most discussed issue in the cryptocurrency community right now.

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Long-term investors move tokens

In light of favorable macroeconomic factors, when long-held crypto-assets change hands, this usually indicates that dormancy on the coin's network is starting to dissipate and a significant price rally is imminent.

However, in the current market, a closer look at on-chain data revealed that investors' decisions to move previously dormant BTC coins were borne out of fear and lack of conviction.

CryptoQuant analyst Wenry said that BTC's Average Dormancy is at its highest level since February. This measures the average period that every coin has remained dormant from the time it was last traded. A spike in this metric indicates a rally in coin distribution.

Wenry noted that in the past, this metric usually rose "during the first technical rebound after a large price drop." However, it is too early to say that this can be considered conclusive evidence of a first "technical rebound."

"If $BTC, which has not moved for a long time for a few days, moves and there is a stronger movement in the corresponding indicator in the future, it is judged that it is necessary to focus more on risk management from a trading perspective."

In addition, a new report from Glassnode found that BTC's Spent Volume Age Bands (SVAB) have reached their highest level since the beginning of the year. The SVAB metric showed that just 4% of all coins spent last week were sourced from coins older than three months.

According to the on-chain analytics platform's interpretation, this relative magnitude coincides with some of the largest in history, often seen during capitulation and wide-scale panic events.

HODLers are losing confidence

Glassnode also observed that uncertainty is starting to creep into the minds of long-term BTC HODlers. This is prompting long-term investors to change hands, and/or shuffle coins.

Finally, an assessment of BTC's Spent Old Coin Volume older than 6 Months showed that the metric reached its fifth-highest value in the last five years.

"In the time since FTX collapsed, a total of 254k BTC older than 6-months have been spent, equivalent to around 1.3% of the circulating supply. On a 30-day change basis, this is the steepest decline in older coin supply since the Jan 2021 bull run, where long-term investors were taking profits in the bull market", Glassnode noted.

However, it is too early to tell how these observations across datasets will affect Bitcoin's value on the charts in the future.

Regulation of the crypto sector will be the theme for 2023

The collapse of the FTX exchange has made the issue of regulation of the crypto sector even more urgent. Such "conglomerate" platforms will be the focus for 2023, the new chair of global securities watchdog IOSCO said in an interview.

Jean-Paul Servais said that authorities can take the principles of other sectors which handle conflicts of interest as a basis for regulating crypto platforms.

Despite Bitcoin's already considerable history, regulators continue to resist intervening in the industry and writing new rules.

But the FTX crash, which left an estimated one million creditors facing losses, will help change that, Servais stressed in an interview with Reuters.

"The sense of urgency was not the same even two or three years ago. There are some dissenting opinions about whether crypto is a real issue at the international level because some people think that it's still not a material issue and risk," Servais said.

IOSCO, whose task is to coordinate rules for G20 countries, has already laid out the principles for regulating stablecoins, but now the focus has since shifted to platforms which trade in them.

In mainstream finance, there is a functional separation between activities such as broking, trading, banking services and issuance, each with its own set of rules of conduct and safeguards.

"Is it the case for the crypto market? I would say most of the time not," Servais said.

According to Servais, crypto "conglomerates" like FTX have emerged that perform multiple functions, such as brokerage services, custody, proprietary trading, and issuing tokens under one roof, leading to conflicts of interest.

The Madrid-based IOSCO, or International Organization of Securities Commissions, is an umbrella body for market watchdogs like the Securities and Exchange Commission in the United States, Bafin in Germany, the Financial Services Agency in Japan and the UK Financial Conduct Authority, which all commit to applying the body's recommendations.

According to Servais, who also heads Belgian financial regulator FSMA, the new markets in cryptoassets or MiCA framework in the European Union is an "interesting starting point" for developing global guidance as it focuses on supervision of crypto operators.

"I think that the world is changing. We know there is some space for developing new standards about supervision of this kind of crypto conglomerates. There is an obvious necessity," Servais said.
Ekaterina Kiseleva,
Analytical expert of InstaForex
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