Crypto Ecosystem

Crypto Ecosystem Updates #10 (February 26, 2022)

, March 4, 2022

The cryptocurrency market lost the majority of the price advance that it had gained following the January 24 bottom. Rising concerns about the Ukraine-Russia tension are negatively impacting cryptocurrencies, in contrast to the popular opinion that cryptocurrencies would act as a hedge in the event of a war. 

Bitcoin, the alpha cryptocurrency, lost its price advance from its $46,000 top on February 10 and retraced to as low as $36,500 as of February 22. The coming days will be very critical in determining whether Bitcoin will be able to hold the $33,000 bottom from January 24. If Bitcoin fails to hold the $33,000-low as support, this will likely open the gates for an extended bear market, akin to that of the 2018/19 bear market.  

Developments in major US stock indices and the 2-year US government bond yields are also crucial for Bitcoin, as Bitcoin has the highest correlation with these two asset classes. In this week’s crypto ecosystem update, we will take an updated look at the on-chain activity and technical analysis of Bitcoin, in light of the developments of  the S&P 500 index and the 2-year US government bond yield. We will additionally review any substantial updates with Ethereum.



Price Overview

  • Last 7-day change: -2.78%
  • 7-day low: $34,421.40
  • 7-day high: $40,248.10
  • Last 30-day change: 5.86%
  • 30-day low: $34,421.40
  • 30-day high: $45,791.40

Network Overview

  • Blocks Mined (7-day): 1,038 blocks
  • Average Block Interval (7-day): 587.98 seconds
  • Coins Discovered (7-day): 6,487.5 BTC
  • TX Count (7-day): 1.7 million
  • TX Volume (7-day): 26.5 million BTX
  • Net Change in Exchange Balance (7-day): -626.56 BTC

On-Chain Activity

Uncertainties in financial markets have forced Bitcoin holders and traders to take conservative position sizes. Analysis of the futures market and holder activity suggest that there is ongoing deleveraging in the BTC markets. While on-chain data indicates that the spot Bitcoin market and holder activity are both stable, the futures market has shrunk significantly in response to the concerns of Fed rate hike and uncertainties in the overall global financial environment.

The open interest (OI) leverage ratio is a ratio of leverage relative to the market cap. It offers a measure of future positions relative to the total value locked in the Bitcoin network. Leveraging risks include short and long squeezes as well as liquidation cascades. These events are marked by vertical drops in the OI leverage ratio indicator (red arrows) and often have a strong impact on the spot price of Bitcoin.

However, short or long squeezes or liquidation cascades are not the primary reason for ongoing market deleveraging over the last couple of weeks. A gradual decline in the OI leverage ratio suggests that traders prefer to close out their positions, let alone use any leverage. OI leverage ratio has shrunk from 2% on February 4, to 1.7% on February 21.This  was the range reached after the liquidation cascade event in early December 2021 and has historically acted as a bottom level for OI leverage.

Source: Glassnode

Another important ratio regarding investor sentiment is the rising put/call ratio. Put contracts currently dominate call contracts, which suggest that investor sentiment is shifting from risk-on to risk-off, adding further evidence to ongoing investor uncertainty.

Source: Glassnode

Bitcoin’s spot markets have remained stable while the futures market weakens and investor sentiment turns negative. On the other hand, Bitcoin’s illiquid supply continues to make new all-time highs. The illiquid Bitcoin supply now makes up approximately 69% of Bitcoin’s maximum supply. This suggests that coins are bought up by strong hands, even as the futures market tumbles.

Source: Glassnode

HODL waves also indicate that long-term holders (LTH) are not increasing their holdings. Unspent coins older than three months now account for more than 83% of Bitcoin’s total supply.

Source: Glassnode

Finally, Bitcoin’s exchange balances remain steady. 75,000 BTC have left exchanges over the last six months (a monthly average of 12,600 BTC per month), while 24,000 of them have left since the beginning of 2022. Bitcoins leaving exchanges is a healthy sign of strong demand for Bitcoin and indicates that a large number of coins are headed for cold storage. Around 2,527,000 BTC (or 12% of maximum supply) remain on exchanges as of February 22.

Source: Glassnode


Although Bitcoin’s on-chain activity can foreshadow its future price action, it does not give you any feedback about when that activity could be reflected in the price. It could take years for what you see on the chain now to impact the price. Until then, the price of Bitcoin could just head the other direction, leaving you at a significant loss if you take positions based on the on-chain activity only. 

If you want to keep an eye on what could happen in between the short and long-term, you can  benefit from technical analysis, which we will discuss for Bitcoin in the following section. 

Bitcoin Technical Analysis

Bitcoin is testing its major 600-day simple moving average (SMA) once again. The first test was when it hit the $33,000 level on January 24. The 600-day SMA was also at $33,000 on that date and Bitcoin bounced from that level. 

The 600-day SMA is a major support level that determines a bull or an extended bear market for cryptocurrencies. As a result, losing the 600-day SMA support would likely cause Bitcoin to enter an extended bear market. This would also trigger the pending three-day death cross that we mentioned in the last CEX.IO Crypto Ecosystem Update.

As discussed, three-day death crosses (the crossing down of the three-day 50 SMA with the three-day 200 SMA) have historically caused Bitcoin to crash by an average of 50%, which have been named the “halving dumps” since they happen two years after every Bitcoin halving.


1. Failed inverse head & shoulders pattern 

The majority of Bitcoin investors were expecting Bitcoin to generate an inverse head & shoulders (inv. h&s) chart pattern. This would be where the $40,000 low on January 10 would be the left shoulder, the $33,000 low on January 24 would be the head, and the $46,000 top on February 10 would be the right shoulder.

However, this formation failed last weekend, following U.S. President Joe Biden’s statements about the conflict between Ukraine and Russia. The press release was issued when the Bitcoin price was at $44,000, hovering around the right shoulder of the ongoing inv. h&s chart formation. As you can see in the below chart, the price crashed from the $44,000 level after buying volume failed to step in, which invalidated the much-anticipated chart formation.

Bitcoin/U.S. Dollar price chart with the failed inverse h&s formation. Each candle in the chart represents one hour. Source: Tradingview

2. 600-day SMA

As discussed, the 600-day simple moving average (SMA) is a key indicator for cryptocurrencies that have determined a bull versus an extended bear market. Bitcoin is now back on the 600-day SMA support line again (circled in yellow on the right end side of the below chart). Considering that, the next immediate couple of days, along with Bitcoin’s monthly closing, will be critical in terms of Bitcoin’s possible price action for the rest of the year. If the 600-day SMA level is lost for good, 2022 may become a lost year for the cryptocurrency market. 

Daily Bitcoin/U.S. Dollar price chart. The red line represents the 600-day SMA.

You can also see in the above chart how detrimental it has been for Bitcoin when the price has dropped below the 600-day SMA in March 2020 (circled in yellow at the bottom of the chart). During the Coronavirus panic sell-offs, Bitcoin lost its 600-day SMA support line and crashed by 50% in a single trading day. 

3. Possible head & shoulders pattern on the S&P 500

The S&P 500 stock index is possibly forming a head and shoulders (H&S) reversal pattern, which would suggest that the U.S. stock market has topped out. While the form of the H&S pattern has been close to perfection so far, the volume profile is not consistent with the principles of classical charting. 

According to classical charting, the highest trading volume in an H&S pattern should not be on the right shoulder. As you can observe in the chart below, trading volume (the vertical red and green bars at the bottom of the chart) has been increasing since the start of the left shoulder, while the highest trading volume has been realized on the right shoulder, as indicated by the orange arrow at the bottom of the chart. 

However, you should note that classical charting is far from being an exact science. Regardless of violations in its principles, a formation can still work out or fail depending on market conditions. In the context of the S&P 500, further escalating geopolitical tensions or surging U.S. inflation can  cause the H&S pattern to work out and drop the stock index’s price significantly.

Three-day S&P 500 Stock Index price chart with the H&S formation  

Being a risk-on asset, Bitcoin’s price has consistently  been highly correlated to the price action of the S&P 500. A portion of profits realized in S&P and Nasdaq markets have poured into the cryptocurrency market in the past. Bull markets have started in the stock markets and ended in the crypto markets.

The same cycle applies when there is a downturn in the markets. Money starts to flow out of cryptocurrency markets, followed by the stock markets. And then, as a bear market ensues, all risk-on assets become correlated to the major stock markets. As a result,  developments in the S&P 500 are very crucial for Bitcoin now, as they could determine whether we will have an extended bear market this year.  

4. Yield for the 2-year US government bonds

On the other hand, the yield chart for the 2-year US government bonds contradicts the current outlook of the cryptocurrency market and the stock markets. 

Bond market yields are inversely correlated to the stock markets and thus cryptocurrencies. U.S. government bond yields have been surging since October 2021, in response to the accelerating inflation and geopolitical tensions. The 2-year US government bonds are used as the benchmark indicator in the market to measure short-to-mid term appetite for risk-on assets.

If the yield rises for the 2-year US government bonds, it indicates a lower risk appetite for stocks and cryptocurrencies, which have traditionally been followed by significant sell-offs for these two asset classes.

The same mechanism prevailed during the 2-year bonds’ recent rally. As you can see in the chart below, the yield for the 2-year US government bond has risen from 0.22% at the beginning of October, up to 1.65% in February. During this period, the price of Bitcoin fell from its all-time high of $69,000 to $33,000.  

However, as you can also clearly see, the yield has hit a major resistance level recently, indicated by the horizontal yellow line in the chart. How likely it is for the 2-year bond yield to penetrate through such a major resistance, without having any pullbacks, is subject to debate. But, if the yield does indeed pullback, it could end the current downtrend in cryptocurrencies for the short-to-mid term, while also invalidating the H&S formation in the S&P 500 index chart.

The 2-year US government bond yield chart with the 1.7% resistance line 



Price Overview

  • Last 7-day change: -1.01%
  • 7-day low: $2,305.18
  • 7-day high: $2,868.20
  • Last 30-day change: +11.80%
  • 30-day low: $2,321.98
  • 30-day high: $3,390.17

Network Overview

  • ETH Burned (7-day): 42,975.72 ETH
  • TX Count (7-day): 8.1 million
  • TX Volume (7-day): 10.2 million ETH
  • ETH Moved in/out of Smart Contracts (7-day): 200,929. 31 ETH
  • Net Change in Exchange Balance (7-day): + 106,834.55 ETH

On-Chain Activity

Ethereum has been experiencing a supply crunch since the start of 2022. This is a consequence of the Ethereum network’s fee-burning protocol, which takes Ethereum coins out of circulation. 

Other factors that contribute to ETH coin burns include gas prices and overall network usage. Gas prices have spiked to their highest levels since May 2021.

531,000 ETH have been burned in 2022 so far, with a daily average of 11,298 ETH. The daily supply burn rate, since the start of 2022, is 20% higher than the historical average since Ethereum burning began in August 2021.

Source: Glassnode

The impact of Ethereum burning is best illustrated by new supply issuance (block rewards). Block rewards are calculated by multiplying total daily miner revenue with the percent of revenue that is not generated by fees. So, Estimated Daily Block Reward = Daily Revenue * (1 – % of Revenue Generated from Fees). Since the start of 2022, the average estimated daily block reward is 13,574 ETH.

Source: Glassnode

Using daily supply and block reward averages indicates that the Ethereum network is currently adding 2,276 ETH coins into the new supply every day. This is 43% below the average daily supply growth since Ethereum’s fee-burning protocol started.

The chart below compares the burnt supply to new coin issuance since the start of the year. It can be observed that new supply and burnt supply have stayed in parallel throughout January, and have been relatively close so far in February.

The average daily supply growth of Ethereum implies an annualized inflation rate of ~0.71%. For reference, annualizing the inflation rate, given burn and block reward averages, since EIP-1559 commencement is ~2.71%. Annualized inflation, assuming the block reward average, since the start of 2022 and no supply burning is ~4.21%.

Source: Glassnode

The chart below highlights the difference between newly issued coins and burned supply, during the first two months of 2022. Burned supply growth has generally kept up with the issuance of new coins. However, Ethereum’s circulating supply has netted only 106,974 new units to this point. This is an 85% reduction compared to the 692,240 ETH coins that would have entered circulation if there were no coin burns.

Ethereum Technical Analysis

Ethereum’s price action has historically been correlated to that of Bitcoin. Throughout the history of cryptocurrencies, Bitcoin has managed to drag Ethereum and other altcoins along with itself, either to the upside or to the downside. The reason for this synchronized price action was that funds entering and exiting the cryptocurrency market initially flowed into Bitcoin, which then moved in and out of Ethereum and other altcoins. As a result, Bitcoin should not be on a downtrend for the Ethereum price to have an uptrend. 

During periods of uncertainty, funds sitting in cash are usually scared to flow into Ethereum and other altcoins which makes Ethereum very sensitive to the price action of Bitcoin. Currently, we are in such a stage in the cryptocurrency market. As a result, the future price action of Ethereum strongly depends on Bitcoin’s moves.

In that sense, Bitcoin first needs to rise above its previous $46,000 local top and move to the make-or-break $51,000 resistance, so that Ethereum can move above $4,000. So going forward, it is Bitcoin that needs to start a new bull market first, so that Ethereum can follow suit.  

1. 600-day SMA support for Ethereum

Ethereum still has room to the downside to hitting its 600-day SMA support, which is now at $2,100. Considering that, it can easily crash to $2,100 upon Bitcoin’s further downside action. The equivalent of Bitcoin’s falling back to its January 24 low of $33,000 from its current prices, would be Ethereum falling to its 600-day SMA support at $2,100.

2. Bearish cross in the weekly stochastic RSI

Ethereum’s recent bearish cross in its weekly stochastic RSI doesn’t help the cause much either. This indicates that momentum is still very low for Ethereum to generate any price reversal. Of course, Bitcoin will likely dictate the direction of Ethereum, but it is also possible to deduce Bitcoin’s future movements by looking at Ethereum.


Disclaimer: Information provided by CEX.IO is not intended to be, nor should it be construed as financial, tax or legal advice. The risk of loss in trading or holding digital assets can be substantial. You should carefully consider whether interacting with, holding, or trading digital assets is suitable for you in light of the risk involved and your financial condition. You should take into consideration your level of experience and seek independent advice if necessary regarding your specific circumstances. CEX.IO is not engaged in the offer, sale, or trading of securities. Please refer to the Terms of Use for more details.



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