Examining the May 2021 Bitcoin Market Capitulation

The May 2021 market capitulation will go down in the history of Bitcoin as one of the biggest and most dramatic. The 19th May decline could only be likened to the Black Thursday crash in March 2020.

Cryptocurrency investors within this period began to wonder if the market has finally begun retracing to bearish ways again after several monumental bull runs. The value of BTC has shed out 43.7 percent since the 9th of May, with a massive bear candle of $11,506  in a single day average. 

Glassnode Insights has published a survey that explains some of the factors that led to the recent Bitcoin sell-off. The survey touched on metrics that indicated decrease in institutional hold of BTC. It also examined the inflow and outflow of coins that were meant to escape the market into stablecoins. Furthermore, historical comparisons were made to predict the next likely moves in the short term. 

Surveying the Bitcoin Capitulation

According to the analysis, changes in institutional demand is a contributing factor to the decline. The major bull factor that led Bitcoin to new highs was the influx of institutional investors. Glassnode pegs the reason for the influx as a reaction to the coronavirus pandemic. 

The survey examined the largest traditional investment platform for institutions, the Grayscale GBTC Trust product which saw a reaction in the trading flow of GBTC against BTC. Investors made use of the institutional demand to trade at arbitrage. The Canadian Purpose Bitcoin ETF also took the same steps as it received monetary inflows from late May to April.

However, as trading trends in the market began to tremble, consistent outflows were recorded too. The institutional demand in GBTC and Purpose ETF indicated a decline, which inversely affected the price of Bitcoin.

Source: Glassnode

A look at the buy and sell transactions of Bitcoin also offers some explanation to the decline. Bitcoin recorded a remarkable inflow in the past two years but investors were spurred into a panic as the sell pressure in May heightened.

Deposits into exchanges did increase in the selloff period as investors aimed to buy the dip. The trend of aggregate exchange balance declines which had persisted for over 434 days saw a notable upstick on the 3rd of  May.

Exploring the escape strategy of investors during the capitulation, Stablecoins gained considerable value. USDT led the dollar-backed market with a 30 percent increase and up to $14.2 billion. USDC follows with an 88 percent increase and up to $9.72 billion. DAI also joined in the party with a 38 percent increase, amounting to $1.22 billion. 

The SSR (Stablecoin Supply Ration) was also employed to compare the trading flow of BTC and stablecoins. Low SSRs indicates that the market cap of stablecoins has gained more relative to Bitcoin. The recent market capitulation has triggered an all time low of 7.5x in SSR. 

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