Seeking to Explain Market Drawdown (Nov 13 — Dec 7)
By: Johann Colloredo-Mansfeld
Tags: Cryptocurrency, Bolt Research, Cryptocurrency Investment, Bitcoin, Cryptoeconomics

Over the past three weeks the crypto asset markets have experienced a significant selloff. While the crypto asset markets at first seemed resilient to broader movements of the global financial markets, the past two weeks saw prices for many crypto assets drop by over 40%.

Herein we examine and present the network dynamics we believe were partly responsible for motivating the recent selloff. On November 13th 6:35 PDT, Boltzmann’s proprietary frameworks detected a statistically significant network anomaly. Specifically, we witnessed bulk asset movement by active miners in BTC (defined as wallets which have received a payout during the preceding week). We found that these movements effectively shifted the supply curve for BTC outwards by 7,854 BTC from November 1–13th.

Figure 1 shows net flow of assets across participants in six top mining pools. Notably, wallets subscribed to f2pool saw statistically significant outflows before broader market selling.

Figure 1 — Statistically Significant Selling by f2pool Led Broader Market Selling

Following the initial selloff, participants of slushpool also began selling in large quantities, causing further declines.

This information is derived from Boltzmann’s Mining Net Flow data stream which monitors the introduction of new supply into crypto asset markets. As previously discussed, remunerated crypto assets only bear implications for price (only shift the network supply curve outwards) when these assets have left the wallet of the recipient.

Interestingly, some miners seem to sell on regimented cycles, which could provide the basis for separate systematic strategies to time the introduction of new supply into the markets.

In conclusion, transactions data supports the argument that large mining pools liquidated significant positions in BTC during a time of relatively weak demand and low liquidity, which led to an outward shift in the supply curve, decreased prices, and catalyzed broader selloffs by other market constituents. From this investigation, it is further notable that miners can exhibit regimented behavior. In addition to providing the basis for systematic strategies, deviations from these scheduled behaviors could provide more robust market signals.

We continue to monitor the networks for significant transactions activity. To be alerted of these events at their time of detection, please email: contact@boltzmann.io.

BOLTZMANN IS NOT A FINANCIAL INSTITUTION, AND NO PART OF THE SERVICE OR THE CONTENT SHOULD BE CONSTRUED AS FINANCIAL ADVICE. THE SERVICE IS NOT A SUBSTITUTE FOR FINANCIAL ADVICE. THE BOLTZMANN PARTIES DO NOT ENDORSE OR WARRANT ANY BLOCKCHAIN, EXCHANGE, OR DIGITAL ASSET, INCLUSIVE OF CRYPTOCURRENCIES, CRYPTO COMMODITIES, TOKENS, NON-FUNGIBLE TOKENS, OR ANY TYPE OF CRYPTOGRAPHIC ASSETS OR OBJECTS, OR THE DATA CONTAINED THEREIN. THE SERVICE IS DESIGNED FOR INFORMATIONAL AND TRANSACTIONAL PURPOSES ONLY. ANY ACTION ON YOUR PART IN RESPONSE TO THE INFORMATION PROVIDED THROUGH THE SERVICE IS AT YOUR SOLE DISCRETION AND RISK. BOLTZMANN HAS NO RESPONSIBILITY FOR, OR INVOLVEMENT WITH, ANY TRANSACTIONS OR ANY INTERACTIONS THAT MAY RESULT FROM YOUR USE OF THE SERVICE; INCLUDING BUT NOT LIMITED TO CRYPTOCURRENCY TRADES.