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The Week On-chain (Week 33, 2021)



The uptrend in Bitcoins price has continued this week, rallying from a low of $42,924 into a daily high of $47,831. The market has shown remarkable strength since the local bottom of $29.7k set in July, suggesting strong fundamental spot demand underlies the rally.

This week, we analyse the on-chain metrics related to the mining market, capital inflows, coin accumulation, and net unrealised profit and loss. Through a complete assessment of the on-chain market structure, we can establish whether the probabilities favour the current market strength as a prelude to a bear, or whether a bull market disbelief rally is in full swing.

Miner Revenues Increase

As the Bitcoin mining Great Migration continues, and miners transition out of China, we have started to see a recovery in hash-rate from the lows set in July. Hash-rate peaked out at around 180 EH/s in May before falling by 50%. This provides insight into the magnitude of affected miners as being roughly half the network.

Over the course of the last two months, hash-rate has increased by around 25% from the lows, suggesting hash-rate equivalent to around 12.5% of the affected miners have come back online. The network is currently mining at a rate of 112.5 EH/s.

Bitcoin Hashrate Live Chart

In response, the Hash-Ribbons, which attempt to model where stress enters the mining market, have commenced another positive cross-over. The Hash-Ribbons are formed by taking the 30D and 60D moving average of hash-rate with the following signals:

  • 30D Crossing Below 60D is generally a signal of income stress entering the mining market as hash-rate comes offline rapidly. This can create additional sell pressure as miners are generating less income to cover their CAPEX and OPEX costs.
  • 30D Crossing Above 60D is generally a sign of hash-rate recovery and miner capitulation. After this, the remaining miners have grown their share of the market and thus earn more BTC per hash.
Hash Ribbons Live Chart

We can confirm this is the case using the Workbench Tool, and taking the ratio between total miner revenue (in BTC), and the active hash-rate. This presents the average BTC earned per hash of mining power.

Since the halving in May 2020, aggregate miner income has declined from around 9.5 BTC/EH to a low of 5.6 BTC/EH in May. As protocol difficulty adjusted in response to the Great Migration, miners who remained online have now seen their BTC income grow by 57% per hash to around 8.8 BTC/EH.

Miner Revenue per hash Live Chart

As a result of this, we have seen the net balance position of miners continue to increase over the last two months. The net growth of miner balances has now hit +5k BTC/month which demonstrates a net reduction in compulsory sell-side pressure sourced from miners.

Miner Net position Change Live Chart

Absorbing Capital Inflows

One of the most important on-chain metrics for Bitcoin is the Realised Cap, which is the on-chain equivalent to the market cap. It is calculated by valuing each coin at the price when it was last spent, representing an aggregate cost basis for the market. The Realised cap can be considered as follows:

  • Uptrends indicate that coins accumulated at cheaper prices, are being spent, likely sold, and the market must absorb that sell-side pressure to trend higher.
  • Downtrends indicate that coins accumulated at higher prices are being sold for a net realised loss and is typical of bearish markets.

The Realised Cap started trending higher in late-July and has just reached a new all-time-high of $379B. Given spot prices have continued to rally, this indicates that new capital is flowing into Bitcoin, and the market is capable of absorbing that sell-side pressure.

Realised Cap Live Chart

The net realised Profit and Loss metric demonstrates that since the recent local low of around $29k, the market has realised profits of between $0.5B and $1.5B per day. This follows and extended period of net realised losses through May to July that represented a likely capitulation event.

Market demand is currently absorbing coins sold at realised profits of a similar magnitude to the period in Nov-Dec 2020, prior to the main bull run. If the market can continue to sustain capital inflows at this level, it sets up a strong base and justification for continued market strength.  

Net Realised PnL Live Chart

If we take a look at the average value of transactions flowing in and out of exchanges, we get a gauge of the net buy and sell-side action. Prior to the sell-off in May, both inflows and outflows converged around an average transaction value of ~$35k. This level was largely representative of the average exchange flows in Q1 and Q2 2021.

Following the May sell-off, both inflows and outflows dropped to $14k and $20k, respectively. These smaller average transaction sizes generally suggest an influx of smaller traders were both shaken out, and stepping in to buy the dip.

Since the recent $29k low, average outflow value has risen back to $35k which is a substantially higher divergence from than the average inflow value of $24k. Overall, this suggests larger size buyers are accumulating and smaller size traders are on the distribution side.

Exchange Average Flows live Chart

This aligns well with the Exchange net position change metric which demonstrates a net outflow has persisted since the start of July. Net outflows from exchange balances is currently occurring at a rate of between 50k and 100k BTC per month. This compares to the approximately 140k BTC in net exchange inflows through May-June we highlighted in our Week 31 edition of the newsletter.

Exchange Net Position Change Live Chart

Holders Return to Profit

As prices rally, a larger portion of the coin supply returns to profit. This provides us with an opportunity to assess both how many coins were accumulated in particular price ranges, and also assess the aggregate market incentive to sell and realise gains.

Since the low of $29.7k set in July and the current price of $47.0k, a total of 19.2% of the circulating coin supply has returned to profit. This means that around 3.6M BTC were last spent, and thus have an on-chain cost basis in this price range.

From this we can deduce that a very significant volume of BTC has been accumulated in this price range. Note also how much larger this jump in profitable supply change is when compared to January where prices were in the same $30k-$40k range. This indicates that on net, approximately 1.4M additional BTC have been revalued within this price range since then.

Percent Supply in Profit Live Chart

The Net Unrealised Profit/Loss metric provides a cyclical oscillator mapping the magnitude of unrealised gains/losses as a ratio of total market cap value. The NUPL metric has just broken above 0.5 indicating that the total coin supply is currently holding unrealised profits equivalent to 50% of the market cap.

Historically, a NUPL value of 0.5 is reached following a deep correction in two instances:

  • Bear Market Relief Rallies as was the case in 2014, 2018 and at the end of the mini-bull in 2019. Coin holders take exit liquidity, their profitable sell coins and prices roll over.
  • Bull Market Disbelief Rallies at which point a modest correction usually follows a NUPL value of 0.5 before the bull run continues. Similar spending behaviour governs as in bearish relief rallies, with investors taking profits into strength. The difference is that the market carries on upwards afterwards, creating additional FOMO buy pressure.
NUPL Live Chart

Finally, the STH-NUPL, which filters only for short-term Holders has returned to profitability. This means that coins moved within the last ~5 months are on net, slightly above their aggregate cost basis. Similar to the standard NUPL metric, these events are uncommon, but tend to precede explosive moves into a bear, or a bull market.

With the body of evidence we have outlined above  across miner recovery, strong exchange ouflows, and relatively large accumulation below, the scales have most likely now tipped in favour of the current market conditions being a bull market disbelief rally.

STH-NUPL Live Chart

Major Feature Release: Workbench

We are pleased to release Workbench, a new tool available in Glassnode Studio to generate custom, multi-line charts and use our formula editor. This allows analysts to easily combine our metrics, create and save your own, and take on-chain analysis in new and unique directions.

Glassnode Workbench

The Week On-chain Newsletter now has a live dashboard for all featured charts

PlatoAi. Web3 Reimagined. Data Intelligence Amplified.

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‘Overlooked’ Part of Senate Infrastructure Bill Renews Worries From Crypto Lobby




The $1 trillion infrastructure bill, which passed in the Senate in early August and is expected to be approved by the House, is the gift that keeps on giving.

At first, it was about roads, bridges, and clean water. Then a pay-for provision promised to give American crypto users new tax reporting requirements. And now there’s a new twist.

A report published today by the Proof of Stake Alliance (POSA), an advocacy group that counts Coinbase Custody and Solana as members, details an “overlooked” amendment to the tax code within the 2,700-page bill that will make it a felony to incorrectly report receiving cryptocurrencies, NFTs, or other digital assets.

Writing in his role as an advisor to the POSA, law professor Abraham Sutherland details how the infrastructure bill amends Section 6050I of the tax code. The amended section 6045 that caused so much consternation when it made it through the Senate changed the definition of “broker” to cover those handling cryptocurrencies. 

Industry lobbyists and cryptocurrency advocates such as the think tank Coin Center argued that the bill as written would force Bitcoin miners and validators on other networks to file 1099 forms for the people whose transactions they were processing—even though they lacked the personal information needed to do so.   

Section 6050I, on the other hand, deals with the tax reporting requirements of those who ultimately receive the cryptocurrencies. While Americans must already report their crypto gains to the IRS just as they would with other investments, Sutherland says the amended provision goes much further: They must tell the government who sent it, including reporting social security numbers, when the value of the digital assets is more than $10,000. Not doing so within 15 days constitutes a felony.

This raises at least two issues. First, as Sutherland notes, it’s just as unwieldy as the section 6045 amendment: “This provision demands the impossible because the digital assets might not be ‘received’ from a person whose personally identifiable information can be verified and reported—including cases where the digital assets are not ‘received’ from a person or entity with a tax ID number, period.”

Second, as Sutherland alludes to and as Coin Center Research Director Peter Van Valkenburgh hammered home in a blog post, it might just be unconstitutional. The tax code currently mandates that people report such information to the IRS when they receive $10,000 in cash. That passes Constitutional muster because the bank acts as a third party; otherwise, authorities would need a warrant under the Fourth Amendment. But in cryptocurrency, a peer-to-peer transaction doesn’t have a third party

Writes Van Valkenburgh: “One person to a two person transaction is obligated to collect a load of sensitive information from her counterparty and hand that to government officials without any warrant or reasonable suspicion of wrongdoing.”

Though he writes that Coin Center usually doesn’t “object to equal treatment of cash and cryptocurrencies,” in this case the “provision is a draconian surveillance rule that should have been ruled unconstitutional long ago. Extending it to cryptocurrency transactions would further erode the privacy of law-abiding Americans.”

Sutherland also calls into question the process by which the amended IRS code will become law—via a bill on completely unrelated topics. “A statute creating felony crimes for users of digital assets should be debated openly, not quietly inserted into a spending bill,” he wrote.


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Avalanche (AVAX) bumps to near $70 after reveal of $230 million fundraise




High-speed blockchain Avalanche jumped to highs of $68.30 today after several influential crypto investors revealed the close of a private funding round involving $230 million worth of AVAX tokens in June, CryptoSlate learned in a release.

The Avalanche Foundation, a non-profit that oversees the development of the Avalanche blockchain, disclosed participants in the multimillion-dollar funding round were led by PolyChain Capital and Three Arrows Capital, and included R/Crypto Fund, Dragonfly, CMS Holdings, Collab+Currency, and Lvna Capital.

What happens to Avalanche now?

Proceeds from the private sale will be used to support the burgeoning Avalanche ecosystem—one that has been positioned as a top contender against Ethereum for its high speed and low fees. 

Part of the funds will be funneled to support DeFi (decentralized finance) projects on Avalanche as well as enterprise applications through grants, token purchases, and other forms of investments.

Avalanche’s smart contract is able to execute Ethereum Virtual Machine (EVM) contracts, making it possible for developers to ‘reuse’ their codebase if they have a working/testnet product on the Ethereum blockchain.

Converting assets on-chain using a ‘bridge’—a way for two separate blockchain to communicate with and transfer value between each other—are also simple as applications querying the Ethereum network can be adapted to support Avalanche by changing API endpoints and adding support for a new network. 

Meanwhile, the news caused a surge in AVAX prices last night. The token jumped 30% to over $68.30 to set a new all-time high, reaching a $14 billion marketcap and becoming the 12th-most-valuable cryptocurrency by that metric.

At press time, AVAX continues to trade above its 34-period exponential moving average, a metric used by traders that determines asset trends using historic prices. It has been been in a gradual uptrend since breaking the $15 mark in late-July, and has returned several multiples to investors in the past three months alone.

Image: AVAX/USD via TradingView.

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Can NFTs impact the economic livelihood of artists in developing nations?




TL;DR Breakdown

  • Aversano deployed the first NFT portrait photography.
  • The total sales volume of NFTs in the art segment rose from $64 million to $774 million.
  • NFTs ensure an artist is paid royalty whenever their art is used.

As of July 2021, the NFT industry had garnered an estimated $2.5 billion worth of sales compared to only $13.7 million during Q1 and Q2 of 2020. 

Aversano, an artist known for deploying the first-ever NFT portrait photography, says he sold more than 100 NFT portraits between February and June. He said the sales earned approximately $130,000 within five months. The Twin collection in which he sold the 100 portraits are photographs of twins, which he says are in memory of his fraternal twin.

What are NFTs?

NFTs are non-fungible tokens which are real-life assets that are sold on digital platforms. The viability of NFTs depends on the uniqueness and the utility of possession. This means that tokens can only be relevant to an owner if he can prove ownership of the token. The tokens can range from unique pieces of art from artists to current assets like cars. The digital platform gives an easy and availed proof of ownership.

Non-fugitive assets are made more desirable by the fact that they are unique and one of a kind. This makes them very valuable.

According to Statista, the total sales volume of NFTs in the art segment rose from $64 million to $774 million within a record period of 30-days (August 15 – September 15, 2021). The chart below shows the fluctuation of NFT sales per 30-days period between April and August. 

NFTs sales
NFT sales volume between Apr-Sept by Statista

How can NFTs make artists’ lives better?

As the digital world takes significant steps ahead, more investors try to get a niche to explore the same fruits. When Jack Dorsey sold his first tweet at $2.9m, it started a buzz on and around NFTs. Not only for the amount of money fetched but the ‘absurdity’ of buying a tweet when there are millions of them already. However, there is much more to it. It brought about the concept of owning a one-of-a-kind piece of art which for sure is an advantage to artists.

First, NFTs guarantee immutability to the artist. There is uniqueness where the artist has complete copyrights on his art. This is enabled by the ID or metadata issued to an artist to prove possession of the art. It is offered to give essential data about the piece of art. 

Second, there are no intermediaries during the trading of art on cryptocurrency platforms. Once there is an interested party, they are connected to the individual artist who lays out the asset’s guidelines to change possession. This is advantageous to the artist since transactions are done on his terms. It also keeps in place his profile and reputation as an artist. The artist also cuts the marketing cost and the issue of art brokers.

Next, there is exposure for the artist. When trading NFTs, artists are at ease to do collaborations with other artists. This is a guarantee as the platform is a haven where artists can interact and flourish while teaming up with even more significant expertise in different fields. Apart from collaborations, there is a world market availed. Geographical borders or any particular divisions do not limit the crypto platforms. Once an artist avails art on a digital platform, the piece is available for everybody.

One other factor pulling artists to NFTs is smart contracts. This is a feature that keeps a contract in code form. It works best for decentralized platforms. Smart contracts are programmed to suit an investor’s interest in trade.

For example, smart contracts can be used by artists dealing with NFTs to store data or be used to get royalties each time the piece of art changes possession. This means that the artist keeps reaping from the art long after the sale. A smart contract can be programmed to work without involving a party to set it up time and again.

On the other hand, since the buzz around NFTs began, more people are trying to get into the trade in an attempt of minting. This is leading to flooding in the market and the uniqueness of NFTs diluting. However, this is not a guarantee for the near future failure of NFTs. Artists can reap much from the NFTs.

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