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As crypto newbies capitulate, will BTC become less risky?

By Daniela Ešnerová


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Golden BTC coin with market moves visualisation overlay.
Newbies capitulate, HODLers accumulate. Will the shift make the market less volatile?. – Photo: Shutterstock

Cryptocurrency newbies, who bought digital assets at their all-time highs at the end of 2021, “almost completely capitulated” at the end of last month. 

These recent adopters were more prone to panic-selling in times of crisis. As paper hands capitulate to HODLers, would the market become less risky and volatile? 

Fearful newbies, unfazed OGs

On 22 February, the day when Russia’s President Vladimir Putin ordered troops into Ukraine’s Donetsk and Luhansk regions, cryptocurrencies – like equities – plunged. The military build-up has been growing for weeks leaving both equities and cryptocurrencies in jitters.

In the crypto market, short-term holders – with coins held in the wallet for less than 155 days – were “the most fearful cohort”, Glassnode analyst Chechmate noted at the time. 

“Amidst kinetic conflict in Ukraine, investors who purchased around the BTC ATH have almost completely capitulated,” Chechmate wrote six days later on 28 February. “On the flip-side, the cohort of HODLers continue to accumulate, seemingly unfazed by macro and geopolitical risks.”

The shift in ownership preluded bitcoin’s rally, which seemed to interrupt the link between crypto and equity market performance. With an army of convinced HODLers, would BTC become more of a safe haven asset than a risky one less vulnerable to panic sell-offs? 

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Performance of BTC, gold and S&P 500 in February.BTC took off at the end of February, breaking from its correlation with the equity market.– Credit: Kaiko
By the end of the month, BTC had outperformed gold and most other traditional assets including the US Treasuries and safe-haven currencies, which are generally perceived as a geopolitical hedge – Clara Medalie, Kaiko's head of research

‘Healthy shift of assets’

Coins are being exchanged from paper to diamond hands – paper hands being short-sellers and diamond hands being veteran crypto players. 

SOL/USD

13.90 Price
+2.810% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 22:00 (UTC)
Spread 0.2843

XRP/USD

0.41 Price
+2.550% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 22:00 (UTC)
Spread 0.00410

BTC/USD

17,118.05 Price
+3.770% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 22:00 (UTC)
Spread 66.00

ETH/USD

1,300.46 Price
+6.500% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 22:00 (UTC)
Spread 5.50

“This activity suggests a healthy shift of assets to long-term holders, decreasing any future sell-side pressure which pushes crypto prices higher,” says David Moreno Darocas, research analyst at cryptocurrency market provider CryptoCompare, commenting on the ownership distribution change.

“Prices have been steadily decreasing over the last three months, and many cryptocurrencies are now over 50% below their all-time highs,” he says. 

“Much of the sell-side pressure from the previous months has come from short-term traders. For example, BTC traders (addresses that have held bitcoin for under a month) held a yearly high of 2.7m BTC on the 7th of December last year. This has since dropped to 1.6m BTC as of the 27th of February, suggesting short-term holders have been liquidated and assets have moved to long-term holders.

“This same trend can be spotted in ether addresses, with long-term holders (addresses that have held ether for over one year) rising from 48m ETH at the end of 2021 to 52.9m ETH as of the 27th of February.”

$11,000 price swings?

Some market watchers are, however, expecting further volatility in the market, including possible price swings in the days to come.

BTC Range Report by GNY predicts that “BTC traders could face potential price swings of more than $11,000 with a low range of between $34,600 and $39,500 and a more consistent high range of between $44,100 and $45,900 over the period from 1 March to 7 March.”

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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