Retail Traders Catalyzed Latest Bitcoin 'Panic Sale': Chainalysis

Retail traders—and not institutional investors—were the main driving force behind yesterday’s Bitcoin sell-off, according to blockchain intelligence firm Chainalysis.

Cryptocurrency markets crashed on “Black Wednesday,” with Bitcoin dropping more than 30% before bottoming out near $30,000. Other major cryptocurrencies also saw massive drops of up to 50%.

In his latest “Market Intel Report”, Chainalysis chief economist Philip Gradwell pointed out that there were only four other days since 2017 when the end-of-day Bitcoin price fell by more than 25%.

Gradwell listed four key moments: The crash in December 2017 from Bitcoin’s peak of $20,000, the fall below $10,000 in February 2018, a continued drop to $4,000 in November 2018, and, finally, last year’s sell-off. 

With so many new entrants only recently joining the market, the vast majority were unprepared for yesterday’s volatility. What’s more, the data suggests that “much of the selling is from people with assets already on exchanges, who tend to be retail investors,” writes Gladwell.  

Traders rush to exchanges

The analysis also assumes that tokens sent to exchanges (inflows) are more likely to be sold. Conversely, tokens leaving the exchange (outflows) suggest that users are securing their holdings in a cold storage wallet for the long term. 

Analysts monitor these flows to draw bearish or bullish conclusions, respectively. 

According to crypto analytics platform Glassnode, there was a massive surge in Bitcoin transferred to exchanges on May 19. 

In fact, it was the largest single-day inflow since the March 2020 crash, when global markets collapsed due to the coronavirus outbreak.

The chart shows that roughly 299,000 BTC was moved to exchanges in 2020 as the coin’s price cratered. By comparison, holders transferred roughly half of that amount (162,700 BTC) to exchanges yesterday. 

Though yesterday’s inflows were lower in Bitcoin terms, the dollar amount was nearly six times higher than in March 2020. 

Roughly $1.65 billion worth of Bitcoin was moved to exchanges on March 13, 2020. Yesterday’s inflow was worth more than $6 billion thanks to Bitcoin’s price growth over the past year.

Bitcoin is currently trading hands at around $42,000, according to Nomics.