A Fundamental Analysis of Crypto Markets in Early 2022: China Soon To Stop Selling Bitcoin?

Crypto prices have been stagnating for months despite good news

Most of 2021 can be seen as a very positive year for crypto. There was a constant barrage of good news regarding rising institutional and mainstream adoption, even more so in the final months of the year. Bullish news have kept coming in the first two months of 2022 as well. For example, Goldman Sachs predicts that Bitcoin will hit $100k in 2022. More recently, there have been rumors that BlackRock is planning to offer crypto trading through its Aladdin investment platform. Reports show that we saw an all-time-high in VC investments in the blockchain space, toppling $25bn USD (CB Insights, 2022). Crypto job offers on LinkedIn grew by almost 400%, according to a LinkedIn report. All of these examples point toward one thing: rapidly rising acceptance and adoption of crypto, on both a large institutional and small retail level. Nonetheless, crypto prices have been stagnating, to say the least, since the beginning of Q4 2021. January 2022 was a particularly bloody affair.

China has been selling Bitcoin since the ban in May 2021

Due to the still very present correlation between Bitcoin price movements and the rest of the crypto market, we find it adequate to base our following analysis on Bitcoin. Price movement here should translate to the rest of the market, as we have seen numerous times in the past.

  • Phase 1, May 2021: China prohibits all its financial institutions from engaging in any crypto transactions.
  • Phase 2, June 2021: The Chinese government imposes a ban on all domestic crypto mining.
  • Phase 3, September 2021: all cryptocurrencies are completely outlawed in China, with no room for interpretation.
Figure 1: BTC Exchange Balance in % of total circulating BTC supply. Source: glassnode.com

Asian markets negatively impact bitcoin price

The sentiment that there is a sell-off happening in China is further emphasized by the following graph (figure 2). It displays the change in Bitcoin price during Asian working hours — hence, the times during which these markets are most active. Since China is by far the largest Asian cryptomarket, we will use this graph as a proxy for the activity we see in China.

Figure 2: MoM change in Bitcoin price during Asian working hours. Source: glassnode.com

The data for the US and EU markets paint a different picture

In contrast to the Asian markets, US and EU markets reacted more strongly to phase 1 and 2 in May and June respectively, while the final ban in September had little to no effect.

Figure 3: MoM change in Bitcoin price during US working hours. Source: glassnode.com
Figure 4: MoM change in Bitcoin price during EU working hours. Source: glassnode.com

Bitcoin HODL army growth may turbocharge upward price action

Ever since the third halving, circulating Bitcoin supply has been growing an avg. of 902 BTC/Day. In contrast, the amount of Bitcoin HODLed (and hence illiquid) grows by about 1702 BTC/Day — almost double the growth of liquid supply. Figure 5 illustrates this data. We can read from it, that fresh Bitcoin supply is slowly but surely decreasing. Keeping in mind that adoption is rising, and more new wallets are registered every day, it is only a matter of time until these two curves converge. The fourth halving is expected in 2024, which will speed this phenomenon up even more — but we may have already reached a critical point before that. To put this in numbers: Right now, ca. 900 Bitcoins are generated per day. ca. 1,700 Bitcoins are moved from the liquid markets over to illiquid supply. The net effect is that — every day — 800 Bitcoins are removed from the liquid supply. All these metrics are “on average” and also change over time.

Figure 5: Bitcoin HODL army growth, illiquid supply is catching up to circulating supply. Source: Bitcoin Magazine, Twitter @therationalroot.

A prediction for 2022

As the percentage of crypto assets — primarily Bitcoin — held by Chinese exchanges decreases more and more, we expect the Chinese sell-off to be completed within the next weeks or maybe months. Then, ceteris paribus, US and EU markets will continue to buy and ride the wave of positive news. Illiquid supply grows further as more HODLers continue to buy and hold, while no more temporary, significant selling pressure is coming out of China. This could cause upwards price movements. However, for this development to kick in, there are three crucial macroeconomic risks external to crypto that need to be considered. All three of these could make or break such movements. First, we need to see some relaxation in the tensions surrounding the Ukraine crisis. This crisis poses a threat not only to crypto, but to all markets. Secondly, expiration of the bond purchasing program of the ECB and a rate hike could result in less capital flowing into crypto assets. Thirdly, regulatory changes in larger countries such as the USA, Russia, or Turkey might change the market sentiment significantly.


Please note that this analysis does not represent financial advice, nor is it supposed to be understood or interpreted as solicitation to buy or sell any securities, coins or tokens. Any expression of opinion (which may be subject to change without notice) is personal to the author and the author makes no guarantee of any sort regarding accuracy or completeness of any information or analysis supplied.

About 21e6 Capital AG

21e6 Capital is a Swiss investment advisor, connecting professional investors with optimal crypto investment products. 21e6 Capital has analyzed over 1,000 crypto funds across the world and condensed them into a selection that can yield crypto-exposure with minimized downside risk. Backed by a highly experienced team of crypto and finance experts with in-depth knowledge in digital assets and DLT, 21e6 Capital created a unique quantamental strategy that is aimed at achieving crypto-like returns while minimizing risk and volatility to global equity levels. The 21e6 Capital team builds upon strong academic roots with a track record of leading crypto asset and decentralized finance publications and research, ensuring state-of-the-art crypto investment solutions for financial industry professionals. Stay up to date with 21e6 Capital on social media:

About the Authors

Maximilian Bruckner is Head of Marketing & Sales at 21e6 Capital AG. Prior to this, he was engaged as Executive Director of the International Token Standardization Association (ITSA). where he focused on intense research and classification of crypto assets according to the International Token Classification (ITC) framework. He was heavily involved in the creation of the world’s biggest token database for classification data on tokens. Maximilian graduated from the Frankfurt School of Finance and Management and did research onon the „Use Cases of a Token Database“. You can contact Maximilian via e-mail at maximilian.bruckner@21e6.io to request more information on 21e6 Capital AG or ask any questions regarding this article. You can also follow Maximilian on LinkedIn (https://www.linkedin.com/in/max-bruckner/) to stay up to date.



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Philipp Sandner

Philipp Sandner


Professor | Lecturer | Author | Investor | Frankfurt School Blockchain Center