During the Lunar New Year period, the Bitcoin market surprised many investors by bouncing back above the realized price ($19,700) from the trading range it fell out of FTX. This article will discuss notable shifts in the behavior of new investors (short-term holders), long-term holders, and miners. This article is derived from the latest research report “An Opportunity, or a Trap?” by GlassNode, a cryptocurrency data analysis organization, organized, compiled and written by WuBlockchain, a column in the dynamic zone. (Recap:Arthur Hayes: Rally back down or long-term bull market? Fed steering will decide everything) (event context:The next financial crisis? U.S. lawmakers plan to abolish 31 trillion magnesium debt ceiling, allow “unlimited borrowing”)
mostThe recent market bounce from the trading range where FTX dropped to levels above the realized price ($19,700) surprised many investors, inspiring them to react accordingly.
This article will discuss notable shifts in the behavior of new investors (short-term holders), long-term holders, and miners. For new investors and miners, the recent rally has motivated selling, an opportunity to get out and secure some profits. On the other hand, we observed that long-term holders were resilient enough that their Bitcoin holdings crossed the 6-month coin age threshold and were pushed to new highs.
By exploring the responses of long- and short-term groups, this report aims to examine how recent shifts in profitability have played a role in changing the behavioral patterns of market participants.
almost out of the woods
The recent rise in price action into the $21,000-$23,000 region involved reclaiming multiple on-chain pricing models, which have historically marked a psychological shift in holder behavior patterns.
The image below shows two concrete models in our pricing models dashboard, where:
The investor price ($17,400) is derived from the difference between the realized cap and the calorific value. It reflects the average purchase price of all bitcoins that have been sold and distributed by miners. The Delta price ($11,400) is calculated from the difference between the realized market cap and the all-time average market cap. This results in an integrated concept of on-chain and technical pricing.
Surprisingly, price action throughout 2018-2019 and the current bear market bottom-finding phase spent similar time within the confines of the investor-delta price range. This suggests that the ongoing pain was equalized during the darkest phases of these two bear markets.
In addition to the duration component of the bottom-finding phase, we can measure investor-Delta price range compression as an approximation of the strength of market undervaluation. As shown by ↕ above, the compression of this range correlates with the magnitude of change in market capitalization realized or the amount of capital flowing into the market.
Compression = (Investor Price – Delta Price) / Spot Price
Evaluating the historical trend of this Delta-investor compression concept shows that there is a threshold zone (0.15-0.2 ) that can be used to seek confirmation of the beginning↗️ and end↘️ of the bottom discovery phase.
Given the current price and compressed value, a similar confirmation signal would be triggered when the market price reclaims $28,300.
light at the end of the tunnel
In parallel with evaluating pricing models, we can investigate other on-chain methods to estimate the sustainability and strength of current market momentum.
Profit Supply Percentage is an insightful indicator that can track when the market recovers, transitioning from a bottom-finding phase (a state of dominant losses) to a healthier balance between profits and losses. We can consider this transition period active when the weekly average of the profit supply percentage is between 55% and 80%.
The recent rally from $16,900 to $23,100 showed a sudden spike in profit supply percentage from 55% to over 67%. The 12% surge in that 14-day period is one of the sharpest surges in profitability compared to previous bear markets. This provides an indication of how much bitcoin is trading below $23,300.
Any sudden change in supply (unrealized) margins has historically prompted a reaction from investors, which we can measure with metrics describing realized profits and losses.
The Realized Profit and Loss metric measures the difference between the value of Bitcoin at the time of disposal versus the time of acquisition. The chart below shows the total amount of realized profit and loss, as well as the realized net profit and loss, on a weekly basis. To compare the magnitude of different periods, each trace is normalized by market capitalization.
The sum of profits realized in 7 days[美元]. 7-day realized sum of losses[美元]. 7-day net of Realized Profit minus Loss.
The current bear market, which began in November 2021, has seen two significant crash events, with weekly realized net losses of -2.9% and -3.7% of market capitalization, respectively. The regime has now shifted to a “profit-led” regime, a sign of healing after severe deleveraging pressure in the second half of 2022.
Opportunities for new investors
When the market is in a long period of bottom (or top) discovery, the behavior of new investors becomes an influential factor in forming the pivot point of partial recovery (or correction). We can evaluate this behavior by the percentage of short-term holders’ supply profits.
Interestingly, in a bear market, when >97.5% of the supply acquired by new investors is at a loss, the chances of seller drying up multiply. Conversely, when >97.5% of the supply of short-term holders is in profit, these players tend to take their chances and exit at break-even or profit.
A recent surge to $23,000 pushed this metric to >97.5% profit for the first time since its all-time high in November 2021. Given this massive surge in margins, the probability of selling pressure from short-term holders may increase accordingly.
Looking at the spending volume of these new holders through the Sold Volume Coin Age Band (SVAB) (30D-EMA) indicator, we can see how this surge in profitability is driving this group’s sell volume well above long-term downward trend.
Therefore, the sustainability of the current rally can be considered a balance between inflowing demand and newly deployed demand, in line with the supply that these higher prices pull out of investor wallets.
Assessing the profitability and behavior of short-term holders in isolation does not provide a comprehensive assessment of the market. Therefore, we will conduct the same research, but focus on the long-term holder group, many of whom are investors in 2021-22, and the vast majority of their Bitcoin holdings are still at a loss.
LTH-MVRV compares the cost basis of the long-term holder group to the spot price, and using this metric we have insight into unrealized profits or losses on holdings.
Tracking this metric shows that after six and a half months, the market price has finally returned to the cost basis for long-term holders, which is $22,600. Explaining that the average of long-term holders is just above their break-even basis.
Considering the length of time LTH-MVRV has traded below 1 and the minimum value, the developing bear market so far is very similar to 2018-2019.
Despite the recovery from historically undervalued conditions, it is worth noting that the number of bitcoins older than 6 months (old supply) has increased by 301,000 BTC since the beginning of December. This divergence underscores the strength of hoarder beliefs that have carried through the recent market rally.
In other words, the supply held by hoarders has changed from a contraction of -314,000 BTC/month after the FTX crash to an expansion rate of +100,000 BTC/month.
Miners selling on rally?
Similar to short-term holders, miners have also used the recent price appreciation to shore up their balance sheets.
The Puell multiple is the ratio between the total daily revenue of miners (in USD) and the annual average. It shows a 254% increase in relative miner revenue compared to early January, highlighting the intense financial stress the industry has experienced throughout the bear market.
The resulting behavioral shift has shifted from accumulating +8,500 BTC per month to selling -1,600 BTC per month as miners’ USD-denominated revenues have clearly recovered. Since January 8th, miners have sold about -5600 BTC and experienced a YTD of net balance decline.
The recent price recovery from December’s lows above $23,200 has greatly improved investors’ overall profitability. Referring to multiple price models, we can see that the recent rally has reclaimed several cost basis models and pushed the proposition of supply held at a profit into more favorable territory.
However, after a prolonged bear market, the lure of higher prices and profits tends to push supply back into liquid circulation. Analysis of group behavior shows that short-term holders and miners are already motivated by the current opportunity to liquidate a portion of their Bitcoin holdings.
Conversely, the supply held by long-term holders continues to grow, illustrating the strength and conviction of this group. Given the influence long-term holders have on macro trends, watching their sell-offs could be a key toolset to track in the coming weeks.
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