Glassnode On-Chain Week 30, 2021

WARNING: The article has a certain lag compared to the current price on the market, the information in the article should only be viewed from a reference point of view and should not be considered investment advice. The indicators given in the article can be found on studio.glassnode.com (paid version).

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Bitcoin had a strong breakout this week, trading from a low of $29,479 to a high of $35,423 on Sunday. And at the time of writing, the Bitcoin price rallied to a new high of $38,677 early Monday morning UTC.

This week, we’ll be taking a look at both derivatives and on-chain market data to reassess the upside potential after the stranglehold of the past weeks and establish the basis for the various possibilities in the market. school. As investors return in hopes of a return, the question to ask is whether they will start spending the coins they bought into the current strength of the market or still have faith. holding continues or has weakened.

Shorts Squeezed

With the growth and maturation of the derivatives market, the interplay between the spot market and the leveraged market creates new dynamics in this market cycle that have never been seen before.

Opening the week, open interest in the options market indicates volatility is expected. Open interest in one-month strike (contracts from August 27) shows a notable preference for prices outside of the current consolidation range. The August 27 open interest strike price on Deribit is:

Options OI August Chart

Open interest in the futures market has remained flat over the past two months, fluctuating between $10 billion and $12 billion since May. However, in the last week, open interest in perpetual futures has increased. $1.4 billion along with bullish momentum. Typically, rising open interest begins to increase the likelihood of a leveraged squeeze as volatility becomes higher.

Open Interest Chart

If we evaluate the volume obtained from cash margin collateral, we can see a structural uptrend that has started since the beginning of May. Cash margin collaterals are those futures positions using cash, or equivalent cash-based collateral (stablecoins). In general, cash margin positions are preferable for market stability as they remove a layer of risk present when volatile crypto margin futures currently dominate.

Cash-Margined Futures Chart

To confirm this trend, we can see the relative dominance of crypto margin futures positions have declined in structure over the same period, falling from 70% to 52.5%. While leverage in all its forms exacerbates market volatility, these two charts show a clear drop in traders accepting crypto margin positions risk, this is a positive trend for the market. It also adds weight to the risky nature of the current market structure.

Percent Crypto-Margined Futures Chart

To gauge where the futures market is headed, we can see that the interest rate funding the perpetual contract continues to trade in the negative territory. This shows that the main trend is still on “Short” for Bitcoin. This metric, in particular, helps us determine that Monday’s rally is likely related to an overall “Short” squeeze, with funding rates continuing to trade in the negative despite prices. +30% increase.

Futures Funding Rate Chart

Indeed, during Monday’s bull run, nearly $120 million in short positions were liquidated in an hour, which largely confirms that the squeeze of “Short” trades was the main driver of the rally. increase this price.

Shorts Liquidation Chart

On-chain Activity

In contrast to volatility in the spot and derivatives markets, trading volume and on-chain activity have remained extremely quiet. On a 14-day moving average basis, entity-adjusted trading volume for Bitcoin remains around $5 billion per day. This is still a significant drop from the $16 billion/day level before the sell-off in May.

However, volume has yet to collapse to 2017 peaks where network volume saw a complete retracement, a dominating bear market, and eventually capitulation. For now, it remains to be seen whether on-chain volume will start to increase in response to the volatile price action of the recent past.

EA On-chain Volume Chart

Despite the decrease in online trading volume, when compared to network valuation (capitalization

market) in the NVT Ratio we can see an interesting fractal. Historically, the very low value of NVT indicates that the network is undervalued relative to transaction volume. Conversely, higher values ​​as seen in February 2021 indicate relatively low trading volume and may not be consistent with current market valuations.

When the exchange price dropped to as low as $29k early last week, EA-NVT suggested that the Bitcoin network was at an oversold level relative to on-chain settlement volume. This short squeeze has now pushed the EA-NVT higher. If on-chain volume does not increase to support these rising prices, it could indicate that the current bull run is lacking in fundamental momentum and this is a sign of caution.

Entity Adjusted NVT Ratio Chart

Regarding on-chain entities, we can see a constructive spike from receiving entities (those who manage the coins) while sending entities (those spending coins) remain similar. for flatness. This is an early trend change and a change like that suggests a more positive accumulation environment if it persists.

Sending vs Receiving Entities Chart

In general, on-chain activity is still somewhat down and remained quiet in the past week. Perhaps the Bitcoin network use case is devaluing the market in this case. Ideally, fresh volatility and constructive price action should stimulate demand for block space. If not, this will present a framework for more caution in the coming weeks.

Network Profitability

To wrap up this week’s analysis, we’ll be assessing the market’s aggregate profitability against the actual price level. Actual price is one of the basic metrics underpinning the chain analysis. It is calculated by valuing all coins at the price when they were last transferred and thus represents an aggregate ‘cost basis’ for the circulating supply of coins.

“Exercise price” currently trading at $19.3k, which usually coincides with the previous ATH cycle. With this week’s closing price of $35.4k, that means the aggregate market is currently holding unrealized gains at around 83%.

Realized Price Chart

In the context of past market cycles, we can use the MVRV ratio to compare market capitalization (spot pricing) to actual cap (on-chain cost basis). Here, we can see that the percentage of MVRVs trading in an area has been historically achieved in three cases:

• Early-Bull cycle (3x) where the macro price has bottomed and the accumulation from smart money has returned to a significant profit.

• Read moreEthereum Metaverse Tokens Keep Climbing: MANA, SAND Hit All-Time Highs

  Mid-Bear cycle (2x) where investors have seen their unrealized gains drop significantly after the cycle top, but before the eventual capitulation occurs.

• Double Pump (1x) during the 2013 market, where the mid-cycle shakeout kept many investors on the sidelines, before returning to the next boom.

At this stage, it remains to be seen whether the market can turn the macro trend around and confirm a bull market recovery. If so, it will look like a ‘Double Pump’ market in 2013. If not, the probability is a fraction of a Bear market.

MVRV Chart

Looking at the MVRV for the group of short-term holders (STH), we can see that they are currently holding coins with significant unrealized losses. STH-MVRV rarely trades in such oversold conditions with most historical cases being followed by rallies. That said, these segments usually occur only during Bear markets, note that this can include the eventual speculative event that begins a macro bull cycle.

STH-MVRV Chart

We can also investigate the amount of supply that has returned to profitability in recent times. This gives us an estimate of the volume of coins with an on-chain cost basis in the consolidation range at 29k to 38k. From a weekly low ($29k) to a short-term high ($38.4k at press time) over 2.1 million BTC has returned to profitability. This is equivalent to 11.2% of the circulating supply.

Supply in Profit Chart

Finally, let’s see if there are any signs of profitable legacy coins being used on-chain to take advantage of current market power to escape liquidity. The price drop is visible as there is a significant increase in the spending of older coins (>1yr) during this rally as seen in 2018 after the peak drop.

So far, we haven’t seen such behavior. If the slumber of older coins persists, it shows that confidence in HODL remains relatively strong and favors a more constructive view of the market structure moving forward. Conversely, spending older coins relative to volume would indicate a large influx of illiquid coins returning to supply and a stronger bearish outlook ahead.

Spent Output Age Bands Chart

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