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).
The market rallied strongly again in week 31, and profits started to come under control again starting Monday morning. The market opened at the beginning of the week at $35,326 and peaked at $42,388. This provided some positive price action after prolonged months of consolidation and multiple retests of the $29k floor.
In this article, let’s see how the market reacted to this first set of strong green candles in a rather long bearish period.
Disbelief or Bear Relief Rally?
After a prolonged bearish period with sentiment turning negative and bearish price action sustained, Bitcoin has traded back to new highs this week. An important question is whether this is a Disbelief-Disbelief Rally (where everyone doubts a new uptrend) or simply a Bearish Relief Rally in a downtrend have a larger timeframe.
To start assessing this, let’s look at the actual profit and loss on the chain. We can see that after a long period of high losses recorded from May to July (pink), more than $2 billion in profits were made on-chain this week (with an average of 2 billion USD). average 7 days). This shows that there are some segments of the market that have spent their profitable coins, likely with liquidity withdrawals.
Realized PnL Chart
The aSOPR indicator provides a view of actual aggregate market gains/losses, omitting smaller coins at the 1-hour timeframe. We can see that, in fact, the majority of on-chain spending realized significant losses from the sell-off in May. Every time the price rose, traders spent their coins, driving the price up. aSOPR value of 1.0 acts as resistance.
This week aSOPR has jumped significantly higher due to the previous strong increase in profits made on-chain. The main observations to watch from here are:
aSOPR resets to 1 and then bounces higher: This shows that the market has regained confidence with profits (from those still holding on to confidence) and absorbing selling pressure (from those who don’t believe it). thought).
aSOPR falls back below 1 and stays there: This shows that the market is realizing losses again and is unable to absorb the pressure from the selling side (Those who believe the price will fall).
aSOPR Live Chart
We have determined that there is a volume of profitable coins that have been spent on-chain. and we also have to assess where the holders of these coins come from. If we evaluate the old coins (>1y) in the Spent Output Age Bands, we can see that there are 4 different phases of this market cycle:
Distribution in the Bull market late 2020 to Q1 2021 as older coins are spent at an accelerated rate.
Top Formation with slow delivery from February to May 2021.
Invest and risk in May and June as the market reacts to an unprecedented FUD and sells off 50% to $29k.
Skepticism or bearishness eased slightly until the end of July when the market traded down to $29k and then rallied to $42k this week.
In an ideal bullish scenario, older coins would be dormant, spending would remain low or falling, and confidence would still hold and grow stronger. If older coins start to spend, but the price continues to rise, this would indicate a trustless bull run could be underway and the market is absorbing the spent supply coming from outside. sell.
Conversely, a sharp increase in spending on older coins, especially coupled with a weakening price, could start to move closer to the continuation of the downtrend. That shows that the market is having difficulty absorbing the supply.
Spent Output Age Bands Chart
The executed HODLCap waves, and filtered for young coins (
In the end, the supply from the nascent coins collapsed after a speculative event and this massive accumulation was put on hold. And always like that, the market will either bounce back and break out of the bottom at this limit, or start a bull market, with a series of Doubt / Bearish rallies (purple). Older coins are spent on the rally to get the liquidity out, increasing the supply of younger coins again.
This week, we have seen a noticeable spike in younger coins from what looks like a bottom. In a bullish scenario, this will gradually decrease (HODLing dominates) and/or the price continues higher despite that (skepticism, selling-side absorption). In a bearish scenario, this starts an uptrend of the ‘supply of new nascent coins’ showing weakened confidence in the holdings of old people and an increasing supply of liquidity.
Realized Cap HODL waves Chart
Finally on the spending front, we’ll take a look at those who belong to the mining pool and they fall into two groups:
Offline Miners are affected by migration out of China and incur great costs.
Online Miners is operating at a high profit since about half of its competitors are offline.
The volume of net transfers from miners to exchanges bottomed out at less than 100 BTC/day in mid- to late-July. This week, however, we see a rise to around 300 BTC/day, up. 3x the July low. Keep in mind that this remains consistent with typical behavior throughout 2020 and 2021. It reflects the resilience of the Bitcoin mining market, whereby half Some of the miners can add selling pressure beyond what is needed, while the other half can accumulate double at the same rate.
Miner to exchanges Chart
Exchange Supply Falls
So far, we’ve been looking at spending behavior in response to positive price action. We will now build a thesis around the flow of supply out of exchanges and into on-chain wallets.
The exchange net position change index as shown below is calculated according to the monthly rate of coins flowing in (green) or out (red) of all exchanges. This week, we have seen an extremely large volume of coins flowing out of exchanges, comparable to the peak seen in November 2020. Rates hit more than 100k BTC per month in recents. line out this week.
Exchange Net Position Change Chart
In terms of overall balances held on exchanges, holdings are now back to their 2021 low of 13.2% of circulating supply. This represents a near-full retracement of the substantial inflow volumes observed during the sell-off in May.
Exchange Balance Chart
Another interesting dynamic this week is the interplay between coins held on Coinbase and Binance, the two largest exchanges by balance. Coinbase saw significant outflows throughout much of 2021, while Binance was the biggest recipient.
Binance’s trend appears to have stalled and is starting to reverse, with total outflows of around 37.5k BTC this week. The balance on Coinbase stayed the same in June, saw a massive deposit of around 30k BTC in mid-July, and this week, there was 31k BTC. All in all, this could be the beginning of another era of net exchange cash flow and is a trend to watch.
Exchange Balances Chart
To provide a macro overview of supply dynamics on the chain, we can refer to the Liveliness index in both standard and entity adjusted form. It will provide some of the following features:
Uptrends when the number of days the coin is destroyed is more than the number of days created (spent the old coin).
Downtrends when accumulation and dormancy prevail (HODLing).
Entity Adjustment corrections for insider, self-expenditure or non-economic transactions.
We can see in the chart below that the market returned to macro accumulation almost immediately after the May sell-off. Recently, the standard vividness metric has moved significantly higher, indicating that a large amount of old coins are likely already in use. However, the entity adjusted version did not see a similar event, which indicates that these coins are classified as ‘internal’ and are likely reorganizing an exchange’s cold wallet.
Therefore, it seems that HODLing and accumulation are the most likely dominant trends in the on-chain market.
The Realized Cap HODL waves tell a similar story with a particular uptrend during coin maturation for coins older than 3 months. This has a similar sign to post-peak accumulation, although 2021 comes from a higher HODLed base (~25%) than 2018 (~15%). Progressive peaks of these bands will provide an indication of the volume of coins maturing (higher highs are more bullish and vice versa).
Keep in mind that while the accumulation and maturation of this coin is bullish, as seen during the 2018-2020 market, a full bullish impulse can take some time to develop.
Realized Cap HODL waves
We can also look at the holdings of on-chain entities, which are defined as clusters of addresses with the same owner. One of the most active accumulators since May is the Shrimp and Crab group with holdings of
Entity Supply Distribution
As a final note, continue operations low on the thread. The current entity-adjusted transaction count is still down 38% from the peak set in February, which currently hits 200k transactions per day. While on-chain activity can often follow positive price action, the current levels equate to the 2018-2019 range bottom.
EA Transaction Count Chart
That said, trading volume is skyrocketing, up 94% from a low of $4.7 billion/day, to around $9.1 billion/day this week. This suggests that demand for on-chain block space is likely to be dominated by fewer transactions but larger scale than currently, and this is also an interesting new combination of metrics that we should also consider. keep an eye on the future.
EA Transaction Volume Chart
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