2021-10-15 00:03:10
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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The market saw another strong bullish week, with gains from $37,524 to as high as $45,215. The market was trading briefly above the 200-day moving average ($45k), before retesting and initiating a consolidation. As a well-observed technical indicator of an up/downtrend, the market’s reaction to a rejection or acceptance of the 200-day MA is likely to be news in the coming weeks.
As price action confirms market strength, we will assess the on-chain reaction to the current bull rally and seek to determine if Bitcoin holders are exiting liquidity. Accumulation or HODLing more or not. In addition, we will also evaluate the early stages of Ethereum supply dynamics after the successful release of the EIP1559 fee mechanism.
On-chain spending behavior
We will start our analysis with the Spent Output Profit Ratio (SOPR) indicator, which is a relatively short range indicator that presents a view of profit and loss. made by on-chain spending coins. Here, we used the Workbench tool to overlay two versions of SOPR:
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aSOPR represents the entire market, but does not include coins smaller than 1H (non-economic forward trading)
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STH-SOPR represents profit/loss of Short-term Holders only.
After months of trading below 1.0 (actual loss), both SOPR indicators have performed what looks like a textbook bullish reversal. This is described as follows:
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Grade A: SOPR goes above 1.0 after a period of continuous loss. This signals a profit has been made and the market has been able to absorb that supply.
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Point B: SOPR achieves high profit by taking advantage of market power to spend and recoup those profits. This creates a superior high position as supply exceeds demand and a price correction occurs.
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Point C: SOPR reset to 1.0 signal that profitable coins have stopped being spent and confidence is back in the market and the price drop has attracted buying.
The most important thing to watch is whether SOPR holds above 1.0. If SOPR continues to trade higher, this reflects a bullish scenario in which the market is fully absorbing the gains from spent coins. On the other hand, if SOPR falls and trades back below 1.0 on a sustained basis, that would indicate general weakness in the market and potentially a fake rally.
SOPR analysis Workbench Chart
Spent Output Age Bands demonstrate that in general, middle ages (3m-12m) and older coins (>1y) remain dormant and non-existent on market as of 2018. The majority of spenders in this group are younger and between the ages of 3m-6m, representing buyers in a bull market. These trades will likely exit or reduce risk because prices are coming closer to their cost base.
Overall, the index remains quite upbeat while urgent selling from old buyers in the band seems unlikely.
Spent Output Age Bands Chart
ASOL as a life expectancy index often confirms this observation. ASOL reflects the average age of spent output on a per-transaction basis (unaffected by the volume of coins spent).
ASOL traded higher throughout Q1 and Q2 as older coins were distributed, finally topping out. The bearish shock in May sent the index lower, suggesting that owners of older UTXOs were largely unwilling to sell at that price (and not panic selling).
ASOL has yet to return to 2020 lows (~20 days), and is trading sideways again. ASOL’s strong uptrend from here will be bearish again as it shows old coins being used and put into circulation. Conversely, ASOL trading sideways (as it is now) will show confidence, accumulation and HODLing dominating.
EA-ASOL Chart
On a 14-day average basis, the coin’s Average Coin Dormancy Ratio has returned around 10 days, the same level as the cumulative period throughout 2019 and 2020. This indicator presents the average lifespan of the coins. coins spent on a per BTC spent basis. It provides further evidence that the old hands are not liquid out at this stage.
This could be constructive given the higher prices ahead.
Dormancy Chart
Dominating large transactions
If we look at the dominance of trades by size, we can see a clear trend. The chart below shows on-chain volume dominance for values in excess of $1 million (~23 BTC, at $43.5k). Since September 2020, the dominance of these large-scale transactions has increased from 30% to 70% of the total transferred value.
When the market traded as low as $29k at the end of July, the $1 million to $10 million trading pool spiked markedly, gaining 20% dominance. This week, volume dominance of $10 million or more followed with 20% spike dominance supporting the rally.
With the longevity analysis above showing that older coins are mostly inactive, this suggests that transactions of this size are more likely to be accumulators than sellers. This is also quite constructive for the price in the near future.
Relative Transfer Volume Dominance Chart
On the other side of this equation, the chart below shows a structural decline in small-trading dominance. Transactions under $1 million have fallen from 70% to about 30% 40%. These two charts clearly demonstrate a new era of institutionalization and high net worth is flowing into the Bitcoin network from 2020 to now.
Relative Transfer Volume Dominance Chart
Supply Assessment
A common point in recent times is that there is a possibility that the supply of Bitcoin is being squeezed.
Indeed, we have seen an unusual rally in Long-Term Holder (LTH)-owned coins, with a total supply held close to 12.48 million BTC. This is extremely similar to the volume of coins held by LTH in October 2020 before the uptrend officially started.
This response largely shows that the cumulative volume of coins in Q1 2021 is still holding tight. This is also what paints a rather optimistic picture for confidence in the general market.
It should be noted though, that increased LTH supply is a feature of bear market accumulation; and the bull market is the result of a supply squeeze, faked in a bear market.
LTH-STH Supply Dynamics Workbench Chart
In the chart above, we also see the display of rotation and adjustment supply metrics. Provisioning accounts are adjusted for coins that are likely to be lost, or are very archaic and considered extremely illiquid and unlikely to freely circulate (coins that have lost private keys) .
We used Workbench to get the ratio between LTH, STH holdings supply and adjusted supply to see what percentage of ‘free circulating’ coins owned by each pool.
According to this data:
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LTH-owned supply just hit an all-time high of 82.68%. It is also important to note the continued upward trend of coins held by long-term investors over time.
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STH’s ownership supply continues to decrease showing that HODLing and coin maturation are underway.
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The main supply squeeze previously occurred when the STH supply ratio reached 20% (usually holding that level for a while), representing a significant constraint on the free-flowing supply.
The STH Supply Ratio currently at 25% indicates further maturation of the corrected supply and only 5% will return to the market in the historical supply squeeze.
LTH-STH Supply Dynamics Workbench Chart
To gauge how likely the remaining 5% of supply will be to accumulate and mature, we can test the HODL waves.
Relatively young coins ranging in age from 1w to 3m represent a large portion of the liquid supply. We can see that after the uptrend in Q1 (old coin distribution), these age brackets have fallen back to the market equilibrium between 12.5% and 15% of the supply. This downtrend shows that coin maturation is indeed happening and many of these are buyers in the 2021 bull market that have managed to become strong-armed HODLers.
HODL Waves Chart
This is largely confirmed by observing the middle to old coin age bands (from 3m to 2y) which show a significant increase in supply from 35.7% to 47.5% of the circulating supply (supply). unadjusted). Coins with the 3m to 12m age range (bull market buyers) are leading the way in HODLing behavior, showing an undeniable trend in coin maturity.
HODL Waves Chart
Of particular note is the 3m to 6m age range, which currently accounts for 13.35% of the coin supply and includes the approximate threshold between STH and LTH (155 days). About 6.5% of the entire coin supply reached a 3-month maturity on April 15, and it looks like these coins are still holding.
While the supply squeeze based on the STH supply rate is not yet at 20%, there are many indicators and trends that suggest it could be reached by mid-September (but the conditions for a tight squeeze are already in place) .
HODL Waves Chart
Weekly Feature: EIP-1559 Burn
The Ethereum network recently launched a London upgrade that includes the new fee stability mechanism EIP1559.
Since the launch of the London upgrade (block height 12,965,000) to press time (block height 12,986,848), a total of 43.6k ETH has been released through PoW mining. At the same time, a total of 15.25k ETH was burned, a 35% decrease in total net issuance.
When looking at the volume of ETH burned per block, we can see that the fee pressure has so far pushed the burn mechanism above the 2 ETH release by design in some cases creating deflationary blocks. . Currently, EIP1559 has an average burn rate of 0.697 ETH per block.
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Hello
LTH supply ratio 82% and STH Supply ratio 25% are not adding to 100%. Can you explain why?