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).
Bitcoin’s uptrend has continued this week, rising from a low of $42,924 to a high of $47,831. The market has shown significant strength from the bottom established at $29,700 in July, indicating high demand from individual traders providing a strong underlying foundation for this rally.
This week, let’s analyze the on-chain metrics related to the mining market, inflows, accumulation of coins, and unrealized net profit and loss. Through a full assessment of the on-chain market structure, we can determine if the probabilities in favor of market strength at the moment are a prelude to the next drop. This is a cynical bull market rally that’s on the way.
Increase revenue for miners
As Bitcoin mining continues and miners move out of China, it is starting to see a clearer recovery in hash rate from the lows established in July. The hash rate peaked at around 180 EH/s in May before dropping by 50%. This provides insight into the extent of miners affected as it accounts for almost half of the network.
Over the past two months, the hash rate has increased by about 25% from its low point, indicating a hash rate equivalent to about 12.5% of the affected miners are back online. The network is currently mining at 112.5 EH/s.
Bitcoin Hashrate Chart
In response to this, Hash-Ribbons, which attempts to model the stress point of the mining market, has begun to show a new positive transaction. Hash-Ribbons are formed by taking the 30D and 60D moving averages of the hash rate with the following signals:
30D intersection under 60D, which is generally a signal of earnings stress on entering the mining market as hash rates go offline rapidly. This can create more selling pressure as miners are generating less income to cover their CAPEX and OPEX costs.
Crossover 30D Over 60D, which is generally an indication of hash rate recovery and miner speculation. Then the remaining miners increased their share of the market and earned more BTC.
Hash Ribbons Chart
We can confirm this using the Workbench tool and get the ratio between the miner’s total revenue (in BTC) to the active hash rate. This shows the average BTC earned per mining power hash.
Since the May 2020 halving, total miner earnings have dropped from around 9.5 BTC/EH to a low of 5.6 BTC/EH in May. As the protocol difficulty adjusted in response to During the Great Migration, miners still online have now seen their BTC earnings increase by 57% per hash to 8.8 BTC/EH.
Miner Revenue per hash Chart
As a result, the net balance of miners has continued to increase over the past two months. The net growth of miner balances has now reached above 5k BTC/month, demonstrating a net reduction of the forced selling pressure originating from miners.
Miner Net position Change Chart
Absorb capital flow
One of the most important on-chain metrics for Bitcoin is the Realized Cap, which is the on-chain value relative to market capitalization. It is calculated by valuing each coin at the price when it was last spent, representing an aggregate cost basis to the market. The implemented limit can be considered as follows:
An uptrend shows that coins that are accumulating cheaper, are being spent, are likely to be sold, and that the market must absorb pressure from that selling side to trend higher.
A downtrend showing that coins accumulating at higher prices are being sold with unrealized net losses is typical of a bear market.
Actual capitalization started trending higher in late July and just hit a new all-time high of $379 billion. As the spot price continues to rise, this shows that new capital is flowing into Bitcoin and that the market is likely to absorb the selling pressure.
Realized Cap Chart
The Net Realized Profit and Loss Index, demonstrates that since the recent low of $29k, the market has locked in profits at $0.5 billion to $1.5 billion.
The market demand at the moment is to absorb coins that were sold with a similar degree of realized profit between November and December 2020, prior to the main bull run. If the market can continue to maintain capital inflows at this level, it will provide a solid basis and a good reason to confirm the strength of the market can continue.
Net Realized PnL Chart
If we look at the average value of transactions flowing in and out of exchanges, we get a measure of net buying and selling action. Before the sell-off in May, both inflows and outflows converged around an average trading value of ~$35k. This level largely represents the average cash flow in Q1 and Q2/2021.
After the sell-off in May, both inflows and outflows fell to $14k and $20k respectively. This smaller average trade size usually indicates that a large number of retail traders have been dropped and some more are starting to buy in.
Since $29k, the average outflow has rebounded to $35k, which is a significantly higher divergence than the average inflow of $24k. Overall, this shows that large-scale buyers are accumulating and small-scale traders are on the distribution side.
Exchange Average Flows Chart
This is in line with the exchange’s net position change index, which shows that net outflows have existed since the beginning of July. Net outflow from exchange balance is currently happening at a rate of 50k to 100k BTC per month. This compares to the roughly 140,000 BTC in net exchange inflows from May to June that we looked at in previous weeks’ articles.
Exchange Net Position Change Chart
Hodler is profitable again
As the price rises, a large portion of the BTC supply returns to profitable levels. This gives us the opportunity to assess how many coins have accumulated in specific price ranges and also assess the aggregate market motive to sell and get a profit.
Since the low of $29.7k set in July, to the current price of $47k, a total of 19.2% of the circulating supply has returned to interest. This means that about 3.6 million BTC was last spent and thus here is the “cost base” in this price range.
From this, we can infer that a very large amount of BTC has been accumulated in this price range. And the profitable supply shift in this price range is also larger than it was in January. About 1.4 million BTC have been added in this price range since then.
Percent Supply in Profit Chart
The Net Unrealized Profit/Loss Index provides a cyclic oscillator that maps unrealized gains/losses as a ratio of total market capitalization. The NUPL Index just broke above 0.5 indicating that the total supply is now holding unrealized profits equivalent to 50% of the market cap.
Previously, a NUPL value of 0.5 was usually achieved in two cases:
Bear market relief rallies as seen in the case of 2014, 2018 and at the end of the small bull run in 2019. Previous BTC holders would have exited thanks to liquidity, selling those coins. coin is profitable and from there the price will reverse.
Bull market skepticism, with a modest correction usually following a NUPL value of 0.5 before the bull cycle resumes. Spending behavior is similarly adjusted as during the bearish relief rallies, with investors taking profits as strength. The difference is that the market continued to move up after that, creating additional buying pressure on FOMO that pushed prices higher.
Finally, the STH-NUPL index filters out short-term holders who have returned to profitability. This means that the coins moved in the last ~5 months will be at a net position, slightly above their aggregated cost base. Similar to the standard NUPL index, these events are uncommon, but tend to precede explosive moves into bears or bull markets (which you can interpret as market indecision). ).
Given the evidence base we outlined above of a miner recovery, strong exchange flows, and relatively large accumulation below, the scales are now most likely skewed in favor of the condition. The current market is a rally of distrust in the bull market.
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