https://insights.glassnode.com/the-week-onchain-week-37-2023/

Executive Summary

• Liquidity, volatility, and volumes continue to compress across the digital asset market, with many metrics falling back to 2020 pre-bull levels.
• Stablecoins are experiencing a persistent decline in supply as redemptions are made across all major stablecoin assets with the exception of Tether (USDT).
• The Long-Term Holder cohort are steadfast in their holdings, spending remarkably little of it.
• Short-Term holders on the other hand are teetering on the edge of profitability, with a large majority of their supply acquired above the current price range.

The digital asset market has returned to a remarkably narrow trading range, experiencing a regime of compressed volatility, and exceptionally light volumes. All in all, it can be argued that extreme apathy and boredom best describe the prevailing sentiment. In recent weeks, we have explored how this is being expressed in both derivatives markets (WoC 32) and on-chain data (WoC 33). In last week’s video report, we detailed some of the driving factors, primarily related to a regime of net capital outflows.

In this edition, we will further explore this drying up of liquidity, and how we can use on-chain data to better characterize this market structure.

Stable Supply Declines

We will begin our study with a macro view of capital flows into the industry. Here, we consider the aggregate invested capital held within the three major assets, Bitcoin, Ethereum, and stablecoins.

• 🟢 Stablecoins have experienced a persistent decline in supply since April 2022, as redemption commenced following the collapse of LUNA-UST.
• Both 🟠 BTC and 🔵 ETH experienced a net inflow of capital since the start of the year, seeing their Realized Cap’s climb by up to $6.8B/mth (BTC) and $4.8B/mth, respectively.
• Since late August however, all three assets have seen a return to neutral or negtative inflows, suggesting a degree of stagnation and uncertainty has taken over.

If we isolate stablecoins, we can see that a total of $43B in capital has been redeemed, representing a total decline of 26% since the high set in March 2022. This can be argued to be a result of both capital leaving due to bear market conditions, but also a reflection of the opportunity cost of higher interest rates, which are not passed onto non-yielding stablecoins.

Breaking down the three largest stablecoins, we can that these dynamics are not evenly distributed:

• 🟢 USDT supplies have actually expanded by +$13.3B since the current cycle lows set in Nov 2022.
• 🔵 USDC has seen an almost equal and opposite decline of -$16.7B, likely in part a reflection of US based institutions moving capital towards higher interest rate markets.
• 🟡 BUSD has seen a dramatic decline of $20.4B (-89%), largely due to issuer Paxos moving into a redemption only mode following SEC enforcement.

If we look at it through the lends of relative dominance, we can see just how significant the expansion of Tether’s market share is. USDT now represents 69% of the stablecoin market, a stark reversal from the 44% low in dominance hit in June 2022.

BUSD dominance has fallen to 2.1%, and USDC to just 21.7%, a significant fall from the peak of 38% reached a little over a year ago.

On a shorter term horizon, we can look at the relative buy-side vs sell-side for the three major assets flowing into exchanges. Here we make a set of simple assumptions:

1. We assume the USD value of BTC and ETH flowing into exchanges is a proxy for ‘sell-side’ pressure.
2. We assume the USD value of stablecoins flowing into exchanges is a proxy for ‘buy-side’ pressure.

The chart below calculates the net USD difference between Stablecoin inflows (+ve) and BTC + ETH inflows. What we are looking for is less the absolute magnitude (as there will be error bars around these assumptions), but more-so any significant regime shifts.

• 🟢 Positive values suggest a net buy-side regime, where buy-side of stablecoins exceed BTC+ETH sell-side.
• 🔴 Negative values suggest a net sell-side regime, where buy-side of stablecoins are less than BTC+ETH sell-side.

The 2021 bull cycle was clearly dominated by net sell-side pressure as investors took profits during the mania of the uptrends. The collapse of LUNA-UST and 3AC in mid 2022 signified a shift back towards net accumulation, as investors worked to establish a market floor.

Since April this year however, the market has returned to a relatively neutral level, aligned with the slow-down in BTC and ETH capital inflows, and the market becoming increasingly apathetic and uncertain.

It is Quiet On-chain…

Despite the volatility spike experienced during the recent sell-off to $26k, and then again during following Grayscale’s successful challenge of the SEC in the courts, Realized Volatility has remained remarkably low. The market is still in a historically low volatility environment, which is usually a precursor to heightened volatility down the road.

This low liquidity and low volatility environment is also reflected across Bitcoin network settlement volumes. The total USD volume of coins changing hands (using our entity-adjustment clustering) is languishing around cycle lows of $2.44B/day, and has returned to October 2020 levels.

If we look at the realized value settled on-chain (being the delta between coin acquisition and disposal prices) we see that this remains extremely quiet. There is minimal profit or loss being locked in by the market overall, suggesting a majority of the coins which are transacting are within close proximity to their original acquisition price.

Realized Profit and Loss are similarly at levels equivalent to the 2020 market, highlighting what is arguably a complete and total wash-out of the exuberance from the 2021 bull market.

We can also track this on-chain illiquidity and apathetic sentiment by observing the proportion of wealth held in the most active and liquid subsection of the market, the ‘Hot Supply’ cohort (coins moved within the last week).

The realized value held in this ‘Hot Supply’ cohort old resides at historical lows, suggesting that very few coins which are older than 1-week are transacting at present.

It Is Quiet Off-chain Too…

Moving across to off-chain derivatives markets, we can see that futures trading volumes have succumbed to a similar fate, hitting historical lows of $12B/day. The only period with lighter trade volume was the lull at the end of 2022, where the Bitcoin price traded within a $557 range for over two weeks (WoC 2).

We have noticed an interesting divergence in Options markets however, where trade volumes have increased meaningfully in 2023, currently at $437M/day. This could be a reflection of the market preferring to use the leverage and capital efficiency of options to express their view during a period of tighter overall liquidity conditions.

It is important to note that whilst options markets now have a comparable magnitude of open interest relative to futures markets, options trade volumes remain an order of magnitude smaller.

Again, despite a few days of sharp volatility over the last month, options markets continue to price in relatively low implied volatility. The initial uptick in volatility premium was short-lived, with 1-month implied volatility trading back at historical lows of 33.9% once again.

The Market HODLs On

With both the on- and off-chain domains being exceptionally quiet, it is of no surprise that the supply held by the Long-Term Holder cohort has reached a new ATH of 14.74M BTC. Conversely, the supply held within the Short-Term cohort, representing the more active portion of the market, has fallen to the lowest supply held since 2011.

HODLing certainly remains the primary market dynamic, which both signals a steady conviction amongst existing holders, but highlights that these investors are likely the only ones who remain.

We can find confluence within the Liveliness metric, which elegantly compares the balance of all time Coinday Destruction to Coinday Creation. In other words, Liveliness represents the relative balance of ‘investor holding time’ across the market.

Aligned with the net sell-side regime we covered above, 2021 saw a significant uptick in Liveliness, as older coins were spent and took profits. As the 2022 bear market set in between May and Dec 2021, a strong downtrend was established. This marked an inflection point from a traders market, towards a HODLer market.

Liveliness has now reset to late 2020 conditions, and is seeing a progressively steeper downtrend. This indicates that aggregate ‘investor holding time’ is increasing, and investors are increasingly unwilling to spend and part with their held coins.

A key insight from this work was the development of the True Market Mean price, which we argue is the most accurate ‘cost basis’ model for active Bitcoin investors. This model is currently located at $29.6k, and has formed a psychological resistance level since April of this year. The traditional Realized Price is trading at $20.3k, with both models bounding much of the years price action.

Market Sensitivity

If we apply these two pricing models as psychological boundaries to the URPD chart, we can better characterize the supply acquired between these two models. At present, over 4.81M BTC have a cost basis between $20.3k and $29.6k.

We can also see that with prices trading just under $26k at the time of writing, Short-Term Holders 🔴 are almost entirely underwater on their position. It could be argued that this puts this more price sensitive cohort a little bit on edge.

The chart below shows the percent of Short-Term Holder supply in Profit. We can see that the vast majority of their supply has been plunged into an unrealized loss, with only 16.3% of their supply still held ‘in profit’.

For the Long-Term Holder cohort, their profitability is gradually increasing, although is still historically low, and has only left the minus one standard deviation band a few months ago. Whilst this is a constructive trend, over 26.7% of LTH supply is underwater relative to their acquisition price, and well below the all-time-mean.

Whilst 2023 has been a fairly reasonable recovery for Bitcoin and digital assets, these findings would suggest there are still several psychological cost basis barriers that must still be overcome.

Summary and Conclusions

Volatility, liquidity, trade volumes and on-chain settlement volumes are at historical lows. This reinforces the probability that the market has entered a period of extreme apathy, exhaustion, and arguably boredom.

The Long-Term HODLer cohort remain steadfast, relinquishing very little of their held supply. The Short-Term Holder cohort on the other hand are teetering on the edge of profitability, with many coins holding a cost basis above the current $26k trading range. This suggests that this cohort are increasingly price sensitive, and that many psychological price levels are yet to be overcome.

Disclaimer: This report does not provide any investment advice. All data is provided for information and educational purposes only. No investment decision shall be based on the information provided here and you are solely responsible for your own investment decisions.

• Join our Telegram channel
• Follow us and reach out on Twitter
• Visit Glassnode Forum for long-form discussions and analysis.
• For on-chain metrics, dashboards, and alerts, visit Glassnode Studio
• For automated alerts on core on-chain metrics and activity on exchanges, visit our Glassnode Alerts Twitter

https://insights.glassnode.com/the-week-onchain-week-33-2023/

Executive Summary

• The digital asset market continues trading within a historically low volatility regime, with several metrics indicating extreme apathy and exhaustion has been reached in the $29k to $30k range.
• There are some indicators that the market is slightly ‘top-heavy’ as indicated by the concentration of Short-Term Holder supply and cost basis around the current spot price.
• We explore several new iterations of SOPR by age band as a tool to monitor profit taking behavior by various cross sections of the market.

Modest Capital Inflows

The Realized Cap is one of the most important metrics in the on-chain analysis toolbox, representing the cumulative capital inflow since inception. Both the magnitude and gradient of the Realized Cap are informative, suggesting over $16B in value (+4.1%) has flowed into Bitcoin YTD.

However, we can also see the climb is quite shallow, a far cry from the steep rise seen during the 2021-22 uptrend. This indicates that whilst capital is flowing in, it is doing so at a very modest pace.

We can decompose the Realized Cap into the Long-Term and Short-Term Holder components. The wealth held by the STH cohort has experienced an increase of +$22B this year, whilst the LTH cohort has seen an approximately equal reduction of -$21B.

This reflects two mechanics:

• Short-Term Holders chasing the market higher, creating an elevated average cost basis.
• Supply acquired at prices below $24k in Q1 maturing into LTH status, resulting in a declining average cost basis.

We can see this within the cost basis estimates for each cohort. The STH cost basis is up +59% YTD, currently trading at $28.6k. The LTH cost basis is trading much lower at around $20.3k.

The separation between these two cost basis is an indicator that many recent buyers have a relatively elevated acquisition price.

We can confirm this using the URPD distribution split into these two cohorts. Note how a large cluster of STH coins 🔴 are located between $25k and $31k. On a macro scale, this supply distribution does resembles similar periods during bear market recoveries in the past. However, on a shorter timeframe, it could be argued to be a slightly top heavy market, with many price sensitive investors at risk of falling into an unrealized loss.

We note that the the supply held by Long-Term Holders continues to increase, hitting an ATH of 14.6M BTC. In direct contrast, Short-Term Holder supply has declined to multi-year low of 2.56M BTC.

Overall, this suggests that conviction of Bitcoin investors does remain impressively high, and very few are willing to liquidate their holdings.

Apathy, Exhaustion and a Lack of Volatility

As we covered in last weeks edition (WoC 32), price volatility for BTC has collapsed to historical lows. The upper and lower Bollinger Bands are currently separated by just 2.9%, with a tighter spread only seen on two occassions in history:

• Sept 2016 – Price was $604 and was early in the 2016-17 run-up.
• Jan 2023 – Price was $16.8k and traded within a $52 range to start the year (WoC 2).

Another lens to observe this volatility compression (investor exhaustion) is via the spending behavior of investors. Here we use Realized Value as a measure under the following framework:

• High volatility motivates investors to spend coins that were acquired at a cost basis much higher (in loss) or lower (in profit) than the spot exchange rate.
• Low volatility (and investor exhaustion) results in most coins moved on-chain having a cost basis very close to the spot rate (and thus realized very small profit/loss).

An ideal tool to monitor this is the Sell-Side Risk Ratio, which compares the absolute value of realized profit  loss (the change in asset valuation) to the realized cap (asset valuation). For STHs, we can see this metric is effectively at all-time lows, with fewer than 27 trading days (0.57%) recording a lower value.

This indicates that all investors who sought to take profit or loss at this price range have now done so, and the market must make a move to motivate new spending (i.e. an indicator for impending volatility).

The Short-Term Holder Profit / Loss ratio shows that profit taking remains dominant for this cohort, however it has cooled off back towards neutral in recent weeks. If sufficient new demand flows in, this ratio should remain above 1. However if losses start to accellerate (P/L Ratio falls below 1), it may indicate that stress within the ‘top heavy market’ is starting to play out.

If we turn to the LTH cohort, we can also see they’re also within a profit driven regime, having only just recovered from the severe losses throughout the 2022 bear market. The LTH Profit/Loss Ratio remains small in magnitude, and a far cry from prior bull market conditions.

Only 472 / 4963 (9.5%) of all profitable trading days have recorded a lower value, highlighting the infancy of this uptrend.

The Long-Term Sell-Side Risk Ratio is also pushing towards all-time-lows, with only 44 trading days (1.1%) recording a lower value. Overall, this suggests that volatility and price expansion (in either direction) is likely required to break this spell of investor apathy and exhaustion.

The Temperature of Supply

Analysis of the Bitcoin supply and demand balance often utilises the dimension of ‘investor holding time’, accounting for the time since a coin last moved on-chain. Often we can relate these age bands to investor conviction as is the case with the Long/Short-Term heuristic at 155-days (research here).

We can also consider the supply under a slightly different framework to identify market shifts:

• 🔴 Hot Supply (< 1w) is the most active and liquid portion which has transacted within the last 7-days.
• 🟠 Warm Supply (1w-6m) comprises the less active component of Short-Term Holder supply, right through to the start of the Long-Term Holder cohort.
• 🔵 Single-Cycle Long-Term Holders (6m-3y) being the supply which transacted within the last three years, and is therefore reasonably likely to respond to macro market trends (see our report detailing this cohort here).

Hot Supply (< 1-week)

Starting with the most active and liquid of coins, we can see that Hot Supply currently accounts for just 2.8% of all invested value held in BTC. This is in line with the extremely ‘illiquid’ hangover periods seen after all late stage bear markets. It describes a market where only the HODLer cohort remain, and trade volumes tend to be extremely low.

We recently rolled out Workbench support for the Realized Cap HODL Waves (and similar multi-line style charts). We can use this tool to calculate the cost basis for hot supply and compare it to that of the parent Short-Term Holder cohort. From this we can identify two interesting pieces of market structure:

• The STH cost basis tends to provide support in uptrends as investors acquire near their break-even point during corrections.
• Large deviations between the Hot Supply cost basis and the STH cost basis often align with local market peaks.

This latter point is a result of speculators chasing the price into local peaks, driving up the Hot Supply cost basis, but increasing the volume of supply at risk of a drawdown. This can create a near-term pause in the rally until sufficient demand returns during the correction.

If we look to the SOPR family for Hot Supply, we can see this playing out in their profit taking behavior:

• 🔴 < 24h coins tend to be spent close to their break-even price.
• 🔵 1d-1w coins take profits (SOPR > 1) during rallies and local market highs.
• 🟢 1w-1m coins see a similar profitable peak, although at a larger amplitude due to the longer holding time (and thus larger price delta since acquisition).

This early work on SOPR variants by age bands provides an interesting insight into the supply and demand structure playing out day-to-day.

Warm Supply

Moving onto the Warm Supply group (1w-6m), we can see a slight uptick YTD, accounting for around 30% of the wealth stored in Bitcoin.

Whilst this value is meaningful in magnitude, it is extremely low in a comparitive context. By proxy, the extremely small proportion of wealth held within both Hot and Warm supply indicates that the most significant holdings are within the more mature Long-Term Holder supply.

Given Warm Supply accounts for the majority of the age range (and coin volume) within the Short-Term Holder cohort, the average cost basis is very similar to STHs. If we look at it through the lens of the Warm Supply MVRV ratio, we can see it is approaching a retest of its break-even level at $27.6K.

This further supports the Sell-side Risk Ratio observations from the prior section, where volatility is likely brewing.

Extended breaks above, or below the Warm Supply cost basis have historically aligned with a macro shift in the market trend, with the average uptrend lasting 227 days, and an average downtrend lasting 132 days.

The 2023 rally has now traded above this model for 212-days so far, hovering slightly above it today.

The 2023 market strength was successfully capitalized upon, with profit taking visible across all SOPR constituents within the Warm Supply cohort. The average spent coin is locking in between 4% and 9% profit over the last few months.

Single Cycle Long-Term Holders

The final cohort are the Single Cycle Long-Term Holders. This cohort covers investors that weathered the full spectrum of excitement, chaos, and volatility of the 2020-23 cycle.

HODLing remains the preferred market dynamic for this group, accounting for over 63% of the invested capital. This has reached similar heights as past transitional phases between late stage bear markets, and new macro uptrends.

The cost basis of these single cycle holders is currently at $33.8k, suggesting that this group is still holding an average unrealized loss of -13.3%. This compares to the average LTH with a cost basis of $20.4k and an unrealized profit of +43.6%.

Since the classic LTH cohort includes long-dormant, lost, and deep HODLed supply, much of which carries tremendous unrealized profit, it is likely that it underestimates the true acquisition price of the average high conviction investor. As such, it suggests that much of the Bitcoin market still remains underwater on their holdings, and that the damage of the 2022 bear market still plays a meaningful role in guiding investor decisions.

Finally, we see a very interesting divergence between SOPR variants within this cohort:

• 🟡 6m-12m SOPR describes investors acquiring coins between Aug 2022 (post LUNA and 3AC collapsing) and Feb of 2023. This group is currently locking in an average profit of +27% (cycle low buyers).
• 🟤 1-2y SOPR describes investors from Aug 2021 to Aug 2022, whom are still locking in losses over -21% on average (largely cycle top buyers).
• 🟣 2y-3y SOPR is oscillating around break-even, and captures investors from Aug 2020 to Aug 2021 with prices ranging from $10k through to $64k (the bull market buyers).

This demonstrates that a great majority of LTHs are actually transacting at a loss, and only those from the 6m-1y age group are in a meaningful degree of profit.

Summary and Conclusions

Volatility in the digital asset space remains historically low, with investors reaching an all-time-low in willingness to spend coins on-chain. The conditions of the Bitcoin market continue to resemble the bear market hangover seen in prior cycles, with an outsized wealth held by long-term high conviction holders.

However, with this low volatility comes apathy and exhaustion, which often entails a relatively weak influx of demand. The Realized Cap is climbing, but only very slightly, suggesting a very boring, choppy, sideways market may remain on the road ahead. This is likely compounded by the fact a large majority of the Bitcoin market is still underwater on their holdings, and likely to create resistance throughout the recovery.

Disclaimer: This report does not provide any investment advice. All data is provided for information and educational purposes only. No investment decision shall be based on the information provided here and you are solely responsible for your own investment decisions.

• Join our Telegram channel
• Follow us and reach out on Twitter
• Visit Glassnode Forum for long-form discussions and analysis.
• For on-chain metrics, dashboards, and alerts, visit Glassnode Studio
• For automated alerts on core on-chain metrics and activity on exchanges, visit our Glassnode Alerts Twitter

https://insights.glassnode.com/the-week-onchain-week-29-2023/

Executive Summary

• Despite BTC setting a temporary yearly price high of $31.7k, the market remains extremely quiet, with the Bollinger Bands now separated by a price range of just 4.2%.
• The realized cap is hovering just below $400B, experiencing a steady but slow inflow of capital into digital assets, led primarily by the major two assets BTC and ETH.
• The market is firmly within a regime of profit dominance, however the magnitude of USD value locked in remains near cycle lows, and investors remain unwilling to part with their held supply.
• Several metrics now resemble the choppy market conditions seen in the 2016 and 2019-20 periods.

Slow and Steady Inflows

The digital asset market continues to see remarkably little volatility, with the classic 20-day Bollinger Bands experiencing an extreme squeeze. Despite setting a temporary yearly high of $31.7k this week, the rally failed to sustain momentum, bringing BTC prices back into the sideways trading range above $30.0k.

A price range of just 4.2% separates the upper and lower Bollinger bands, making this is the quietest BTC market since the lull in early January.

Beneath the surface, capital is still flowing into digital assets at a steady and modest rate. The Realized Cap is one of the oldest and most widely observed on-chain metrics, and provides a powerful tool for assessing the true capital flows into Bitcoin. It is best thought of as the ‘on-chain Market Cap’, and reflects the cumulative sum of all realized profit and loss events through history.

The Realized Cap currently sits just shy of $400B and has indicates that a steady stream of capital is entering the asset throughout 2023. As the realized cap climbs, it signals that coins are changing hands at higher prices on net, suggesting a modest uptick in new demand inflow this year.

During bear markets, Bitcoin usually experiences significant capital outflows, as investors lock in losses. The realized cap drawdown in 2022 reached the second deepest value of -18.8%, demonstrating the magnitude of the bear market. Recovery of the realized cap ATH in prior cycles have taken between 95 and 239-days, with the recovery so far occurring at a similar rate.

Shifts in demand liquidity can also be assessed via the Net Realized Profit / Loss (NRPL) metric, which is the first derivative of the Realized Cap.

NRPL has traded within a profit dominated regime through much of 2023, seeing around $270M/day in net inflows (profits minus losses). This reflects the first sustained profit regime since April 2022. This is similar in scale to both the first half of 2019, and also late 2020, which is a comparison which this report will show from several angles.

Of note is how significantly smaller this regime is compared the 2021 bull market which reached extraordinary peaks of over $3.68B/day.

If we take a ratio between total realized profit and loss, we can see that 2023 has been an explosive and positive year thus far, breaking firmly above the breakeven level of 1.0 in early January.

However, we can also note that a lower high in this ratio was set this week. If sustained, it may allude to similar choppy market conditions seen in both 2019-20, and again in the second half of 2021. Lower peaks in this metric generally suggest a marginal softening of capital inflows, which in the past has preceded a longer period of time to digest the recovery.

We can also gauge shifts across the wider digital asset market by comparing the Bitcoin and Etheruem Realized Caps, with the supply of the top stablecoins. By this measure we can see that most capital flows have come in via the two majors BTC and ETH, both seeing inflows of +$21.9B and $18.0B YTD, respectively.

Stablecoins however have seen a net reduction of -$10.4B in aggregate supply, led largely by USDC and BUSD redemptions. This trend is now firmly in place, suggesting a notable market preference for the big two digital assets over stablecoin capital.

The Incentive to Spend

SOPR is another powerful tool, useful for for tracking the magnitude of profit and loss taking events across the market. Here, we define a framework consisting of two binary regimes to characterise market behaviour:

• Loss Dominant Regime: Successive prints below 1.0 are indicative of investors locking in losses, and returns to the breakeven level are often utilized as exit point (forming resistance).
• Profit Dominant Regime: Successive SOPR prints above 1.0 indicates a return of profit taking, and returns to the breakeven level are often considered a near term point of value (forming support).

SOPR currently resides within a profit dominant regime, recording a value of 1.06, indicating the average coin changing hands is locking in a 6% profit. This again has similar characteristics to the 2016 and 2019 periods.

With this in mind, the breakdown of exchange inflow volumes suggest that Short-Term Holders (STH) are the primary entities that are active in the market. Out of the total 39.6k BTC in daily exchange inflows, 78% of this is associated with the STH cohort, being those investors that have been active since early February.

This makes sense when we contextualize the proportion of STH supply that is held in profit, which is now just over 88% of their total balance. This is above the mean plus one standard deviation level, and is historically associated with macro uptrends where the incentive to take profits is high.

As prices rise, the STH cohort are becoming increasingly likely to spend and take profits.

If we compare this to the Long-Term Holder cohort (LTHs), we can see their position is comparatively less extreme, with just over 73% of their balance held in profit. This indicates that around a quarter of all LTH supply was acquired at prices above than $30k and within the 2021-22 cycle (as covered in last weeks edition WoC 28).

If we breakdown the realized value locked in by the market, we can see the strength of the 2023 recovery thus far. Both LTHs and STHs are now seeing the super-majority (73%) of their spending locking in a profit.

This is a significant improvement over the extreme pain experienced after FTX failed, where 90% of all spent coins were locking in losses (the deepest capitulation in history by this measure).

However, if we view this from the lens of total USD denominated realized value (profit plus loss), it remains near cycle lows of just $290M/day. Whilst this is a significant sum on a nominal basis, it is again comparable to the 2019 peak, and to October 2020 where BTC prices were 50% lower than they currently are.

As such, it suggests that even though the Bitcoin market cap is ~2x larger today, investors who are holding large profits or losses are extremely unwilling to spend their coins on-chain.

Overall, this suggests that the vast majority of Bitcoin holders are sitting tight, and are opting not to revalue their holdings. This speaks to our prior report (WoC 26) where the proportion of liquid, mobile and active BTC available on the market remains remarkably small.

Seeing the Light

To close this edition, we will call back to our report from just over a year ago titled The Darkest Phase of the Bear (WoC 24-2022, June 2022). In this report, we introduced a metric which helps identify large scale shifts in LTH and STH behavior.

It is uncommon for the LTH cohort to spend coins that have a higher average cost basis (lower profit multiple) than the STH cohort. However, such events do occur, and are historically associated with deep bear market capitulation events. These are periods where even the strongest hands are purged from the market, in particular those that acquired coins near the cycle top and then weathered the full duration of the downtrend.

With the strong price performance YTD, and the dominance of STH spending this week, this SOPR ratio has commenced its second leg down. This provides a macro scale view on a reversal in investor behavior. There has only been one instance in March 2020 where an ‘echo bounce’ occurred in this metric, pushing back above 1.0 before spending a multi-year period below it.

Summary and Conclusions

Despite setting a temporarily new yearly high of $31.7k this week, BTC prices continue to trade within a very tight trading range. This has resulted in an extreme tightening of the Bollinger Bands, separated by just 4.2%. This compression in volatility is matched by cyclical lows in realized profit and loss being locked in by the market.

The Short-Term Holder cohort dominates the inflows into exchanges at present, incentivised by over 88% of supply now being in profit. However on the broader scale, investors appear remarkably unwilling to let go of their supply. In many ways, this resembles periods like 2016 and 2019-20, characterised by choppy market conditions.

https://insights.glassnode.com/the-week-onchain-week-25-2023/

Executive Summary

• Volatility, volume, and realized value are at multi-year lows, suggesting liquidity is increasingly thin, and investor apathy is now firmly in play.
• The undercurrent of BTC supply continues to flow out of exchanges, miners and and whale wallets, and towards HODLer entities of all sizes at a healthy rate.
• Comparisons to past cycles suggests that the market is likely within a transitional period, characterized by investor apathy, and boredom. However, the halving event creeps ever closer, now just 305-days away.

🪟 View all charts covered in this report in The Week On-chain Dashboard.

The Road to Nowhere

This week, the Bitcoin market experienced price swings in both directions, however made little progress overall. The market traded down to $24.8k early in the week, rallied to $26.7k on news of the ETF application by Blackrock, before returning almost back to the opening at $26.3k. Whilst prices were volatile intra-week, on the broader scale, the market remains on a road to nowhere.

If we compare the the 30-day price range, we can see that quiet periods like this are few and far in between. The majority tend to occur during the apathetic hangover period that follows a bear market, aligning with our observations of market apathy last week (WoC 25)

Naturally, this is also reflected across 1-month Realized Volatility, which has reset to 39.6%, one of the lowest recordings since the 2021 bull market. We can see such events are typically experienced during the long, sideways grind as the market finds its feet after a prolonged bearish trend.

Implied volatility across option contracts from 1-week, to 6-months out have also reached a cycle lows. Near-term 1-week implied volatility is at the second lowest value (36%) on record, whilst 3-month and 6-month contracts are at all-time-lows of 42% and 46%, respectively.

Trading volumes in futures markets have also declined to $20.9B/day as liquidity across digital asset markets continues to drain.

This phenomena is also observed across the Ethereum futures markets, suggesting that this decline in liquidity is an industry wide contraction. The only period in the last 30-months experiencing lower aggregate trade volume was during the 2022 end of year lull.

A similar story is true on-chain, we can see the absolute value of profit and loss taking events has declined to cycle lows of $268M. This returns to October 2020 levels (BTC prices were ~$10k), highlighting just how quiet capital flows have been both in and out of the asset class year to date.

HODLers Are HODLing

We have established that digital asset liquidity is very thin across both the on-chain and off-chain domains. In the next section, we shall investigate how this translates across to the behavior of existing market participants.

Liveliness provides a big picture view into the propensity of Bitcoin holders to spend or hold their coins. Currently, Liveliness is in a multi-year macro downtrend, having peaked in May 2021 when bear market first set in. We can see a similar structure has formed to the 2018-20 cycle, as coins slowly but surely migrate into cold storage and are removed from the market by the HODLer cohort.

These HODLers are currently accumulating coins at a rate of around 42.2K BTC/month, suggesting that the price insensitive class are absorbing a non-trivial portion of the currently available supply.

If we compare this behavior to prior cycles, we can see that this regime of steady and gradual accumulation commenced just over 2-years ago, and suggests that another 6 to 12-months may be ahead of us.

This observation is further supported by the divergence between exchange balances, and the volume of coins held in illiquid wallets, being those with little to no history of spending. Illiquid supply reached a new ATH of 15.2M BTC this week, whilst exchange balances have fallen to the lowest levels since Jan 2018 at 2.3M BTC.

Around 146K BTC/month are currently flowing into these illiquid wallets, supporting the case for a gradual and steady accumulation taking place.

To get a sense of scale, we can compare the balance change of various wallet size cohorts to the volume of new coins issued to miners.

By this relative measure, we can see that entities with a balance under 100 BTC are increasing their holdings meaningfully, absorbing an equivalent to 254% of mined supply over the last month (2.54 x ~900 BTC/day = 2,286 BTC/day).

Shark entities (100 to 1k BTC) are also seeing positive balance change, absorbing volumes equivalent to 36% of mined supply. Whale entities on the other hand (> 1k BTC) join Miners as net distributors, releasing a volume equivalent to 70% of the mined supply from their holdings.

Overall, the market appears to be in a period of quiet accumulation, which suggests an undercurrent of demand, despite the regulatory headwinds of late.

An Arduous Road Ahead

In an attempt to find a yardstick for what may lie on the road ahead, we can gauge previous market phases on the basis of duration. The chart below shows number of days spent in the following phases:

• 🔵 Bull Market measured from cycle low until cycle peak.
• 🔴 Bear Market measured from cycle peak to cycle low.
• ⚫ Transition measured from cycle ATL until setting a new ATH.

If we assume the lows established in Nov 2022 hold, we can argue that the market has been within a transitional period for 221 days. Past transitional periods lasted between 459 days, and 770 days, suggesting that the patience of investors may be tested, on the order of 8 to 18-months, until a new market ATH, if history is any guide.

These transitional periods tend to see prices bounded between the Realized Price 🟠, and the Realized Price + 0.5 standard deviation band 🔵. Since setting each cycle low, the following proportion of trading days have been between these boundaries:

• 2012-13 Cycle = 79%
• 2015-17 Cycle = 64%
• 2019-21 Cycle = 78%

This framework would suggest a price range between $20.1k (-23%) to the downside, and $45.0k (+71%) to the upside over this period.

With the Bitcoin halving just 305-days away, we can also see the relationship between these transitional periods and halving events, which tend to occur around two-thirds of the way through the journey.

From this, we can index the price performance of prior epochs, starting at 305-days from the halving. The range of prior market performance on the date of the halving are as follows:

• 🟠 Epoch 1 = +126% with a max drawdown of -44.8%
• 🔴 Epoch 2 = +179% with a max drawdown of -23.3%
• 🔵 Epoch 3 = -6.4%  with a max drawdown of -53% in March 2020

The first two Epochs both saw very positive price appreciation, whilst the third Epoch was far more challenging for investors to navigate, not least with the exogenous shock of March 2020.

Finally, we conclude our analysis with an assessment of price performance over the year that follows each halving event.

• 🔴 Epoch 2 Price Performance: +7358% with a max drawdown of -69.4%
• 🔵 Epoch 3 Price Performance: +393% with a max drawdown of -29.6%
• 🟢 Epoch 4 Price Performance: +366% with a max drawdown of -45.6%

A diminishing returns effect is clearly noted across Epochs, a natural expectation as the market size, and capital flows grow in size over time.

Summary and Conclusions

Across most measures of market energy, digital asset markets are displaying excitement in few of them. Volatility, volumes, and realized value are all at multi-year lows, as liquidity and excitement give way to investor apathy.

However beneath the surface, the classic pattern of wealth transfer towards the price insensitive HODLer cohort remains uninterrupted. If past cycles are any guide, it it suggests that a period of apathetic sideways boredom may well define the road ahead, potentially lasting between 8 to 18-months in duration.

https://insights.glassnode.com/buying-high-and-selling-low-the-long-term-holder-learning-curve/

🪟 View all charts covered in this report in the Buying High and Selling Low: The Long-Term Holder Learning Curve Dashboard.

Introduction

Like the weather, markets tend to experience cycles, and nowhere is this more true than for Bitcoin. One of the characteristics of Bitcoin market cycles is that they reach extreme-extremes, often defined by irrational exuberance at tops, and deep despair at the lows. Within the wealth of on-chain data available to us, we can study these periods, and identify when investor behaviors aligns with market extremes.

In a previous study, we defined the Long-term Holder (LTH) heuristic, which segments the coin supply into holders that are least likely to spend on any given day. We expanded on this research in Following the Smart Money, where we demonstrated how LTHs generally accumulate BTC at cheap prices in bear markets, and then distribute heavily, particularly in late stage bulls.

In other words, LTHs tend to buy low and sell high, thus earning them the generalized title of ‘the smart money’.

However, anyone with experience in markets knows that few investors start their journey as the ‘smart money’. Instead it is learned through experience, which more often than not comes as a result of being wrong, losing money, and making the exact wrong trade decision at the exact wrong time.

In this piece, we will explore the behavior of a very particular subset of LTHs; those experiencing their first Bitcoin market cycle. What we will demonstrate is that this cohort of budding HODLers tend to acquire and hold onto expensive coins through the entire bear market…only to capitulate precisely at the cycle low, with remarkable accuracy.

Surviving Your First Bear Market

The first Bitcoin bear market investors experience is usually the hardest. Few investors are prepared for the extreme volatility, nor the 75%+ drawdowns that BTC prices historically reach.

We can see this by the incredible total volume of coins which transact at a loss during bear markets. The chart below shows the cumulative volume of BTC moved at a price lower than its acquisition price during each bear market cycle to date (with horizontal levels at 21M BTC increments for scale).

By the time FTX collapsed in Nov 2022, over 123M BTC had transacted at a loss since the April 2021 peak (where we believe bear market sentiment had truly set in).

The Long-Term Holder heuristic uses a 155-day threshold, which is around 5-months. Historical Bitcoin bear markets have spanned between 500 to 800 days from top to bottom (around 2-years).

Thus, we can define a coin age range between 5-months and 2-years which we will consider as representative of these single cycle LTHs.

Buying High

We have several tools at our disposal to identify periods of LTH stress, which we will break into two sub-categories:

• Unrealized Stress: being the paper losses held by the LTH cohort, which can be though of as the incentive to sell. This can be monitored using LTH-MVRV, LTH-NUPL, and Supply in held Loss for example.
• Realized Stress: being the actualized losses taken by coins spent by the LTH cohort, reflecting true capitulation events. This can be monitored using LTH-SOPR, Realized Loss, and Spent Volume in Loss.

All of these tools revolve around the Realized Price, representing the on-chain acquisition price for the cohort considered.

In aggregate, we can compare the deviation between spot price and the LTH average acquisition price via the LTH-MVRV metric. This provides insight into the magnitude unrealized profit or loss they collectively hold. From this we develop a simple tool to check whether LTHs are under unrealized stress:

🔴 When LTH-MVRV trades below 1.0, it indicates that this cohort are holding large scale unrealized losses. These investors are under a significant degree of unrealized stress, and are therefore increasingly likely to capitulate their held supply.

The chart below shows the total spent volume in loss attributed to LTHs. Periods where the above unrealized stress condition is hit (LTH-MVRV < 1.0) are marked in red. Whilst individual investors can, and do capitulate throughout the entire bear market, it is immediately clear that this flush-out reaches a crescendo right at the bitter end.

Selling Low

Now that we have a measure for LTH unrealized stress, we can supplement it with an equivalent measure of realized stress. For this, the LTH-SOPR metric is ideal, capturing the the aggregate profit / loss multiple locked by the Long-Term Holder class each day.

The chart below shows a similar profile of LTH Volume In Loss, however we highlight two key conditions:

• 🔴 When LTH-SOPR trades below 1.0, it indicates that this cohort are locking in realized losses on average, where the majority are spending coins below their acquisition price.
• 🟣 When LTH-SOPR trades below 0.5, it indicates that the average LTH is locking in 50%+ losses, exiting as their investment is cut in half.

This second condition is most interesting, since it represents a cohort of investors that have both held coins to LTH maturity, but also held from a price altitude that is close to the cycle top (within the context of a 75% drawdown).

Given the duration of a Bitcoin bear (~2ys), and typical 75% drawdown, these LTHs in particular have actually weathered the worst of it by the time they exit.

Capitulation, All At Once

In the prior section, we identified the periods of peak financial stress for LTHs. Next we will isolate periods where these single cycle LTHs (6m-2y) are the predominant source of transfer volume in loss.

The chart below displays the percentage of LTH Transfer Volume which is sourced from the 6m-2y age-band. In particular, we can compare it to its lifetime average, and +0.5 sigma standard deviation band. From this, we can identify two particular characteristics:

• 🔴 Periods where single cycle LTHs (6m-2yr) are most active tends to be during later stages of bear markets (exiting in capitulation), as well as during early bull markets (exiting in disbelief). This group are observably buying high, and selling low.
• 🔵 Periods where multi-cycle LTHs (> 2yrs) are most active tends to be during the most opportune periods of bull markets, observably buying low, and selling high.

Thus, we have our final conditionality statement; when the percent of LTH spending attributed to single cycle holders exceeds 0.5 standard deviations above the mean, it often signifies capitulation of this group has taken place.

Long-Term Learning Curve

We set out to observe and characterize the painful learning curve of Bitcoin Long-Term Holders who are experiencing their first bear market cycle. What we identified is that the probability of a bear market floor being established, tends to align with their expulsion from the market.

Those who rode significant unrealized losses from the cycle peak, often capitulate at the ultimate lows.

We have identified three measurable behavior patterns, which we can then compile into an actionable signal:

1. 🟡 LTH-MVRV trades below 1 indicating unrealized stress is beginning to peak (signifying many LTHs bought high).
2. 🔴 LTH-SOPR trades below 0.5 indicating that LTHs are not only locking in losses, they are of a magnitude exceeding -50% on average (signifying many LTHs sold low).
3. 🔵 Single cycle LTH volume dominance exceeds 0.5 standard deviations from the mean. This indicates that the majority of LTH volume (which is contributing to LTH-SOPR) is indeed sourced from the least experienced of the cohort (signifying the least experienced).

When all three conditions align 🟢, this tool will indicate that the cohort of single cycle LTHs are experiencing a painful wash-out event, with some progressing along the Bitcoin market cycle learning curve.

Conclusion

Bitcoin investors are rarely born resilient HODLers. Many enter the market during peak bull market euphoria, only to see their average cost basis get set at painfully expensive prices. We can observe this particular subset weather much of the bear market storm, holding coins which lose more than half their value, only to capitulate in unison at the exact wrong time.

Interestingly, this tale of the new investor is as old as markets themselves. With on-chain data, we are now able to observe it in full color.

https://insights.glassnode.com/the-week-onchain-week-21-2023/

The Bitcoin market has consolidated this week, trading within a relatively narrow 3.4% price range, with a low of $26.6k and high of $27.5k. In fact, this has been one of the tightest trading ranges over the last few years, with the last examples being the 2023 yearly open, and July 2020 after the recovery from the COVID sell-off.

This comes alongside extremely light on-chain volume, with aggregate, entity-adjusted, and exchange related flows remaining at cyclical lows. Meanwhile, large swathes of the coin supply remain dormant in investor wallets, with several key age bands hitting all-time-highs.

In this edition, we will explore this interesting state of play, and what it tells us about investor confidence, incentives, and perspective on the 2023 market.

🪟 View all charts covered in this report in The Week On-chain Dashboard.

Volume Down

In last weeks edition, we shows how on-chain activity for Bitcoin has reached historical highs for metrics such as Transaction counts, largely related to ordinals, inscriptions, and BRC-20 tokens. These types of transactions tend to represent relatively small BTC volumes however, with ordinals often transferred alongside a small volume of BTC (usually around 10k sats = 0.0001 BTC).

Assessing the Transfer Volume settled by the Bitcoin network across the last three years, we note a large decline in overall economical throughput since early 2021, falling from a cycle high of $13.1B to a cycle low of $1.9B, a 85.5% decline. Transfer volumes have experienced a marginal uplift in 2023, however remain near cycle lows between $1.9B and $4.4B.

Exchanges remain a centerpiece for BTC trade, and studying the flows in and out provides a robust proxy for trade volume, awareness, speculation demand, and investor confidence. We see a similar structural decline in exchange deposit volume, declining from a peak of $4.2B in May 2021 to a low of $343.4M today (-91.8%).

Another useful proxy for assessing network utilization is the absolute value of Realized Profit and Loss events. This provides insight into the capital flows in or out of the asset, as coins are revalued higher, or lower. The combined Realized Profit and Loss is trading around the lowest levels seen over the last 3 years.

This suggests that the majority of holders with large profits, or losses, are unwilling to spend.

Unrealized Potential

We have established that both the nominal and realized network throughput remains cyclically low. This may be due to many market participants having a cost basis which is quite close to the current price, thus indicating there is minimal incentive to spend just yet. Participants may require greater volatility, in in either direction, to entice spending behavior.

The Adjusted Realized Price provides an improved model for estimating this market wide cost-basis. It works by removing the tremendous unrealized profits held by long-dormant (and likely lost) coins (> 7y), isolating the economically active and more price sensitive cohort of holders.

Spot prices are currently trading just above the Adjusted Realized Price ($25.2k), which is likely a psychological area of interest in the event of a pullback. This also firms up the thesis that there is simply not a great deal of profit (or loss) available to be taken by the active participants in the market.

The recent rally above $30k saw the Adjusted MVRV Ratio rise to a value of 1.21, suggesting a fairly modest 21% unrealized profit level was reached.

Currently, the aMVRV is recording a value of 1.09, suggesting just 9% unrealized profit remains within in the market. This is coincident with what were historically oversold levels in both the 2018, 2019 and March 2020 cycle lows.

Supply Stays Still

Despite the blistering start to the year across the digital asset landscape, the BTC supply held for longer than 1yr+ continues to push to new highs. The chart below shows four subsets of this dormant supply as a proportion of the total circulating supply:

• 🔴 Supply Last Active 1+ Yrs Ago: 68.1%
• 🟡 Supply Last Active 2+ Yrs Ago: 55.2%
• 🟢 Supply Last Active 3+ Yrs Ago: 40.0%
• 🔵 Supply Last Active 5+ Yrs Ago: 28.9%

The remarkable level of HODLing across the supply continues, with such high coin inactivity supporting the extreme lows of on-chain volume throughput.

This phenomena is also reflected across Long-Term Holder Supply (coins held > 155-days), which is at a new ATH of 14.46M BTC. This reflects coins acquired immediately after the FTX failure maturing into LTH status.

Confluence can be found in the Liveliness metric, which compares the relative balance between HODLing and spending behavior. Currently, network Liveliness is descending to the lowest value recorded since the Dec 2020 breakout above $20K. Persistent downtrends in Liveliness reaffirm that HODLing is certainly the current primary market dynamic across the majority of supply.

If we look to the Short-Term Holder (STH) cohort, we can assess the amount of ‘holding time’ being spent by this group (measured as coinday destruction over the last 90-days). By this metric, STH coinday destruction is extremely low, and significantly below the two large panic capitulation events occurring in June, and November 2022.

This infers that STHs are generally reluctant to spend within the current price range, and require greater volatility, and likely higher prices (realizing profits) as an incentive.

Overall, these metrics paint a relatively constructive view of Bitcoin holder conviction, where most are simply not interested in spending their coins just yet.

Holders From Last Cycle Are Forged

Following the November low, the USD denominated wealth held within coins aged 2y-3y has expanded from 3.1% to 27.7%, as large swathes of supply mature across the 2yr boundary. This reflects supply that was acquired after the May 2021 sell-off from $56k to $29k.

The chart below shows the changing proportion of USD wealth held in these age bands:

• 🟢 Wealth Held by 2y-3y: 3.1% to 27.7% (up +24.6%)
• 🟡 Wealth Held by 1y-2y: 43.5% to 28.3 (down -15.2%)
• 🟠 Wealth Held by 6m-1y: 25.5% to 10.6% (down -14.9%)

We can also utilize a new variant of the RHODL Ratio, comparing the wealth held in 2y+, to those in the 6m-2y age band. This helps us evaluate the balance between experienced (2yr+) and single cycle Long-Term Holders (6m-2y).

Currently, this RHODL variant is climbing exponentially, suggesting a significant portion of holders from the 2021-22 cycle are maturing into the experienced HODLers. Given the extraordinary, and mostly downside volatility experienced over this period, it demonstrates that the Bitcoin holder base remains incredibly resolute, which is a noteworthy, and likely constructive observation.

Summary and Conclusions

One of the great assets of on-chain analysis is our ability to observe both sides of holder behavior; their willingness to hold, and their willingness to spend. What we continue to observe is that the conviction of existing Bitcoin holders remains remarkably high, despite the extreme the volatility and immense deleveraging over the last 2yrs.

It is important to highlight that volume throughput is very low right now, indicating an arguably lackluster inflow of new demand, as well as growing dominance by low volume ordinal/inscription transactions. However, this is matched by an existing holder base who can be argued are increasingly price insensitive.

Given 2022 provided no shortage of reasons to panic, capitulate, and otherwise exit the market, the ageing of coins into multi-year age bands is noteworthy. It suggests a case where those who survived 2022, may require higher prices before opening up their cold storage wallets.

Disclaimer: This report does not provide any investment advice. All data is provided for information and educational purposes only. No investment decision shall be based on the information provided here and you are solely responsible for your own investment decisions.

. Join our Telegram channel.
. Visit Glassnode Forum for long-form discussions and analysis.
. For on-chain metrics, dashboards, and alerts, visit Glassnode Studio.
. For automated alerts on core on-chain metrics and activity on exchanges, visit our Glassnode Alerts Twitter.

https://insights.glassnode.com/the-week-onchain-week-17-2023/

Introduction

The Bitcoin market found resistance this week, reverting from the weekly high above $30,456k, back down to a low of $27,169k. The opening to 2023 has been historically strong from a price performance perspective, with remarkably few significant corrections along the way, with the largest being -18.6%.

If we allow ourselves the assumption that the November low is indeed a longer-term low, we can see that the scale of drawdowns during this upswing so far, are small relative to past cycles.

With this as context, in this edition, we will focus on both the supply foundation formed over recent months, and then follow up with the profit taking behavior seen this week. We will consult several SOPR variants which offer a lens into the typical behavior patterns seen during corrections in a upswing, as compared to more structural bearish trends.

🪟 View all charts covered in this report in The Week On-chain Dashboard.

A Supply Foundation Below

With the strong opening to 2023, the aggregate market has confidently transitioned out of a regime of unrealized loss, towards one of unrealized profit, shown by the sharp divergence between supply held in profit vs loss. As this takes place, the incentive to take profits grows.

We can also see this by taking the ratio between Supply in Profit and Supply in Loss. This oscillator has achieved escape velocity this year, confirming the transition out of a regime of loss dominance near cycle lows, observed on only 415-of-4638 trading days (9%).

Mechanically, these large rebounds in unrealized profit occurs as price rallies above the dense concentration of supply which was accumulated during the bottoming formation process. We can quantify this mechanic by inspecting the 100 day change in profitable supply coming off major cycle lows in both BTC, and Percent of Circulating terms:

• 2011 Cycle Low: +1.99M BTC (19.8%)
• 2015 Cycle Low: +4.94M BTC (32.2%)
• 2019 Cycle Low: +6.86M BTC (38.4%)
• 2022 Cycle Low: +4.87M BTC (25.5%)

The current cycle has seen a comparable volume of the supply re-enter a profitable position, suggesting an equally robust floor.

Exploring Profit Taking Behavior

The Bitcoin spot price is currently trading between two popular On-chain pricing models; the Realized Price at $19.9k representing the average acquisition price of the supply, and the Realized-to-Liveliness Ratio at $33.0k.

This second model is akin to a HODLer Implied Fair Value 🟠, and will trade higher when more of the coin supply is dormant in investor wallets. Spot markets fell short of reaching this level this week, topping out around $30.5k.

This suggests that the market has transitioned out of the ‘deep-value’ zone as signaled by trading below the Realized Price, and has reverted back towards a holder implied ‘fair value’ level. With this, we can also expect an increase in the probability of profit taking behavior from coins acquired at cheaper prices.

We can evaluate changes in the accumulation and distribution behavior of various cohorts over the last six months using the chart below:

• Phase 1: Heavy accumulation post-FTX across all cohorts, effectively starting the cycle low formation.
• Phase 2: Distribution during the Jan-Feb impulse higher as the first significant rally after the brutal bear of 2022 rolled around.
• Phase 3: Light accumulation on the rally back to $28k as market momentum increased, and prices finally broke above $30k.

Over recent weeks, we can see a mix of behavior, suggesting indecision across all cohorts bar the largest of entities with 10k+ BTC. This aligns with aggregate consolidation, the brief break above $30k, and the subsequent sell-off back to $27k this week.

Following on, the SOPR metric can also be used track the magnitude of profit and loss taking events across the wider market. Here, we define a framework consisting of two binary regimes, which we shall utilize to define market behavior patterns:

• 🟥 Loss Dominant Regime: Successive prints below 1.0 indicate investors are locking in losses, whilst any returns to breakeven profitability is often utilized as exit point (forming resistance).
• 🟩 Profit Dominant Regime: Successive SOPR prints above 1.0 indicates a return of profit taking. This is often accompanied by SOPR returning to breakeven being considered a near term value point.

A clear shift between these two regimes was noted in January, as market behavior started to exhibit patterns aligned with a profit dominated regime. With aSOPR currently retesting the break-even level of 1.0, this puts the market close to a decision point.

We can see a similar structure within the Short-Term Holder SOPR variant, as newly acquired coins have returned to an unrealized profit. The correction in March traded below the psychological $20k level, before experiencing a powerful reversion higher.

This is SOPR pattern is typically observed during constructive pullbacks, and provides a guide for interpreting moving forwards. A sustained period below 1.0 however, could signify a more onerous scenario, where underwater holders start to panic, adding further sell-side.

🎓 SOPR Guide: We have a detailed metric guide for SOPR, and different variants available within Glassnode Academy for further reference.

Long-Term Holder SOPR variant tends to better reflect macro market shifts. Following an extended period of realized losses (LTH-SOPR < 1.0), the LTH cohort are finally transitioning back into a regime of profitable spending, a structure similar once again to past cycle transition points.

This thesis was further explored last week (WoC 16), where the LTH cohort at the moment consist of many 2021-22 cycle holders, many of whom remain underwater, and are likely to create resistance throughout the market recovery.

A Return of Capital Inflows

In this final section, we shall inspect the changes in USD denominated profit and loss events, to put the above observations into context, relative to total market size.

The chart below shows, the magnitude of USD denominated profit taken this year, remains well below 2021 cycle highs. It is however of a similar scale to that observed in 2019. It is important to note that market prices rallied from $4k to $14k in 2019, which has a peak 50% lower than our current price of just below $28k.

This sentiment is also echoed across the realized loss domain, which continues to decline. Total losses remain quite low relative to all major sell-off events throughout 2021-22. This does suggest that a degree of sell-exhaustion has been reached at a macro scale, at least from the lens of wide-scale holders locking in significant losses (i.e. cycle top buyers).

Finally, we can evaluate the cumulative sum of all realized profit and loss events, more commonly referred to as the Realized Cap. After experiencing significant growth during both legs of the bull market in 2020-21, the Bitcoin network experienced a significant net capital outflow in 2022, contracting back to July 2021 levels.

The Realized Cap has finally stabilized in 2023, and is beginning to see growth, and positive capital inflows once more.

Summary and Conclusions

After a remarkably strong start to 2023, the BTC market has run up against its first appreciable resistance, reverting the rally up to $30k. This comes alongside a very large cross section of the market seeing their holdings recover above acquisition price, creating a more favorable, and profitable environment.

The aggregate value of profits realized remain relatively small compared to the size of the asset, however are of a USD magnitude equivalent to the 2019 rally to $14k. With accumulation and distribution behavior across several wallet cohorts mixed at the moment, the market appears less decisive than it has been in the first quarter of the year.

Disclaimer: This report does not provide any investment advice. All data is provided for information and educational purposes only. No investment decision shall be based on the information provided here and you are solely responsible for your own investment decisions.

• Join our Telegram channel.
• Visit Glassnode Forum for long-form discussions and analysis.
• For on-chain metrics, dashboards, and alerts, visit Glassnode Studio.
• For automated alerts on core on-chain metrics and activity on exchanges, visit our Glassnode Alerts Twitter.