Despite Bitcoin’s trading price remaining in a sideways decline, a significant portion of the market continues to profit, with short-term holders bearing the brunt of losses.
Combining on-chain pricing models and technical indicators, we define and explore a range of potential scenarios for future market developments. Historical data shows continued volatility compression, indicating investor apathy to some extent while also suggesting insufficient indications for future volatility escalation.
Profitability remains robust in the market. Despite Bitcoin’s price dipping into the $60,000 range, many digital asset investors experience a degree of fear and bearish sentiment. This sentiment is not uncommon when market fluctuations stagnate and enter a dormant state, spreading indifference.
Nevertheless, from the perspective of the MVRV ratio, overall investor profitability remains strong, with the average token maintaining a 2x profit multiplier. This level typically characterizes phases akin to enthusiastic and excited bull markets.
Digging deeper, separating all tokens with unrealized profits or losses allows us to assess average cost bases for each group, along with the average magnitude of unrealized gains or losses per token held.
Tokens with average profit unrealized gains amount to +$41,300, with a cost basis around $19,400. Notably, this figure is partly influenced by tokens moved late in the early cycle, including Patoshi entities, early miners, and lost tokens (red).
Tokens with average loss unrealized losses amount to -$5,300, with a cost basis around $661,000. These tokens are predominantly held by short-term holders, as few tokens remain in the hands of “top buyers” from the 2021 cycle (blue).
Both metrics aid in identifying potential sell pressure points as investors seek to preserve gains and avoid holding the most severe unrealized losses.
Examining the ratio between unrealized profit/loss per token, those holding realized profits outnumber those with realized losses by a factor of 8.2. Only 18% of trading days record significantly higher relative values, all within the excited bull market range.
It can be argued that the March ATH set post-ETF approval shares several characteristics with historical bull market peaks.
Focus on the cohort of short-term holders. Since the March ATH, Bitcoin’s price has been consolidating within a defined range of $60,000 to $70,000, failing to establish a strong trend in either direction.
To anchor our position within the cycle, we refer to a simplified framework to consider historical Bitcoin market cycles:
– Deep Bear Market: Trading prices below realized prices (red).
– Early Bull Market: Trading prices between realized prices and true market averages (blue).
– Enthusiastic Bull Market: Trading prices between ATH and true market averages (orange).
– Excited Bull Market: Trading prices above the ATH of the previous cycle (green).
Currently, after several very brief forays into the excited zone, prices remain within the enthusiastic bull market territory. The true market average is $50,000, representing the average cost base for each active investor.
If the macro bull market is expected to continue, this level remains a critical pricing level for the market to hold above.
Next, we focus on the cohort of short-term holders, overlaying their cost bases with levels representing +-1 standard deviation. This provides insights into areas where these price-sensitive holders may begin to react:
– Significant unrealized profit indicates potential overheated markets, currently valued at $92,000 (red).
– The break-even level for STH cohort stands at $64,000, with the spot price currently below this level but attempting recovery (orange).
– Significant unrealized losses indicate potential oversold markets, currently valued at $50,000, aligning with the true market average as a breakpoint (blue).
It’s noteworthy that only 7% of trading days have the spot price trading below the -1SD range, making this scenario relatively rare.
Given prices trading below something’s cost base, it’s prudent to examine the financial stress levels of subsets within this cohort. Using our age-based indicators, we can dissect and examine the cost bases of different coin-age investors within the cohort of short-term holders.
Currently, coin ages of 1d-1w, 1w-1m, and 1m-3m all show average unrealized losses. This suggests minimal effectiveness of this consolidating range for traders and investors alike.
The subset of 3-6 million people still remains the only subgroup with unrealized profits, averaging a cost basis of $58,000. This aligns with the low end of this adjustment, marking it again as a critical area of concern.
Turning to technical indicators, we can utilize the widely used Mayer Multiple indicator, which evaluates the ratio between the price and its 200DMA. The 200DMA serves as a simple gauge for assessing bullish or bearish momentum, making any breakthrough or breakdown a key market pivot.
The current value of the 200DMA is $58,000, again providing convergence with on-chain pricing models.
We can further evaluate supply concentration around specific cost basis clusters using the URPD indicator. Currently, spot prices approach large supply nodes between $60,000 and ATH. This aligns with the cost basis model of short-term holders.
With 2.63 million BTC (13.4% of circulating supply) situated between $60,000 and $70,000, minor price fluctuations can significantly impact token and investor portfolio profitability.
Overall, this suggests many investors may be sensitive to prices falling below $60,000.
Expectations for volatility
After months of ranging price trends, we note significant decreases in volatility over several rolling time windows. To visualize this phenomenon, we introduce a simple tool to detect periods of realized volatility contraction, often signaling an expectation of increased volatility in the future.
The model assesses changes in realized volatility over 30 days across 1-week, 2-week, 1-month, 3-month, 6-month, and 1-year time frames. A signal is triggered when all windows show negative changes over 30 days, implying volatility compression and reduced expectations for future volatility.
We can also evaluate market volatility by measuring the percentage range between the highest and lowest price movements over the past 60 days. According to this indicator, volatility continues to compress to rare levels, typically seen before significant market volatility following extended periods of consolidation.
Finally, we can enhance our volatility assessment using the Sell-Side Risk Ratio. This tool evaluates the absolute total of realized profits and losses relative to asset size (realized upper limit). We can consider this indicator within the following framework:
– High values indicate investors spending tokens with larger profits or losses relative to their cost basis, suggesting the market may need to find a new balance and often results in sharp price fluctuations.
– Low values indicate most tokens’ spending is relatively close to their breakeven cost basis, suggesting a degree of balance has been achieved within the current price range and typically describes a low-volatility environment.
It’s notable that STH sell-side risk has dropped to historic lows, with only 5% of 5,083 trading days recording lower values. This indicates some level of equilibrium has been established during price consolidation and implies heightened expectations for volatility in the near term.
Summary
The Bitcoin market finds itself in an intriguing position, with prices 20% below ATH but dominated by apathy and boredom. The average token retains a 2x unrealized profit, yet new buyers are notably lacking.
We also explore key pricing levels where investor behavior patterns may change. We seek a degree of convergence between on-chain metrics and technical indicators, yielding three critical areas of interest.
Breaking below $58,000 to $60,000 would subject a significant number of STHs to losses, trading below the 200-day moving average price level.
The price trend between $60,000 and $64,000 continues the current market’s sideways trajectory.
A breakout above $64,000 could see significant STH tokens return to profitability, potentially lifting investor sentiment.
From a pricing and on-chain perspective, volatility continues to compress across multiple time frames. Sell-side risk ratios and 60-day price ranges have dropped to historic lows. This suggests the current trading range is in the later stages of developing the next range expansion.
Tags: Glassnode, Crypto Markets, Bitcoin, Golden Finance
