As the price of Bitcoin continues to consolidate, we will now track and analyze which group of investors dominates the selling activity. In this article, we will also use a new combination of segmentation indicators to build a set of rules for tracking the lows of various markets during the consolidation period of Bitcoin prices.
Summary:
Since Bitcoin reached its all-time high of $73,000 in March, the Bitcoin market has transformed into a widespread distribution pattern. In this pattern, Bitcoin has demonstrated its liquidity and perfectly adapted to the new demand in the market.
According to the NUPL indicator, the Bitcoin market is still in the optimistic phase of the current cycle. However, since the price consolidation, market sentiment has gradually cooled down.
We will mention an example analysis process in this article to identify potential turning points and local lows in the market driven by subsets of short-term holders.
Distribution in Panic:
Currently, the Bitcoin market is still consolidating around $60,000, and since reaching $73,000 in mid-March, the price has been consistently limited within this range. In this article, we will evaluate whether investors are more inclined to distribute or accumulate their assets during this consolidation period.
First, we will use the Accumulative Trend Score to illustrate how the pattern of asset accumulation by investors has shaped local market tops and bottoms since the FTX crash.
In the early stages of the 2020-21 and 2023-24 bull markets, we can see the overlap between the local distribution area (light color) and the price contraction range. But as the market price rebounds to new highs, selling pressure on assets will be rekindled as price changes prompt investors to bring dormant supplies back to the market to meet new inflows.
With the Bitcoin spot price reaching a new high in mid-March, the same local distribution pattern appeared in the market, and this distribution pattern was further reinforced as the Middle East conflict intensified, leading to a Bitcoin price correction to $60,300.
If we review the segmentation indicators based on wallet size, our analysis will be more detailed. Here, we can see that the net outflows of all groups in April have increased significantly, indicating a comprehensive pattern of selling pressure in the market.
Unrealized Net Profit & Loss Cycle:
A unique feature of the current bull market is the positive impact of the US spot ETF momentum on price trends. In the current market, the impact of ETFs on investor behavior can be explained by the Unrealized Net Profit & Loss (NUPL) indicator, which measures the size of net book profits (or losses) of asset holders in the market after normalization by market value.
Through NUPL, we can identify the classic optimistic phase of the bull market, characterized by unrealized profits exceeding more than half of the market value (NUPL>0.5) during this phase.
In the 2020-21 cycle, this phase was triggered 8.5 months after the Bitcoin halving and continued to drive the price rise for nearly 10.5 months. However, in this cycle, NUPL broke through the threshold of 0.5 about 6.5 months before the halving. This significant change highlights the important fact that the US ETF has shaped and accelerated the price trend of Bitcoin by introducing strong demand into the market.
Based on this indicator, the optimistic phase of this bull market (NUPL>0.5) has been going on for 7 months. However, we know that even the strongest upward trend will experience adjustments, and these events during the adjustment period will provide valuable information about investor positioning and sentiment.
To gain a deeper understanding of the dynamics of this bull market adjustment, we will consider the following two conditions:
– Relative unrealized profit>0.5, indicating a large amount of book gains in the market.
– Relative unrealized loss>0.01, indicating that investors are currently facing significant financial pressure and are forced to hold a large amount of unrealized losses during the market adjustment.
As shown in the chart, these adjustment events are common and expected in all bull markets. Since the price reached a historical high of $73,100, this structure has appeared in three independent retracement periods until the current price returned to the range of about $60,000.
Identifying Local Lows:
After confirming that the current market is still in the optimistic range and expecting a price adjustment, the focus of the next part of this report is to establish a “compass” to “navigate” the expected direction of the market during the market contraction.
The first step is to identify the aggressive side in the market during the adjustment period, which we define as the investor group that contributes the most to the duration and depth of each correction.
We can use realized losses as a segmentation indicator (in USD) to determine which investor group, especially recent buyers, is currently dominating the market.
Considering that short-term holders in a loss position are our focus, we will use a new combination of segmentation indicators to analyze the cost basis of these recent buyers. The cost basis of the 1-3 month and 3-6 month holding groups among these relatively short-term holders will be a valuable tool to distinguish between bull and bear market structures. The cost basis of the 1-week to 1-month holding group shows their current situation corresponding to market turning points, helping us discover potential local lows (in bull markets) and local highs (in bear markets).
The spot price often reacts to the cost basis of short-term holders (1 week – 1 month), which was discussed in our recent research article on short-term and long-term holder behavior analysis. The theoretical basis for this conclusion is that recent buyers are more price-sensitive and are more likely to consume in the short term.
Therefore, during a bull market adjustment, as the market begins to sell off, short-term holders tend to increase the pace of their selling. When the market price approaches the cost basis of each subgroup, their selling speed is expected to slow down (exhaustion of selling pressure).
Here, we choose the realized price (cost basis) of Bitcoin assets held by short-term holders with a holding period of 1 week to 1 month as a compass to identify potential exhaustion of selling pressure in the short term during the market adjustment.
We can measure the typical statistical deviation generated during the price adjustment period using the MVRV ratio, which is the ratio between the spot price and the cost basis of each group.
The chart shows that during the bull market correction, the MVRV ratio of investors with a holding period of 1 week to 1 month usually drops to the range of 0.9-1. This means that the average cost basis for investors with a holding period of 1 week to 1 month will typically drop by 0%-10%.
Now, by evaluating the hidden pressure faced by investors with a holding period of 1 week to 1 month and analyzing the “realized losses” indicator, we can directly track the panic level currently displayed by this group of investors and the aggressive selling pressure they exert on the market.
Here, we list the realized losses (in USD) of recent 1-week to 1-month holders. Next, we will use some simple statistical methods (standard deviation>1) to determine the high realized loss range.
It is worth noting that the realized losses of this group tend to peak at local lows due to recent buyers panic selling their held crypto assets caused by recent price drops.
By combining these two conditions described above, we can obtain a set of specific conditions to discover potential local lows:
1. MVRV (1 week-1 month) is less than 1 but higher than 0.9.
2. Realized losses (1 week to 1 month) in a 90-day window exceed +1 standard deviation.
These two conditions together constitute a compass that can help identify when the selling pressure of short-term holders may become exhausted in a specific market structure.
At the time of writing this article, the cost basis for short-term holders with a holding period of 1 week to 1 month is $66,700, and since mid-March, their realized losses have exceeded the 90-day +1 standard deviation level several times. As the current Bitcoin price is in the range of $60,000 to $66,700, it satisfies the conditions described above using the MVRV ratio, and we can say that the market is now forming a local bottom. However, this also means that if the current MVRV level continues to fall, it may trigger a series of investor panic and ultimately force the market to seek and establish a new balance.
Summary:
In this article, we are convinced that since Bitcoin reached its all-time high of $73,000 in March, the Bitcoin market has transformed into a widespread distribution pattern. The NUPL indicator also indicates that the current Bitcoin market is in the optimistic phase, but it has cooled down significantly since the price adjustment began.
The price adjustment of Bitcoin provides valuable information about investor sentiment and selling activity. Based on this, we have developed a standardized analysis method to identify the investor group that exerts the most aggressive selling activity on the market. Based on this, a new combination of segmentation indicators has been developed to formulate simple rules that may help identify the exhaustion of selling pressure by this group, which is a factor in the current price forming a local low.
Tags:
FTX
NUPL
Market
Bitcoin
Source link:
https://mp.weixin.qq.com/s/bF_LmXDzmC1Qmb_ATI-dVA
Note: The views expressed in this article represent the author’s views and do not constitute investment advice.
Original article link:
https://www.bitpush.news/articles/6683556
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