Summary:
In April, despite high trading volumes and significant inflows into ETFs at the beginning of the month, Bitcoin faced consolidation pressure and traded between $60,000 and $66,700. This was primarily due to short-term holders selling off. Meanwhile, the Ethereum ecosystem sparked intense debates about changes in staking rules, highlighting concerns about its future as a scalable platform and monetary asset.
Market Momentum:
Currently, Glassnode’s comprehensive momentum index indicates a cooling market. Several key indicators have entered a declining trend, signaling reduced demand and a slowdown in positive momentum.
Indicator Focus:
Miner revenue momentum evaluates block space demand based on miner fee income and highlights key turning points through a 2-year rolling Z-score. High Z-scores indicate increased network activity and congestion, while low Z-scores indicate reduced demand and potential market cooling.
In April 2024, investor behavior in the digital asset market appears to be influenced by two main emotions: expectations of Bitcoin’s fourth halving and disappointment with the subsequent price decline. Although halvings have historically been proven to be long-term bullish events, they often trigger market sell-offs in the short term.
For example, while a decrease in Bitcoin supply has long-term bullish effects, similar events in 2016 and 2020 also led to immediate market adjustments. This year, macroeconomic uncertainty and geopolitical tensions exacerbated this impact, resulting in a 16.09% price drop in Bitcoin in the weeks following the halving.
Similarly, Ethereum experienced significant volatility, with a price drop of 17.80%, partly due to ongoing uncertainty in the US economy. Attention is focused on the approval of Ethereum ETFs and debates within the community regarding proposed changes to staking policies.
This reaction reflects a broader market sensitivity to significant expected events, where traders often profit and lead to short-term sell-offs. In our extensive coverage of halvings and their expected impacts, we correctly anticipated the possibility of such sell-offs.
In this article, we will explore the ongoing impact in the US. Even in the case of a market correction, spot ETFs significantly supported trading volumes in April. We will also provide the latest factors that could affect the monetary characteristics of Ethereum and its technical adaptability in the DeFi space.
Monthly Market Overview:
In the first few weeks of April, Bitcoin continued its strong performance with the support of increased spot and on-chain trading volumes. After reaching a peak of around $14.1 billion in spot trading volume in mid-March, the Bitcoin price consolidated between $64,000 and $73,000. This price level was primarily driven by US spot ETFs, which have become a significant force in the market, introducing a substantial amount of new demand and helping maintain prices at historic highs.
Although daily spot trading volume decreased from the mid-March peak to around $7 billion per day, it still reached the intensity of the 2020-2021 bull market. Strong trading volumes highlight the market’s continued optimism, characterized by the presence of net buying deviations in Cumulative Volume Delta (CVD). This indicator measures the net amount of buying and selling, highlighting ongoing speculative interest and widespread bullish sentiment among traders.
Additionally, trading flows (both inflows and outflows) have been very high, averaging $8.19 billion per day, significantly surpassing the peak levels observed during the previous bull market. While Binance still holds a considerable market share (37.5%) in spot trading, its dominance has declined from higher levels in previous years, indicating expanding market activity across platforms.
Halving Impact:
In mid-April, Bitcoin underwent its fourth halving event, reducing the daily supply inflation rate by 50% and bringing the annual issuance rate down to 0.85%. This reduction strengthened Bitcoin’s status as a hard asset and marked the first time Bitcoin surpassed gold in terms of scarcity.
Meanwhile, the decrease in supply has not had a significant impact on market dynamics, as newly minted tokens account for a small proportion compared to global trading volume. Spot and derivative trading volumes continue to dominate the market, with newly minted supply representing less than 0.1% of the total capital flow.
On the other hand, Bitcoin has reached new milestones in several important indicators. The fundamentals of the network show significant trends across various metrics. With miners investing in efficient hardware and optimizing operational costs, network hash rate has reached an all-time high, ensuring that the decrease in issuance does not compromise security. This investment indicates that the reduction in subsidies is not a hindrance for miners.
Although the growth rate of network statistics has declined due to the expansion of the ecosystem, the absolute values of these metrics have reached new highs. In particular, the value transferred and settled via the Bitcoin network in the past four years amounted to $10.6 trillion. This impressive figure highlights Bitcoin’s ability to maintain its position as a major settlement network, regardless of volatility and periodic pullbacks.
Dealing with Market Adjustments:
In the last week of April, the Bitcoin market entered a consolidation phase following the halving event. After reaching a peak of $73,000 in March, the price ranged between $60,000 and $66,700. During this period, selling pressure intensified as short-term holders (STH), especially those who purchased BTC in the past 1-6 months, dominated the market sell-off.
Despite increased selling pressure, the Unrealized Profit/Loss (NUPL) indicator suggests that the market is still in the “exuberance” phase of a bull market. However, since the adjustment began, this indicator has also shown a meaningful cooling off. The selling pressure from STH experiencing significant realized losses becomes a key indicator of local market bottoms.
We can observe that the cost basis of STH who bought BTC in the past 1 week to 1 month is a key indicator of market sentiment. Their realized losses often peak near local market bottoms, indicating that exhaustion among sellers in this group often precedes an upcoming reversal.
Development and Controversy in Ethereum:
In April, the Ethereum ecosystem found itself at the center of intense debates surrounding changes in staking policies. Innovations such as liquidity staking, re-staking, and liquidity re-staking protocols have greatly increased the demand for staking on Ethereum, leading to unprecedented participation. Currently, over 31.4 million ETH (approximately 26% of the total supply) has been staked, primarily driven by re-staking protocols such as EigenLayer and liquidity re-staking providers. These developments have created additional income opportunities and incentives beyond the initial proof-of-stake vision.
Proposals to limit annual issuance to slow down the expansion of the staking pool faced strong resistance from the community. Supporters argue that such measures are necessary to maintain Ethereum’s monetary role and prevent derivative tokens from gaining excessive influence on the network. However, opponents see these restrictions as barriers to innovation and believe that no changes are needed. As stakeholders strive to balance Ethereum’s monetary policy with decentralized financeThe increasing demand suggests that these debates will continue. Meanwhile, there are concerns that the rapid growth of staking may weaken Ethereum’s function as a currency asset and shift governance power to derivative projects that issue staking tokens. The future of Ethereum’s staking landscape remains uncertain as the community needs to strike a delicate balance to protect the network’s scalability and its function as a store of value.
Market Momentum – Updates and Key Insights from On-Chain Momentum Framework
Tracking market momentum during a bull market requires a detailed analysis of key on-chain data to capture the fundamental trends and changes in market behavior. Glassnode’s exploratory framework offers potential ways to address this challenge by focusing on four main categories:
On-Chain Activity: This indicator uses network activity and adoption rates to determine periods of user growth and expansion. An increase in network activity is usually correlated with a rise in market momentum.
Market Profitability: By evaluating unrealized profits held by investors, this indicator identifies periods when market participants are making profits, indicating a healthy market with an upward trend.
Spending Behavior: This category identifies periods of high demand to absorb profits made by existing holders. High demand during these periods indicates sustained positive momentum.
Wealth Distribution: By examining the transfer of wealth between long-term holders and new market participants, this indicator provides insights into market cycles and potential turning points.
By integrating these indicators into a comprehensive index, analysts can assess the strength and direction of market momentum more holistically. This approach enables traders to make informed decisions based on a nuanced understanding of the current market state and potential future trends.
Currently, less than four out of eight conditions for strong momentum are met, indicating that the market is in a cooling-off period.
After the Bitcoin halving event in April 2024, several key indicators have shown significant changes compared to previous trends, reflecting a potential short-term shift in market dynamics:
Miner Income 2-Year Z-Score: Following the halving, miner income surged significantly due to increased competition for block space, particularly involving transactions with higher fees. Although this growth has slowed down slightly, income levels remain above historical normal levels. However, recently, the Miner Income 2-Year Z-Score has entered a declining trend phase for the first time in a month, indicating reduced demand for block space.
Exchange Inflows: Initially, exchange inflows remained higher than the annual average level, reaching a peak in late March before entering a sustained downward trend. This shift suggests a slowdown in the positive momentum of funds flowing into the market and a potential reversal, indicating a cooling-off of buying pressure.
Profit Supply Trend: While still showing a positive trend, the profit supply has started displaying signs of reversal, both in absolute value and the 90-day EMA. Although this indicator is still in an upward trend phase, it suggests fewer holders in a profitable state, which may impact market sentiment.
MVRV Momentum: The overall Market Value to Realized Value (MVRV) momentum is still above the annual average level, indicating that, on average, holdings are valued higher than their cost basis. However, the short-term holder MVRV has reversed and is currently trending downward, indicating that recent market entrants are starting to see reduced profits, which may increase selling pressure.
SOPR Momentum: The Spending Output Profit Ratio (SOPR) momentum is also showing a downward trend, with the monthly average recently falling below the annual average. While this trend is not yet strong, it suggests a decrease in the profitability of trading tokens, which may lead to more cautious spending behavior by traders.
Realized Profit/Loss Ratio Momentum: The transition to negative momentum in this indicator highlights an acceleration of realized losses during recent market corrections. If the market continues to adjust, the increasing losses suffered by recent token buyers may trigger panic selling.
Conclusion and Insights for Momentum Traders
Current market indicators suggest that Bitcoin is going through a consolidation and potential corrective phase. Given the slowdown in positive momentum and increased selling pressure indicated by key indicators such as exchange inflows, SOPR momentum, and short-term holder MVRV, traders should exercise caution. The changes in miner income and the cooling-off of SOPR momentum further suggest a potential decrease in demand for Bitcoin at higher price levels.
For momentum traders, closely monitoring these downward trends is crucial. If signs of recovery or stability emerge, the possibility of reversals in indicators like SOPR and profit supply may provide strategic entry points. However, the increasing realized losses highlight the need to remain vigilant about potential panic selling.
Focus on Indicators – Miner Income Growth Momentum
In our analysis of market momentum trends, we emphasized miner income momentum. This indicator measures the demand for block space by evaluating the percentage of income miners earn from fees. When users exhibit higher urgency and are willing to pay higher fees to be included in the next block, fee pressure increases. By applying a 2-year rolling Z-Score to this data, we can standardize the dataset across cycles and identify turning points, such as fee increases during bear market weakening periods or fee decreases after peak cycles.
By examining miner income momentum, analysts can gauge the strength of network activity and its impact on miner behavior. High Z-Scores indicate miner income above average levels, usually occurring simultaneously with an increase in transaction fees and network congestion. Conversely, a decrease in Z-Scores indicates reduced demand for block space, which may suggest a cooling-off of the market or decreased transaction activity.