Feb 3
Bitcoin On-сhain: January 2023(№73)
January was a recovery month for many cryptocurrencies. The market capitalisation has grown from $0.75T to $1.04T (38.14%). The price of Bitcoin has showed an impressive performance of 45.18 % growth (from $16.5k to 23.96k). Bitcoin Volume has increased from $15.56B per day to $25.6B per day on average.
The recent price recovery from the December lows to over $24k has significantly improved investor profitability across the board. However, higher prices and the allure of profits after an extended bear market tend to motivate supply to re-enter liquid circulation. Based on analysis of cohort behaviour I have come to a conclusion that short-term holders and miners have been motivated by the opportunity to liquidate a portion of their holdings.
Nevertheless, the supply held by long-term holders continues to grow, which can be argued to be a signal of strength and conviction across this group. Given the effect of long-term holders on the macro trend, watching their spending is likely a key toolset to track over the coming weeks.
Executive summary:
- The recent rally from $16.9k to $24k has shown confluence with the Percent of Supply in Profit significantly surging from 55% to over 67%. This 12% growth over 14 days has been one of the sharpest spikes in profitability compared to prior bear markets.
- The current bear, which started in November 2021, has undergone two remarkably large capitulation events, realizing a net loss of -2.9% and -3.7% of market cap per week. This regime has now shifted to one of Profit-Dominance, a promising sign of healing.
- The total BTC balance held on the exchanges is around 2.251M BTC, representing 11.7% of the circulating supply, and a multi-year low that was last seen in Feb 2018.
- Realized volatility over the last month for BTC declined to multi-year lows of 24.6%
- Daily transfer volume has collapsed from the ~$40B heights in Q3–2022, to just $5.8B/day today.
- There have been over $495M in short futures contracts liquidated across three waves, notably with declining scale as the rally played out.
As is often the case, such rallies are usually fuelled by some degree of short squeezes within derivative markets, and this rally is no different. To date, there have been over $495M in short futures contracts liquidated across three waves, notably with declining scale as the rally played out.
We can see the initial short squeeze in mid-Jan took many traders by surprise, setting an all-time-low of 15% for long liquidation dominance (meaning 85% of liquidations were shorts). This is an even larger magnitude relative to the longs liquidated during the FTX implosion (75% long dominance), showing just how offside many traders were.
The trend of coins flowing out from spot exchanges has been a major theme since March 2020, which to this day marks the all-time-high exchange coin balance. Today, the total BTC balance held on the exchanges we track is around 2.251M BTC, representing 11.7% of the circulating supply, and a multi-year low that was last seen in Feb 2018.
Realized volatility over the last month for BTC declined to multi-year lows of 24.6%, of which there are very few instances with similar levels.
Early bull market in 2012–13 where BTC prices were between $5 and $14.
Late bear market in 2015 and at several stages through the bull run 2016.
Nov-2018 immediately preceding a -50% drawdown in 1-month.
Apr-2019 prior to a rally from $4.2k to a peak of $14k in July-2019.
Jul-2020 in the lead up to what became the 2020–21 bull run to $64k.
Despite this short burst of address activity, the total USD value processed by the Bitcoin network has been in free-fall. Daily transfer volume has collapsed from the ~$40B heights in Q3–2022, to just $5.8B/day today. This returns daily settlement volumes to pre-bull 2020 levels, and largely indicates an expulsion of institutional sized capital flowing across the network.
Demand for Bitcoin blockspace continues to remain weak, with negligible upwards pressure on the Bitcoin fee market. The 4-yr Z-Score of miner revenues is yet to make any noteworthy progress back towards positive territory, and remains -0.67 standard deviations below the mean.
Percent Supply in Profit is an insightful metric to track when a market recovery may start. The recent rally from $16.9k to $24k has shown confluence with the Percent of Supply in Profit abruptly surging from 55% to over 67%. This 12% surge over 14 days has been one of the sharpest spikes in profitability compared to prior bear markets.
The Realized Profit and Loss metrics measures the difference between the value of coins at the time of disposal and the time of acquisition. The current bear, which started in November 2021, has undergone two remarkably large capitulation events, realizing a net loss of -2.9% and -3.7% of market cap per week, respectively. This regime has now shifted to one of Profit-Dominance, a promising sign of healing after the heavy deleveraging pressures inflicted in the second half of 2022.
The recent growth to $24K has pushed this metric to > 97.5% in profit for the first time since the ATH in November 2021. Given this substantial spike in profitability for new investors.
This metric shows that after 6.5 months, the market price has finally recovered above the long-term holders’ cost basis at $22.6k. This denotes that the average LTH is only just above their break-even basis.
The crypto market behaviour is very emotional. People tend to get greedy when the market is rising which results in FOMO. Right now we have just entered a Greed zone which is above 60.
Sources: https://studio.glassnode.com/metrics?, https://cryptoquant.com https://www.tradingview.com/, https://coinmarketcap.com, https://alternative.me/crypto/fear-and-greed-index/
