CoinDesk Report:
Author: UkuriaOC, CryptoVizArt, Glassnode; Translation: Baishui
Despite Bitcoin’s trading price remaining relatively flat, a significant portion of the market continues to be profitable, with short-term holders absorbing most of the losses.
By combining on-chain pricing models and technical indicators, we define and explore a series of potential scenarios for future market developments.
Volatility remains historically compressed, indicating investor indifference to some extent, yet suggesting insufficient indices for future volatility intensification.
Market Profitability Remains Strong
As BTC prices dipped to the $60,000 region, many digital asset investors experienced varying degrees of fear and bearish sentiment. Instances of market stagnation and dormancy amidst indifference are not uncommon.
Nevertheless, from the perspective of the MVRV ratio, overall investor profitability remains robust, with average tokens maintaining a profit multiple of 2x. This level typically characterizes phases akin to a “passionate” and “excited” bull market.
Digging deeper, segregating tokens with unrealized profits or losses allows us to evaluate the average cost basis of each group and the average magnitude of unrealized gains or losses per token held.
Tokens in profit average unrealized gains of +$41,300 with a cost basis of approximately $19,400. Notably, this figure is influenced by tokens moved late in earlier cycles, including Patoshi entities, early miners, and lost tokens.
(Red)
Tokens in loss average unrealized losses of -$5,300 with a cost basis around $661,000. These tokens are predominantly held by short-term holders, as few tokens held by “top buyers” from the 2021 cycle remain today.
(Blue)
Both metrics help identify potential sell pressure points as investors seek to maintain profits and avoid holding tokens with the most severe unrealized losses.
Looking at the ratio of unrealized profits/losses per token, those holding profits see gains 8.2 times the magnitude of those holding losses. Only 18% of trading days record significantly higher relative values, all within excited bull market intervals.
It can be said that the March ATH set post-ETF approval exhibits several characteristics consistent with historical bull market peaks.
Focus on Short-Term Holders
Since the March ATH, Bitcoin prices have consolidated within a defined range of $60,000 to $70,000, failing to establish strong trends in either direction.
To anchor our position within the cycle, we reference a simplified framework for historical Bitcoin market cycles:
Deep Bear Market:
Prices trade below realized values. (Red)
Early Bull Market:
Prices trade between realized prices and true market averages. (Blue)
Passionate Bull Market:
Prices trade between ATH and true market averages. (Orange)
Excited Bull Market:
Prices trade above previous ATH. (Green)
Currently, following several brief entries into the excited zone, prices remain within the passionate bull market region. The true market average is $50,000, representing the average cost basis for each active investor.
Should the macro bull market persist, this level remains a critical pricing threshold for the market to sustain 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 profits signal a potential overheated market, currently valued at $92,000. (Red)
The profit/loss equilibrium level for STH stands at $64,000, currently trading below spot prices but attempting to reclaim. (Orange)
Significant unrealized losses signal a potential oversold market, currently valued at $50,000. This aligns with the true market average acting as a bull market breakpoint. (Blue)
It’s notable that only 7% of trading days see spot prices trading below the -1SD range, making this scenario relatively rare.
Given prices are trading below something’s cost basis, it’s prudent to examine the financial pressures within each subset of this group. Using our age-by-year indicators, we dissect and examine the cost bases of different age groups of investors within the short-term holder cohort.
Currently, token ages of 1d-1w, 1w-1m, and 1m-3m all show average unrealized losses. This suggests little effectiveness for traders and investors within this consolidation range.
The 3 million to 6 million cohort remains the sole subset holding unrealized profits, with an average cost basis of $58,000. This aligns with the lows of this adjustment, marking it once again as a critical area of focus.
Turning to technical indicators, we utilize the widely-used Mayer Multiple, which assesses the ratio between price and its 200DMA. The 200DMA serves as a simple indicator for gauging bullish or bearish momentum, making any breakout or breakdown a pivotal market pivot.
The current value of the 200DMA is $58,000, again aligning with on-chain pricing models.
We further assess concentration of supply around specific cost basis clusters using the URPD indicator. Currently, spot prices approach lower bounds of 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) held in the $60,000 to $70,000 range, minor price fluctuations can significantly impact token and investor portfolio profitability.
Overall, this indicates that many investors may be sensitive to prices dropping below $60,000.
Expectations of Volatility
After months of ranging price action, we note significant declines in volatility within rolling window periods. To visualize this phenomenon, we introduce a simple tool to detect periods of realized volatility contraction, often signaling an indicator that future volatility may intensify.
The model evaluates changes in realized volatility over 30 days across 1 week, 2 weeks, 1 month, 3 months, 6 months, and 1 year timeframes. A signal is triggered when all windows show negative changes over 30 days, inferring volatility compression and reduced expectations of future volatility.
We also assess 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 movements following long-term consolidation.
Finally, we enhance our volatility assessment with the Sell-Side Risk Ratio. This tool evaluates realized profits and losses relative to asset scale (realized cap). We consider this indicator within the following framework:
High values indicate investors spending tokens with profits or losses relatively larger compared to their cost bases. This situation suggests the market may need to find balance, often resulting in sharp price fluctuations.
Low values indicate most tokens’ spending is relatively close to their profit/loss equilibrium cost basis, suggesting a certain degree of balance within the current price range and describing a low volatility environment.
Notably, STH sell-side risk has reached historic lows, with only 274 out of 5,083 trading days (5%) recording lower values. This indicates a certain level of equilibrium established during price consolidation and implies heightened expectations for recent volatility.
Summary
The Bitcoin market finds itself in an intriguing position, with prices 20% below ATH but dominated by indifference and boredom. Average tokens still hold 2x unrealized profits. However, new buyers are notably lacking.
We also explore critical pricing levels where investor behavior patterns may change. We seek a degree of fusion between on-chain metrics and technical indicators, drawing out three key areas of interest.
Breaking below $58,000 to $60,000 will cause significant losses for many STHs, trading below the 200-day moving average price level.
Price movements between $60,000 and $64,000 continue the sideways trajectory of current market decisions.
A breakout above $64,000 will likely return many STH tokens to profitability, potentially lifting investor sentiment.
From pricing and on-chain perspectives, volatility remains compressed across multiple timeframes. Sell-side risk ratios and 60-day price ranges have dropped to historic lows. This indicates the current trading range is in the later stages of the next range expansion.
