Editor's note:
This report is translated from glassnode’s (The Week Onchain Newsletter: The Eye of the Storm). This article takes an in-depth look at the significant changes on the demand and supply sides of the market since Bitcoin hit its all-time high in March 2024. As new capital inflows on the demand side decrease, market activity continues to be sluggish. However, the tightening on the supply side indicates possible market volatility in the future.
Through a series of on-chain indicators, the article reveals current behavioral trends among Bitcoin holders, highlighting that long-term holders remain committed to HODLing initiatives, while short-term holders’ participation and profit realization weaken. For those investors who are paying attention to market trends, this article shows that the Bitcoin market may enter a unique equilibrium stage and may change at any time.
Highlights
The demand side of the market has declined significantly since the all-time high (ATH) in March, with investors paying less attention as the market trades sideways in this price range.
On the supply side, the amount of available coins is also shrinking, with several "active supply" indicators compressed to relatively low levels.
Historically, supply-side tightening in Bitcoin has often been a precursor to high volatility.
This often describes a situation where new demand and wealth held by existing HODLers are balanced, but this balance often does not last long.
💡 To see all the charts for this report, visit the "The Week On-chain" dashboard.
Weakening of demand
The rate of new money inflows has continued to weaken since hitting an all-time high of $73,000 in March 2024. Due to the peer-to-peer nature of the Bitcoin network, buyers and sellers are matched at a 1:1 ratio. Therefore, evaluating the "realized profit" or "realized loss" indicator can be used as a proxy indicator of the scale of new funds entering or exiting the network.
Based on this framework, we can see that the Bitcoin market is currently seeing around $730 million of new money flowing into the network daily, which is not insignificant, but significantly lower than the peak of $2.97 billion in March.
Chart source: glassnode real-time chart - Bitcoin: absolute realized profit + realized loss
In the raw, unfiltered variant of the indicator, October 8 saw a significant surge in realized profits. However, when looking at the "Entity Adjustment" variant created by Glassnode, the same surge was not shown.
This surge in profits was caused by a large internal transfer by the WBTC cluster as BitGo migrated the on-chain ownership structure.
Glassnode’s proprietary clustering heuristic successfully identified this non-economic transaction and correctly excluded it from the cleaned dataset, demonstrating the benefits of entity-adapted filtering of on-chain transaction data.
Source: glassnode Live Chart - Bitcoin: Realized Profit vs Realized Profit after Entity Adjustment
Our "point-in-time variant" of WBTC balance shows a strictly add-only metric whose balance history is immutable, capturing the state of our cluster and recording data points.
From this perspective, we can observe that the WBTC balance returned to previous levels after the initial drop, as Glassnode’s auto-clustering algorithm correctly reclassified this transfer as an internal transfer.
Figure source: glassnode real-time chart-Bitcoin: Wrapped BTC ($WBTC) balance at a certain point in time
Returning to our demand-side assessment, we can use the "binary CDD" indicator as another proxy for demand-side pressures. This metric tracks the consumption of “holding time” in the market, tracking when holders of old supply engage in large-scale transactions (as new buyers enter the market to balance it).
We can now see relatively low coin-day burns, suggesting that long-term investors remain relatively inactive within the current price range. Our assessment of demand-side strength shows that investor attention and new demand inflows are relatively muted across this range, and we do not see a significant second wave of demand within 2024.
Chart source: glassnode Live Chart - Bitcoin: Binary CDD (30-day moving average)
Supply side tightens
Having established the lackluster performance of the demand side, it would be wise to look at its opposite, the supply side. Here, we define “supply” as the amount of coins that market participants are willing to spend and trade.
The chart below outlines multiple indicators of “available supply,” including short-term holders and highly liquid supply. We compare these to indicators of "storage supply" such as long-term holders or custodial supply.
We can see a multi-month rise in the Storage Supply metric, emphasizing the preference of existing holders for HODLing, which has led to a subsequent decline in the Active Supply metric, indicating that fewer coins are trading within the current price range.
Source: glassnode Live Chart-Bitcoin: Difference between illiquid supply and long-term holder supply
We can also increase the granularity of the Available Supply metric. We can evaluate the "warm supply" portfolio, which uses the "coin age" heuristic to focus on the amount of coins moved in the past month.
In our long-term vs. short-term holder classification study, we quantified that the probability of spending is closely related to the time a coin is held. Therefore, "warm supply" captures the effective subset of coins that we reasonably expect to change hands.
We can also think of futures open interest and volume as a form of "supply exposure" in derivatives markets, where we expect these to be actively traded.
Taken together, this measure of active supply has significantly halved since its all-time high in March, suggesting that low on-chain trading volumes and reduced futures market activity underscore a net decline in investor speculation and attention.
Source: glassnode Live Chart - Bitcoin: Supply of Active Transactions
The “Activity” metric is an elegant tool for assessing the historical balance between coin days being destroyed (spent) and coin days being created (HODLing). We noticed a significant increase in spending activity between July and August, which included the redistribution of Mt. Gox coins to creditors.
The Activity indicator is currently in an ongoing downward trend, indicating a strong preference for HODL among market participants and their supply further tightening our available supply indicator.
Figure source: glassnode real-time chart-Bitcoin: activity after entity adjustment
Continuous investors throughout the cycle
We have now established a scenario of falling demand and tightening supply. We can strengthen this assessment by examining the proportion of online wealth between these two groups of holders. We consider the behavior of these holders according to the following framework:
Short term indicator (<1 month) 🔴: Realized capital or wealth from trades in the last 30 days. This group is closely aligned with demand and includes new investors deploying new capital into the market.
Long-term indicators (1-2 years) 🔵: This portion of supply peaks during the formation of a bear market bottom. This group represents long-term and price-insensitive investors who accumulate and hold during bear markets.
Directly comparing the wealth of buyer pressure to HODLer beliefs, we note that the presence of new demand, while high, is declining. New demand is significantly higher than during the 2022 bear market but well below the March peak.
We have yet to see the sharp and sustained surge in new demand that typically accompanies cycle peaks. Likewise, we have not yet begun to experience the rise in HODLing pressure that is historically seen in deep bear markets.
This puts the market in a relatively unique equilibrium right now, almost halfway between the two cycle extremes.
Figure source: glassnode real-time chart-Bitcoin: Weekly Capital Rotation Ratio
We can also use the Realized HODL Ratio to further examine this wealth balance. The mid-point mentioned above is also reflected here, with higher RHODL signals indicating the presence of new investors but not yet reaching a peak consistent with demand saturation.
Chart source: glassnode Live Chart - Bitcoin: Realized HODL Ratio
New investor confidence in market trends also remains within the neutral range, indicating that the price at which new buyers are transacting is not significantly different from the price at which they originally acquired.
Although sentiment has been slightly negative due to recent market turmoil, new investor confidence levels are significantly higher than in the 2019-2020 and 2021 markets.
Picture source: glassnode real-time chart-Bitcoin: New investors’ confidence in the trend
This robustness is further emphasized by the lack of unrealized losses from new investors, suggesting we have yet to see a significant decline in investor profitability. This suggests that Bitcoin holders are experiencing limited financial stress and fear, currently reducing the likelihood of entering a deep bear market.
Chart source: glassnode Live Chart - Bitcoin: Relative unrealized losses for short-term holders (14-day moving average)
Summary of this week
The significant divergence between the forces of supply and demand continues to widen. The demand side of the market has declined significantly since the all-time high in March, while multiple indicators of "active supply" continue to compress and tighten. Historically, severe tightening on the Bitcoin supply side is often a precursor to periods of high volatility.
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[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
