The on-chain data analysis becomes even more essential as Bitcoin attracts attention from investors all around the globe. There is a metric that has recently attracted attention, and that is the Momentum STH (Short-Term Holder) Cap Ratio, which is an experimental metric of BinhDang, a quantitative analyst at CryptoQuant. The Momentum STH Cap Ratio has returned to the “WARM” area. This is a positive sign that suggests that Bitcoin activity is beginning to accelerate, although at a slow pace. 

Momentum Short-term Cap Recovering “The ratio value has recovered back to the WARM phase; however, less favorable conditions in terms of impact psychology & slow changes in macro conditions are promoting slow momentum.” – By @binhdangg1 Link https://t.co/A55M8nw7bZ pic.twitter.com/2SgAN4irt2

— CryptoQuant.com (@cryptoquant_com) October 7, 2024

What is the Momentum STH Cap Ratio?

Momentum STH Cap Ratio is an innovative but still relatively recent metric created by CryptoQuant analyst BinhDang. It provides a new perspective on market direction, and it calculates the difference between the Market Cap and the Realized Cap. More specifically, it targets the short-term holders, the ones who have been holding tokens for six months or less.

That is why the index reflects the fact that short-term holders are sensitive to fluctuations in prices, which cause fluctuations in cycles. Market waves and shifts of the significant forces can be predicted by analysts using a ratio of the Market Cap and the Realized Cap of these cohorts. 

How does the STH Cap Ratio work?

The Momentum STH Cap Ratio chart provided by BinhDang shows the movement since 2011(STH cap ratio of Bitcoin). The metric is divided into several phases:

  • Cold (low momentum)

  • Cool (growing momentum)

  • Medium (neutral)

  • Warm (increasingly bullish)

  • Hot (market temperature is high, suggesting that it may be near its high peaks).

Throughout history, when this ratio goes into the “Hot” territory, huge Bitcoin price tops are usually observed. On the other hand, the “Cold’ and ‘Cool’ phases depict the lower phase or the accumulation phases in the market.

Current Market Outlook: Momentum Recovery, But Slow

In the most recent indicator, the Momentum STH Cap Ratio returns to the “WARM” area. This is a positive sign that suggests that activity is beginning to accelerate, although at a slow pace. The chart also indicates that in previous times, the ratio entered this phase, and Bitcoin experienced an upward movement in prices. 

Hence, the” WARM” zone implies growing bullish tones, but caution is still advised. Market conditions have also been affected by factors such as inflation concerns, geopolitical problems, and interest rate changes. Such external factors are still keeping the market from quickly bouncing back to enter the ‘HOT’ phase. 

Broader Applications Beyond Bitcoin

Such similar metrics can be worked out for every other token that has enough on-chain activity to draw patterns, providing people with signals about the sentiment and momentum for multiple assets. Thus, tools of this kind will continue to be helpful in tracking the dynamics of short-term holders and for modeling price changes in the growing crypto market.

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