Recently, the price of Bitcoin is trying hard to return to its historical peak. In this article, we will examine the contribution of both long-term and short-term holder groups to the supply and demand side of the market during this period. As a complement to this research, we will also use new segmentation indicators to evaluate the impact of the consumption and investment behaviors of different sub-groups of long-term investors on the market.
Summary
Since Bitcoin hit an all-time high of $73,000 in March, upward momentum has stalled and the market has been trading sideways accordingly. According to our analysis, the momentum in market demand has turned positive to negative since early May.
This article will analyze the cost basis of short-term investors and use it as a benchmark to analyze how capital flows into the market at the current stage.
To analyze what role the supply side plays in the market, this article examines the investment activity of long-term holders and finds that the unrealized profits held by this group are statistically well below previous historical peaks.
Looking at the behavior of long-term holders selling their Bitcoin assets, it can be seen that although the Bitcoin assets sold by this part of investors only account for 4%-8% of the total market sales, the gains they make by selling these Bitcoins The profits obtained usually account for 30%-40% of the accumulated profits during the bull market. This discovery highlights the fact that market profits are concentrated in those Bitcoins that have been held for a long time. These profits are gradually realized in the bull market, and their huge profits fully live up to these "diamond hands" (referring to the violent turmoil). Investors who remain firm in holding high-risk assets like Bitcoin despite market volatility are waiting patiently.
Market demand side tracking
In a previous analysis article, we proposed a method to track the capital flowing into or out of the market, determine the direction of these capital flows in the market, and estimate its size. Here, we will continue to use this method, using the time of holding Bitcoin assets as a scale, to subdivide the short-term holder group, and continue to deepen our analysis:
When the cost basis of the short-term holder group rises, it indicates that new buyers are purchasing the Bitcoin asset at a higher price. At this point, capital is in a state of net inflow into the market (and vice versa).
We can use the MVRV ratio to approximate the unrealized profits held by each group when the spot price deviates upward (or downward) from the current cost basis.
We can use MVRV to assess the incentive for investors to take profits (when MVRV reaches high levels), or to spot signs of seller exhaustion (when MVRV falls to low levels).
First, we compare the spot price to the cost basis of two groups of short-term investors:
Holders of Bitcoin assets between 1 week and 1 month.
Holders who have held Bitcoin assets for between 1 month and 3 months.
From this, we were able to determine how capital flows and changes from a general economic perspective when the market is in the early stages of a bull market and a bear market respectively. The chart below shows how these two price models could support the overall market during a bull run in 2023-24.
Since mid-June, the spot price of Bitcoin has fallen below the cost basis ($68,500) for holders with a holding period of 1 week to 1 month, and has even reached the cost basis of holders with a holding period of 1 month to 3 months. below the owner’s cost basis ($66,400). Based on historical experience, if this situation continues, it will cause a hit to investor confidence and may lead to a deeper price correction. And there is no doubt that the market will take longer to recover from such a deep correction.
Figure source: Glassnode Figure 1: Realized prices for short-term holder segments with different holding periods
We can also describe current market momentum by comparing the respective cost bases of these different short-term investor segments. The details are shown in the figure below:
Capital inflow: At this time, the cost basis of short-term holders who hold the currency for 1 week to 1 month is higher than the cost basis of investors who hold the currency for 1 month to 3 months. At this time, the positive momentum of the market is very obvious, and strong market trends are constantly attracting new capital to enter the market.
Capital outflow: At this point, the exact opposite situation occurs in the market - that is, the cost basis of the former falls below the cost basis of the latter. This market structure indicates that the momentum on the demand side is weakening and the market is starting to experience net outflows of capital.
In previous bull markets, this negative capital flow structure occurred a total of five times. In addition to this, we can see that this structure has been forming since May and continues until early June.
Figure source: Glassnode Figure 2: Fund flow of short-term holders
Market Supply Side Analysis
In order to fully understand the current market, we need to introduce indicators related to long-term holder behavior for further analysis. The long-term holder group is the main provider of market supply during bull markets, as they seek to take profits by selling their Bitcoin holdings in the market. In a sense, the formation of market cycle tops can be attributed in part to long-term holders increasing their efforts to sell Bitcoin. A sell-off of this magnitude will eventually exhaust the funds that poured into the market during the bull market. new demand.
In the chart below, we compare two important metrics: the Bitcoin spot price and the key multiple of the average cost basis of the long-term holder group (i.e., the realized price of the long-term holder group).
1.0x long-term holder group realized price (green line in the graph): In terms of our historical experience, the occurrence of this situation is consistent with the bottom formation stage of the bear market cycle and the market recovery stage.
1.5 times the realized price of the long-term holder group (orange line in the figure): This price position is often regarded as the watershed between the market recovery phase and the long-cycle market equilibrium phase during the bull market. During this period, although the price of Bitcoin will continue to rise, the rate of increase will be very slow. On average, long-term holders hold about 50% of unrealized profits at this stage.
3.5 times the long-term holder group realized price (red line in the chart): This price is the dividing line between the equilibrium phase and the euphoria phase of the bull market. Once this stage is reached, Bitcoin prices typically rise rapidly. Moreover, at this stage, the unrealized profits held by long-term holders are about 250% or even higher. Stimulated by such high profits, long-term holders tend to accelerate the selling of their Bitcoin holdings. assets.
If we apply the above framework to the current cycle, we can see that from a general economic perspective, the current bull market trend is very similar to the 2017 cycle. What is particularly similar between the two is that when the price of Bitcoin was consolidating below the current historical peak, the market performance was consistent with the 3.5 times long-term holder group achieved price point (shown as the red line in the figure). This picture of the watershed between the equilibrium and euphoric stages is entirely consistent.
Figure source: Glassnode Figure 3: Average cost basis multiple of long-term holders
The measure of unrealized profits held by long-term holders can be viewed as a psychological benchmark to assess whether they are willing enough to sell their Bitcoin holdings in order to take profits. We can use the LTH-NUPL (Long-Term Holders Net Unrealized Profit/Loss) indicator to visually demonstrate the psychological motivations of long-term holders when making investment decisions.
At the time of writing, LTH-NUPL is 0.66, which indicates that the market is currently in the "pre-euphoria" stage (shown as the green line in the chart). The Bitcoin market has been in this phase for 96 days now, and it was also in this phase for that long during the 2016-17 cycle.
Figure source: Glassnode Figure 4: NUPL indicator for long-term holders (LTH-NUPL)
Using the long-term holder spending binary indicator, we can determine the time period at which long-term holders will sell their Bitcoin holdings en masse. There is no doubt that during such a period of concentrated selling, the total balance of assets held by long-term holders will decline significantly.
This allows us to identify the different stages in which long-term holders sell off assets:
During the weak sell-off period, Bitcoin supply from long-term holders has been declining on at least 3 days in the past 15 days.
During a normal sell-off period, Bitcoin supply from long-term holders has been declining for at least 8 of the last 15 days.
During the strong selling period, Bitcoin supply from long-term holders has been declining for at least 12 of the last 15 days.
Figure source: Glassnode Figure 5: Binary indicator of long-term holder spending (last 15 days)
Our next chart aims to combine the two models mentioned above to comprehensively assess and visualize long-term investor sentiment and investment behavior. In the following derivation, we will comprehensively analyze what motivations make them decide to cash in profits (or losses) and choose to exit, and how they actually do so.
We consider four different motivations that lead long-term investors to liquidate their assets and exit:
Capitulation: This is when the spot price of Bitcoin falls below the cost basis of long-term holders. Therefore, any significant sales of Bitcoin assets during this phase can be attributed to a collapse in investor confidence and panic selling.
Transition: This is when the spot price is slightly above the cost basis of long-term holders, who occasionally sell small amounts of their Bitcoin assets. Such sporadic sales are generally considered typical day-to-day transactions.
Balance: When the market recovers from a long-term bear market, it will achieve a new balance between the three-way game of small inflows of new demand, weakening liquidity, and gradual profit-taking by underwater holders from the previous cycle. During this phase, large asset sales from long-term holders are often associated with a sudden rebound or pullback in price.
Euphoria: As a sign of this phase, the LTH-MVRV indicator will cross the threshold of 3.5 and converge with the level where the indicator reached when the market reached its historical peak in the previous cycle. At this stage, the long-term holder group held an average of more than 250% of unrealized profits, thus pushing the market into a euphoric upward phase, which prompted these long-term holders to accelerate the dumping of large amounts of their Bitcoin assets. , in order to seek profit-taking.
Through this method, we can see that the long-term holder group has experienced large-scale asset selling behavior in the fourth quarter of 2023 and the first quarter of 2024, which pushed the market higher during this period and continued to rise in the second quarter of 2024. and then re-enter a new equilibrium state.
Figure source: Glassnode Figure 6: Selling behavior of long-term holders and the resulting profits and losses
Who is influencing seller pressure?
The above analyzes the different logic behind the selling behavior of this group of investors during a period when the total supply from long-term holders decreases. In addition, we can also look at the segmented groups with different holding times and see who has played a decisive role in the changes in seller pressure in the market.
Figure source: Glassnode Figure 7: Coin age stratification in market Bitcoin supply
In order to assess the extent to which each segment among long-term holders impacts Bitcoin spending in the market, we will focus on this time period: Bitcoin spending in the market is higher than the annual average. out by at least one standard deviation.
While every investor group experiences occasional bursts of spending, the frequency of high-spending days increases dramatically during the manic phases of a bull market. This shows that during the period when the price of Bitcoin is rising rapidly, long-term holders will invariably choose to profit and exit.
Figure source: Glassnode Figure 8: Spending of long-term holder groups (Z-score)
Considering that only 4%-8% of the daily on-chain trading volume in the current time period is related to the long-term holder group, we will analyze them using another core on-chain metric (realized profit/loss) The relative weight on the supply side of the market.
Figure source: Glassnode Figure 9: Bitcoin age stratification (SVAB) of market spending (30-day moving average)
The chart below shows the cumulative amount of realized profits for long-term holders during bull markets. We find that profits from long-term holders typically account for 20% to 40% of total locked profits.
Furthermore, although the trading volume of Bitcoin assets from long-term holders only accounts for 4% to 8% of the total daily trading volume, the profits generated by them can account for up to 40% of investors' profits.
Figure source: Glassnode Figure 10: Realized profits in a bull market
Summarize
Since early March, the market has seen mostly sideways price action. Therefore, we used the cost basis of long-term and short-term holders respectively to assess the current degree of supply and demand in the market.
We built a toolset to estimate trends in capital inflows into the Bitcoin network based on changes in the cost base of short-term investor segments. The results confirm that March’s all-time high was followed by a period of net capital outflows (the trend indicator was negative).
After that, we will further subdivide the long-term holder group according to the holding period, and discuss the investor groups after each subdivision. The conclusion of this analysis shows that the frequency of high spending days increases dramatically during the euphoric phase of a bull market. Interestingly, although trading volume from long-term holders accounts for only 4% to 8% of total daily trading volume, profits from this group account for 40% of investors’ total profits.
[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.
This article is reprinted with permission from: "Foresight News"
Original author: UkuriaOC, CryptoVizArt, Glassnode
Compiled by: Akechi
