Editor's note:
This report is translated from glassnode’s (The Week Onchain Newsletter: Higher High). Compare Bitcoin’s striking similarities across different market conditions by comparing its price performance following the past three bear market lows. Through on-chain data, the financial status of long-term and short-term holders is discussed, and it is pointed out that although long-term holders are in losses, their financial pressure is relatively controllable, and the profitability of short-term holders has gradually recovered. As for whether the "Uptober" market can be completed in October, let us wait and see!
Highlights
Comparing Bitcoin’s cyclical price performance since the bear market lows, striking similarities emerge over the past three cycles, with the indexes being in almost the same position.
As a large number of Bitcoins purchased near the all-time high of 73,000 crossed the 155-day threshold, the amount of coins in the red increased for long-term holders.
However, the size of unrealized losses held by these investors remains small, suggesting limited financial stress on their portfolios.
Profitability for short-term holders has improved significantly during the recent rally, bringing relief to recent buyers of the coin.
Although position holders were in the red on a cost-average basis of inflows, U.S. ETF investor sentiment remained relatively solid, with only modest selling pressure.
💡 To see all the charts for this report, visit the "The Week On-chain" dashboard.
cycle navigation
Last week, Bitcoin markets rallied back toward the 66,000 area, marking its first technical high since June. This price action is the first indication that a structured downtrend may be approaching a phase transition.
The market pulled back to 60,000 earlier this week and is currently trading at 61,700.
Picture source: glassnode real-time chart-Bitcoin price performance
When we evaluate Bitcoin's price performance from cycle lows, the performance is remarkably similar despite extremely different market conditions. Why Bitcoin has followed such a similar trajectory has been a source of debate, but it still provides analysts with an interesting framework for thinking about cycle structure and duration.
The recovery processes in 2015-16 🔵, 2019-20 🟢 and 2023-24 ⚫ show strange similarities.
Figure source: glassnode data dashboard - Evaluating Bitcoin’s price performance at cycle lows
Misleading long-term holder losses
One of the most powerful tools of on-chain analysis is our ability to assess how many coins are in profit or loss, and the size of investors’ unrealized paper gains/losses. We can strengthen this analysis by leveraging different groups of holders (long-term and short-term holders).
We can compare the long/short holder supply ratio to assess the balance between these two groups. This perspective shows that a large number of coins are converting to long-term holder status, pushing the ratio to its highest level since mid-2021.
This shows that HODLing (holding and not selling) is still the dominant behavior among Bitcoin investors.
Image source: glassnode data dashboard-long/short holder supply ratio
However, we also see a significant rise in the long-term holder supply in unrealized losses. This can be attributed to coins purchased near the all-time high of 73,000, which are now starting to cross the 155-day threshold.
While unrealized losses can be interpreted as a form of financial stress felt by investors, long-term holder supply tends to hold on during periods of volatility.
Image source: glassnode data dashboard - Significant rise in long-term holder supply in unrealized losses
If we break down the total supply in losses by the proportion of long-term holders, we see a significant increase in their dominance, with this group now accounting for 47.4% of all coins in losses.
Again, a similar situation to 2013, 2019 and 2021 is occurring, when investors entered a re-accumulation phase.
Image source: glassnode data dashboard - total supply in proportion to long-term holders
Although long-term holders account for 47.4% of the supply of losing coins, the size of the unrealized “paper” losses held by these coins remains relatively small.
This is a constructive observation as it suggests that although many "buyers of the high" are technically in the red, their portfolio drawdowns are relatively small and financial stress can be interpreted as minimal.
Picture source: glassnode real-time chart - long-term holders have not realized "book" losses
Improved profitability for short-term holders
To balance this equation, we can also focus on the short-term holder group, which is a pool of new demand in the market that typically responds more quickly to market fluctuations.
The MVRV indicator for short-term holders describes the average unrealized profit and loss of short-term holders. This indicator has fallen below the equilibrium value of 1 multiple times in recent weeks, describing a group of short-term holders who, on average, hold unrealized losses.
However, the depth and duration of the break below 1.0 differs from previous bear market structures such as 2022. There is also a slight positive divergence, with prices essentially flat over the past month, but STH-MVRV is rising.
These observations suggest that positioning and profitability are improving for new investors, similar to the long-term holder group, and that this financial stress may not be as severe as a typical bear market situation.
Picture source: glassnode real-time chart-short-term holders MVRV
The percentage of supply that is in profit for short-term holders tells a similar story, with over 62% of the supply now in profit. Two key insights can be drawn from this:
The cost basis for large short-term holdings of coins is between 53,000 and 66,000
The percentage of short-term holdings of the coin supply that are profitable is hitting higher highs, again indicating that their profitability is improving and easing the financial pressure on this group.
This bounce also brings the profit percentage close to the indicator's long-term average, which is a noteworthy bounce.
Figure source: glassnode data dashboard - percentage of short-term holder supply that is in profit
The profit/loss ratio realized by short-term holders also rebounded significantly, returning to a positive value, and the amount of realized profits was 14.17 times that of realized losses. From a structural perspective, this provides additional evidence of improvements in the market, suggesting that the market is in a better position relative to a few weeks ago.
Figure source: glassnode data dashboard - Profit/loss ratio realized by short-term holders
Institutional needs
The institutional demand for compliant Bitcoin exposure is staggering. Total assets held by U.S. spot ETFs are now worth $58 billion and hold approximately 4.6% of Bitcoin’s circulating supply.
We can also see a recent boost in ETF balances due to the inclusion of “Bitcoin” instrument holdings related to the Grayscale Bitcoin Mini Trust.
Chart source: glassnode real-time chart - total assets held by U.S. spot ETFs
With BlackRock, Fidelity, and Grayscale becoming the largest U.S. spot ETFs, we can look at the price of Bitcoin deposited into an ETF as a way to estimate the average acquisition cost basis. The cost basis of these tools ranges from 54,900 to 59,100.
This cost basis model can be used to estimate the break-even point for ETF investors as an indicator of psychological stress points based on their unrealized profits and losses. As we can see, prices have tested the breakeven levels of these ETFs at three key points since July.
Figure source: glassnode data dashboard - US spot ETF deposit cost basis
Since ETFs are a relatively new element in the Bitcoin market structure, contrasting their market impact with traditional spot markets helps put their impact into a broader context.
In the last chart, we assess the proportion of positive net inflows associated with the introduction of ETF instruments.
Next, we compare the value of investing in the ETF 🟩 to the net inflows 🔴 of the overall Bitcoin asset, as assessed by the change in realized market capitalization over the same period.
The results show that 4% to 5% of total net inflows into the Bitcoin market can be correlated with flows into U.S. spot ETFs since early January. Given that this is consistent with the proportion of total supply they hold, we have a reasonable benchmark against which to assess their market impact.
Image source: glassnode data dashboard-ETF capital inflow
Summary of this week
The recent market rally showed early signs that some market structures may be starting to shift, with Bitcoin setting its first technical higher high since highs of 73,000.
The long-term holder group is largely in dominant HODLing and accumulation mode, while short-term holders have seen a significant pickup in profitability. Across multiple metrics, the average Bitcoin investor is in a better profitable position than a few weeks ago, with generally less financial stress.
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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.
