Author: Glassnode, Marcin Miłosierny; Translated by: Tao Zhu, Golden Finance
Summary:
Monthly Overview: In April, despite high volume and strong ETF inflows at the beginning of the month, Bitcoin faced consolidation pressure, trading between $60,000 and $66,700, mainly due to short-term holder selling. Meanwhile, the Ethereum ecosystem sparked a heated debate over changes to staking rules, highlighting concerns about its future as a scalable platform and monetary asset.
Market Momentum: Currently, Glassnode’s composite momentum index suggests that the market is cooling down. Several key indicators have entered a downtrend phase, indicating reduced demand and slowing positive momentum.
Metric Spotlight: Miner Revenue Momentum uses the proportion of miner fee revenue to assess block space demand and highlights key inflection points via a 2-year rolling Z-score. High Z-scores indicate increased network activity and congestion, while low Z-scores indicate decreased demand and a potential market cooling.
Investor behavior in digital asset markets appears to be driven by two main emotions in April 2024: anticipation of Bitcoin’s fourth halving and disappointment with the ensuing lackluster price action. While halvings have historically proven to be long-term bullish events, in the short term they tend to trigger a sell-off news reaction in the market.
For example, despite the long-term bullish impact of Bitcoin supply reductions, similar events in 2016 and 2020 also led to immediate market adjustments. This year, macroeconomic uncertainty and geopolitical tensions exacerbated the impact, causing the Bitcoin price to fall 16.09% in the weeks following the halving.
Likewise, Ethereum has also experienced significant volatility, with its price falling by 17.80%, in part due to ongoing U.S.-related uncertainty. Watch for the approval of the Ethereum ETF and the debate within the community over the proposed staking policy changes.
This reaction reflects the broader market’s sensitivity to major anticipated events, with traders often taking profits leading to a short-term sell-off. In our extensive coverage of the halving and its expected impact, we correctly anticipated that such a sell-off would occur.
In this edition of Financial Bridge, we explore the continuing influence of the United States. Even amid the broader market pullback, spot ETFs significantly supported trading volumes in April. We will also provide an update on factors that may impact Ethereum’s currency characteristics and its technological suitability for the DeFi space.
Monthly Market Overview
Bitcoin continued its strong performance in the first few weeks of April, supported by a surge in spot trading and on-chain transaction volume. After peaking in mid-March with spot trading volume of approximately $14.1 billion, the price of Bitcoin has been consolidating between $64,000 and $73,000. This price level has been driven primarily by US spot ETFs, which have become a significant force in the market, introducing a large amount of new demand and helping to maintain price levels above historical highs.
Daily spot trading volumes, while down from a peak in mid-March to around $7 billion per day, still reflect the strength of the 2020-2021 bull run. Strong volumes underscore the continued optimism in the market, characterized by a net buy bias in the cumulative volume delta (CVD). This indicator measures the net amount of buying versus selling, highlighting continued speculative interest and widespread bullish sentiment among traders.
Additionally, trading flows (both inflows and outflows) are very high, averaging $8.19 billion per day, significantly exceeding peak levels observed during the last bull run. While Binance still has a significant market share in spot trading (37.5%), its dominance has declined from higher levels in previous years, indicating that market activity across platforms is expanding.
Impact of Halving
In mid-April, Bitcoin experienced its fourth halving event, which reduced the daily supply inflation rate by 50% and the annual issuance rate to 0.85%. This reduction strengthened Bitcoin's hard currency status and marked the first time that Bitcoin surpassed gold in terms of issuance scarcity.
At the same time, the reduction in issuance has not had a significant impact on market dynamics, as newly mined tokens account for only a small percentage compared to global trading volumes. Spot and derivatives volumes continue to dominate the market, with new supply accounting for less than 0.1% of total capital flows.
Bitcoin, on the other hand, reached new milestones on several important metrics. The network’s fundamentals are showing significant trends across various metrics. Network computing power has reached an all-time high as miners invest in efficient hardware and optimize operating costs, ensuring that reduced issuance does not impact security budgets. The investment shows that subsidy reductions are not a barrier for miners.
Although the growth rate of network statistics has declined due to the expansion of the ecosystem, the absolute values of these indicators have reached new highs. In particular, over the past four years, a total of $106 trillion in value has been transferred and settled through the Bitcoin network. This impressive figure highlights Bitcoin's ability to maintain its position as the main settlement network regardless of volatility and periodic drawdowns.
Responding to market adjustments
In the last week of April, the Bitcoin market entered a consolidation phase following the halving event. Following the March peak of $73,000, the price range was between $60,000 and $66,700. During this period, seller pressure intensified as short-term holders (STHs), especially those who bought BTC in the past 1-6 months, dominated market losses.
Despite the increased selling pressure, the Net Unrealized Profit and Loss (NUPL) indicator suggests that the market is still in the "excitement" phase of the bull market. However, the indicator also shows a meaningful cooling since the correction began. Selling pressure from STHs that have realized significant losses has become a key indicator of local market lows.
We can observe that the cost basis of STH who bought BTC in the past 1 week to 1 month is a key indicator of market sentiment. Their realized losses tend to peak near local market bottoms, which indicates exhaustion among sellers in this group which often signals an impending reversal.
Ethereum’s Development and Controversy
In April, the Ethereum ecosystem found itself at the center of a heated debate surrounding changes to the network’s staking policy. New innovations such as liquidity staking, re-staking, and liquidity re-staking protocols have greatly increased the demand for staking on Ethereum, leading to unprecedented growth in staking participation. Currently, over 31.4M ETH (~26% of total supply) is staked, driven primarily by re-staking protocols such as EigenLayer and liquidity re-staking providers. These developments have brought additional yield opportunities, creating incentives that go beyond the original vision of proof-of-stake.
Proposals to cap annual issuance to slow the expansion of staking pools have been met with strong resistance from the community. Supporters argue that such measures are necessary to preserve Ethereum’s monetary role and prevent derivative tokens from gaining too much influence on the network. Opponents, however, see these limits as a barrier to innovation and argue that changes are not needed. These debates will continue as stakeholders work to balance Ethereum’s monetary policy with the growing demands of decentralized finance.
At the same time, concerns remain that the rapid growth of staking could undermine Ethereum’s functionality as a monetary asset and shift governance power toward derivative projects that issue staking tokens. The future of the Ethereum staking landscape remains uncertain as the community needs to perform this delicate balancing act to protect network scalability and its functionality as a store of value.
Market Momentum - Update and Key Insights from the On-Chain Momentum Framework
Tracking market momentum during a bull run requires detailed analysis of key on-chain data to capture underlying trends and changes in market behavior. Glassnode’s exploratory framework offers a potential approach to this dilemma by focusing on four main categories:
On-chain activity: This metric uses network activity and adoption rates to identify periods of growth and expansion in the user base. Increases in network activity often correlate with rising market momentum.
Market Profitability: By assessing the unrealized profits held by investors, this indicator can identify periods when market participants are making gains, which can indicate a healthy and upward trending market.
Spending Behavior: This category identifies periods when there is enough demand to absorb profit-taking by existing holders. High demand during these periods indicates continued positive momentum.
Wealth Distribution: By examining the transfer of wealth between long-term holders and new market entrants, this indicator provides insights into market cycles and potential turning points.
By integrating these indicators into a composite index, analysts can more fully assess the strength and direction of market momentum. This approach enables traders to make informed decisions based on a nuanced understanding of the market's current state and potential future moves.
Currently, less than 4 of the 8 conditions for strong momentum are met, indicating that the market is in a cooling-off period.
Following the Bitcoin halving event in April 2024, several key indicators changed significantly from previous trends, reflecting a possible short-term shift in market dynamics:
Miner Revenue 2-Year Z-Score: After the halving, miner revenue surged significantly as competition for block space increased, especially with transactions involving runes. While this growth has slowed slightly, income levels remain above historical norms. Recently, however, miner revenue 2-year Z-score entered a downward trend phase for the first time in a month, indicating reduced demand for block space.
Exchange Inflows: Exchange inflows initially maintained above the annual average, peaked in late March, and have since entered a sustained downward trend. This shift suggests that the positive momentum of market inflows is slowing and may soon reverse, indicating that buying pressure is cooling.
Profit Supply Trend: While still trending positive, the profit supply has started to show signs of reversal, both in absolute terms and at the 90-day EMA. The indicator, while still in an uptrend phase, suggests that there are fewer holders in profit, which could affect market sentiment.
MVRV Momentum: Overall market value to realized value (MVRV) momentum remains above its yearly average, indicating that, on average, holdings are still valued above their cost basis. However, short-term holder MVRV has reversed and is now trending down, suggesting that recent entrants into the market are starting to see profits dwindle, which could increase selling pressure.
SOPR Momentum: The Spend Output Profit Ratio (SOPR) momentum is also trending down, with the monthly average recently falling below the annual average. This trend is not yet strong, but suggests that the profitability of trading tokens is decreasing, which may lead to more cautious spending behavior among traders.
Realized P/L Momentum: The shift of this indicator towards negative momentum highlights that realized losses have accelerated during the recent market correction. If the market correction continues, the increase in losses among recent token buyers could trigger panic selling.
Conclusions and Actionable Insights for Momentum Traders
Current market indicators suggest that Bitcoin is going through a consolidation and potential correction phase. Traders should remain cautious as key indicators such as exchange inflows, SOPR momentum, and short-term holder MVRV indicate slowing positive momentum and increasing selling pressure. Changes in miner revenue and cooling SOPR momentum further suggest that demand for Bitcoin at higher price levels may be waning.
For momentum traders, it is critical to closely monitor these downtrends. The potential for a reversal in indicators such as SOPR and Profit Feed could provide a strategic entry point if signs of recovery or stabilization emerge. However, mounting realized losses highlight the need to remain vigilant against potential panic selling.
Indicator focus - Miners' revenue growth momentum
In our analysis of market momentum trends, we highlighted miner revenue momentum. This metric measures block space demand using the proportion of revenue miners earn from fees. Fee pressure increases when users show a higher urgency and are willing to pay higher fees to be included in the next block. By applying a 2-year rolling Z-score to this data, we can normalize the dataset across cycles and spot inflection points, such as rising fees during a bear market waning or falling fees after a cycle peak.
By examining miner revenue momentum, analysts can gauge the intensity of network activity and its impact on miner behavior. A high Z-score indicates above-average miner revenue, often coinciding with rising transaction fees and increased network congestion. Conversely, a falling Z-score indicates a decrease in demand for block space, which could indicate a cooling market or a decrease in transaction activity.
Trends to look for: Increases in miner revenue often correspond to bullish market phases, as high demand for block space often reflects increased transaction activity and network utilization. Conversely, declining miner revenue momentum can indicate waning interest and potential market consolidation.
Historical example: In the days following the April 2024 halving, miner revenue momentum surged significantly due to fierce competition for block space. Similar spikes have been observed during previous halvings and major network events, and are an indicator of strong market activity. The current downward trend in Z-scores marks a shift from that peak, suggesting that speculative enthusiasm may be easing.
Indicator changes: Miner fee income percentage, miner fee Z-score functional area income, miner surrender risk.
