In Glassnode's on-chain analysis, looking at the behavior of short-term holders (STH) versus long-term holders (LTH) yields important insights into the cryptocurrency market. Here's why attention to STH is especially valuable:
Differential Market Behavior and Impact
Short-term holders are often new entrants or speculative traders who are more sensitive to price changes. During bull markets, they often sell to avoid losses when the market fluctuates, contributing to the majority of realized losses. This behavior makes STH analysis very useful for identifying local market bottoms.
Benefits of STH Analysis
1. Determine the Stage of Seller Burnout:
- Dividing STH into detailed age groups helps accurately identify stages of selling out. Observe unrealized loss pressure and capitulation across the shortest (1 day) to longer (1 month) timeframes, providing clear signals of potential local bottoms and market reversals school.
2. Enhance the Ability to Identify Local Bottom:
- By using Breakdown indicators, traders can detect a confluence of capitulation events in different short-term timeframes, increasing the likelihood of identifying a local bottom.
Framework for Determining Market Bottom
1. STH MVRV by age:
- MVRV measures unrealized profit or loss. When MVRV is below average, indicating high unrealized losses, it is a sign of selling pressure.
2. STH SOPR by age:
- SOPR evaluates whether unrealized financial pressure is being realized. A negative SOPR Z-score indicates STH is capitulating and selling assets at a loss.
3. STH has realized losses by age:
- Assess the level of loss done by STH. The high realized loss value confirms that selling pressure has been exerted.
Practical Applications for Traders
1. Early Detection of Local Bottoms:
- Identifying moments of severe losses and capitulation among STHs helps traders detect local market bottoms earlier, creating opportunities for early entry points.
2. Optimized Dollar Cost Averaging (DCA) Strategy:
- Understanding when sellers are exhausted helps execute a DCA strategy more effectively, purchasing assets at lower prices and reducing average acquisition costs.
3. Advanced Market Timing:
- Observing how selling pressure spreads from the shortest to longer timeframes helps traders optimize time in and out of the market, maximize profits and minimize losses.
4. Strategic Flexibility:
- Detailed division of STH into age groups allows this analysis to be applied to different trading strategies, from day trading to swing trading, tailored to specific market conditions.
Conclude
Focusing on short-term holders offers many advantages to traders in identifying market bottoms, optimizing trading strategies and making more strategic and profitable decisions. Using Glassnode's Breakdown indicators provides a powerful tool to enhance analysis and identify market trends.
