Original source: Glassnode
Compiled by: Tao Zhu, Golden Finance
Summary:
Despite the chaotic price action, investor profitability remains strong, with an average unrealized profit of approximately 120% per coin.
The demand side is strong enough to absorb seller pressure and HODLer withdrawals, but not enough to fuel further upward growth.
Spot and carry trades continue, especially the increase in institutional traders, which temporarily enhances expectations for range trading.
Market profitability remains strong
Sideways price movements tend to manifest as investor boredom and apathy, which appear to be the dominant reactions across all Bitcoin markets. BTC price is consolidating within a mature trading range. Investors remain generally well-positioned, with over 87% of circulating supply in the black and a cost basis below spot prices.
Using the MVRV metric, we can assess the size of unrealized profits held by the average investor.
Currently, unrealized profits on common token holdings are around +120%, which is typical of previous markets trading around the previous cycle’s ATH. The MVRV ratio remains above its annual baseline, indicating that the macro upward trend remains intact.
We can use the MVRV ratio to define pricing bands that assess extreme deviation points in investor profitability relative to long-term averages. Historically, a breakout of 1 standard deviation coincides with the formation of a long-term macro top.
Currently, BTC price is stabilizing and consolidating within a range of 0.5 to 1 standard deviation. This once again highlights the statistically high profits held by average investors despite recent volatile market conditions.
When the market decisively broke above the 2021 ATH, there was significant investor allocation, driven primarily by the long-term holder group. This reflects substantial profits, which helps increase active trading and liquidity provision.
Typically, following a new ATH, the market needs ample time to consolidate and absorb the excess supply introduced. This results in a decrease in realized profits and seller pressure as equilibrium is established.
Reduced seller pressure and profit-taking will naturally reduce market resistance. Nonetheless, BTC price has been unable to sustain significant upward momentum since March ATH. This suggests that while the demand side was stable enough to keep the market range-bound, ultimately growth was not enough to re-establish upward momentum.
Low trading volume
Despite good investor profitability, the number of transactions processed and transferred on the Bitcoin network has dropped significantly after hitting all-time highs. This highlights waning speculative appetite and growing market hesitancy.
A similar situation can be observed when evaluating spot trading volumes on major centralized exchanges. This shows a strong correlation between settlement volume and trading volume on the chain, reflecting investor fatigue.
Exchange activity drops sharply
Drilling a little deeper, we can examine on-chain inflows to exchanges denominated in BTC, and again we notice a significant reduction in activity.
Currently, short-term holders are sending approximately 17,400 BTC to the exchange every day. However, this is significantly lower than the peak of 55,000 BTC/day recorded in March when the market reached highs of $73,000, when speculative levels became too high. Conversely, inflows from long-term holders to exchanges have been relatively low, currently at a paltry 1000+ BTC per day.
We can visually see the sharp drop in LTH investor activity through the percentage of long-term holder balances being sent to exchanges.
LTH sent just under 0.006% of its total holdings to exchanges, suggesting that the group has reached equilibrium and requires higher or lower prices to spur further action.
Currently, there are more token transfers in profit (11,000 BTC) than in losses (8,200 BTC). This shows that, although the amplitude is relatively small, there is still an overall tendency to be dominated by profits.
Currently, the average token sent to the exchange realizes a profit of approximately +$55,000 and a loss of -$735 respectively. This makes profits on average 7.5 times higher than losses, with only 14.5% of trading days recording a higher ratio.
This means that HODLers are still withdrawing funds, and demand is enough to absorb seller pressure, but not enough to push market prices higher. This suggests that the market structure favors range traders and arbitrage strategies more than directional and trend trading strategies.
Cash and arbitrage based trading
Another tool that allows us to describe the spot market is spot cumulative volume delta (CVD). This indicator describes the net deviation, in U.S. dollars, of buying volume versus selling volume among market takers.
Currently, net seller bias dominates the spot market, but the market continues to trend sideways. This is consistent with the view above that the demand side roughly equates to seller pressure, keeping the market range-bound.
In assessing the futures market, we note that open interest continues to rise and is now over $30 billion, slightly below previous highs. However, as highlighted in WoC-23, a significant portion of this portion of open interest relates to market-neutral spot and arbitrage trades.
In range-bound markets, an increase in open interest could mean an increase in volatility-capturing strategies, as traders can capture premiums from perpetual swaps, futures, and options markets.
The sharp increase in open interest on the Chicago Mercantile Exchange highlights the increasing participation of institutional investors. CME currently holds more than $10 billion in open interest, accounting for nearly a third of the global market share.
In stark contrast to the increase in open interest, futures trading volumes have seen similar declines, as have spot markets and on-chain transfer volumes. This suggests that speculative interest is relatively low, while fixed basis trades and carry positions dominate.
Summarize
Despite market volatility, average Bitcoin investors have remained largely profitable. However, investors' decisiveness has declined, and the trading volume of spot, derivatives markets and on-chain settlement has shrunk.
Demand and sellers appear to have established a balance, resulting in relatively stable prices and significantly lower volatility. The lull in market movement leads to a level of boredom, apathy and indecision among investors. Historically, this suggests that a decisive price move in either direction is necessary to stimulate the next round of market activity.
(The above content is excerpted and reprinted with the authorization of partner MarsBit, original text link | Source: Golden Finance)
Statement: The article only represents the author's personal views and opinions, and does not represent the objective views and positions of the blockchain. All contents and opinions are for reference only and do not constitute investment advice. Investors should make their own decisions and transactions, and the author and Blockchain Client will not be held responsible for any direct or indirect losses caused by investors' transactions.
〈Glassnode: What does the decline in investor activity mean? Who does the current market structure benefit? 〉This article was first published in "Block Guest".
