According to Glassnode data: The Bitcoin market has experienced a cooling after several months of strong distribution pressure. While inflows remain modest, the bearish bearishness and volatility compression suggest a larger move may be on the horizon.
Executive summary
After a period of significant distribution into ATH, a period of cooling and consolidation has been underway, and selling pressure is clearly returning.
Coupled with lighter selling activity, inflows remained relatively modest, although still in profit-dominated mode and enough to stimulate local price action.
Various volatility measures have compressed during this correction, which often precedes a larger-scale market move, as equilibrium has been reached on-chain.
The supply side slows down
A strong Bitcoin market naturally attracts sell-side pressure, as higher prices motivate long-term holders to distribute some of their holdings. We can see this through the large declines in 1y and 2y Last Active Supply throughout March and April, as long-term investor groups distributed coins to meet new demand in the near term. ATH.
However, the supply held by the 3y+ group continues to increase, suggesting that this group is generally waiting for higher prices before parting with their coins. As of press time, more than half of the Bitcoin coin supply has not traded on-chain in the past 2 years or more.
🔴 Supply Last Active 1y+: 65.8%
🟡 Supply Last Active 2y+: 54.9%
🟢 Supply Last Active 3y+: 46.4%
🔵 Supply Last Active 5y+: 31.3%
The Long Term Binary Spending Indicator (LTH) is another tool we can use to characterize and visualize the magnitude of HODLer distribution pressure. We noted a significant and sustained decline in LTH Supply to an ATH worth $73k in March.
However, over the past few weeks, this distribution pressure has noticeably eased, giving the bulls more breathing room and less resistance overall.
The flip side of the reduction in LTH Supply is, a sharp increase in supply held by Short Term Holders (STH) who represent new investors who recently purchased the coin.
Local divergence is starting to develop between LTH and STH Supply, which adds weight to the case of cooling distribution pressure among mature investors.
The Liveliness Index also captures this change in market characteristics and indicates that the Bitcoin network is seeing a greater volume of coinday creation than destruction. In other words, the market is currently showing a greater preference for holding coins for longer periods of time, rather than actively distributing coins for profit.
The demand side remains modest
Realized Limit is a unique metric for on-chain analytics, measuring the cumulative USD liquidity 'stored' in the asset class. It is currently and sits at a value of $574 billion.
Currently, the rate of new capital flowing into the Bitcoin network has slowed significantly from its peak as the market digests the recently distributed supply.
Therefore, the rate at which Capitalization makes changes each day can be used as a measure for capital flows. The recent liquidity injection during the ATH surge was extremely strong, peaking at a value of $3.38 billion/day. This surpassed the peak of the 2021 bull market and has cooled significantly since then.
Currently, this gauge remains in positive return-dominated territory and is returning to balance. However, with bearish selling headwinds from mature investors, this modest wave of demand has been enough to stimulate price action.
Volatility compression
With supply-side pressures easing, but also capital flows, it becomes prudent to turn to our volatility tools to set our expectations for the next move.
For this, we can use the Sell-Side Risk metric, which evaluates the total value locked by coins spent on-chain (Realized Profit + Realized Loss) relative to the size of the type of asset (Performance term).
A high value indicates that investors are spending coins at large profits or losses relative to their cost basis. This condition indicates that the market may need to find equilibrium again and is often followed by a highly volatile price movement.
Low values indicate that the majority of coins are being spent relatively close to their breakeven cost base, suggesting that balance has been achieved. This condition typically represents the exhaustion of 'profits and losses' within the current price range and typically describes a low volatility environment.
We can see a large decline in the Sell-side Risk Ratio in recent weeks, which suggests that the market has found a degree of balance during this correction.
Live desk
We can also evaluate market volatility by measuring the percentage range between the highest and lowest price ticks over the past 60 days. According to this metric, volatility continues to compress to levels typically seen after extended consolidation and before major market moves.
Live desk
Top heaviness tracking
To that end, we can leverage the URPD metric to evaluate the density of the coin with a cost basis around the current spot price. We use this concept to identify market sensitivity points, where a market move can prompt a reaction from a large number of investors.
With prices moving towards the end of distribution, we note that a significant ~15.9% of the coin supply is held just below the current spot price, potentially providing a strong cluster of support.
In contrast to the dense cluster of coins below, only 1.1% of circulating supply remains above our current spot price, suggesting that sustained demand influx could catalyze a period of volatility price.
Live chart
STH supply is currently at 3.36 million BTC and in the recent correction, over 2.14 million BTC fell into unrealized losses (63.2%). However, as the market rebounded above $70k, this number dropped to just 230k BTC, which is about 6.8% of the total.
This shows that despite the high concentration of coins near the current spot price, there are relatively few of them that are not held at unrealized losses, which significantly reduces the risk of developing a heavy stock level. head.
Live desk
Summary and Conclusion
After an intense period of mature investor distribution into the $73K ATH, selling pressure has decreased markedly. This has resulted in reduced headwinds and overhead resistance, with even only modest demand able to stimulate positive price action.
Besides, volatility continues to compress on longer timeframes, while a dense supply cluster has formed below our current spot price, potentially providing a solid foundation for build.
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