Written by: UkuriaOC, CryptoVizArt, Glassnode Proofread by: Akechi, Anna
Currently, the price of Bitcoin continues to consolidate not far below its historical peak, and long-term investors have begun to accumulate Bitcoin assets again for the first time since December 2023. At the same time, as the first batch of Ethereum spot ETFs were historically approved for listing in the United States, the price of Ethereum rose by 20% accordingly.
Summary
Although the prices of Bitcoin and Ethereum have been trading sideways with small fluctuations since March, the markets for both assets have shown relative strength after a long period of consolidation following their historic price peaks.
The U.S. Securities and Exchange Commission (SEC)’s approval of an Ethereum spot ETF surprised the market, causing ETH prices to rise by more than 20%.
Net flows of U.S.-based Bitcoin spot ETFs turned positive again after four weeks of net outflows, suggesting a recovery in demand from the traditional financial sector.
Selling pressure among long-term holders has dropped significantly, while investor behavior has returned to asset accumulation patterns, suggesting the market needs higher volatility to power the next wave.
Poised to rebound
After reaching its lowest point since the FTX crash (-20.3%), Bitcoin price began to recover towards its all-time peak, reaching $71,000 on May 20. Compared to previous situations, the pattern of price retracements in the 2023-24 uptrend seems to be very similar to the retracements that occurred in the 2015-17 bull market.
The 2015-17 uptrend occurred during the infancy of Bitcoin, when there were no derivatives available to analyze the asset class. But now we can compare it with the current market structure, and the analysis shows that the 2023-24 uptrend may be mainly from the spot-driven market. The launch and inflow of US spot ETFs just support this assertion.
Figure 1: Bitcoin bull market adjustment retracement
Since the lows created by the FTX crash, Ethereum has seen significantly smaller corrections compared to previous cycles. This market structure suggests that market resilience is increasing to some extent between each successive pullback, while downside volatility is decreasing.
However, it is worth highlighting that Ethereum has been slower to recover relative to Bitcoin. Over the past two years, ETH has significantly underperformed compared to other top crypto assets, which is mainly reflected in the relatively weaker ETH/BTC ratio.
Nonetheless, the approval of a U.S. Ethereum spot ETF is a broadly unexpected development that could provide the necessary catalyst to spur strength in the ETH/BTC ratio.
Figure 2: Ethereum bull market adjustment retracement
If we consider the rolling performance of the Bitcoin market on a weekly, monthly, and quarterly timeframe, we can see strong overall performance with gains of 3.3%, 7.4%, and 25.6%, respectively.
To highlight periods of particularly strong price performance, we can count the number of days over a 90-day window where all three timeframes have experienced upward performance of more than 20%. So far, only five days have reached this threshold in the last quarter.
In previous cycles, this value was generally between 18 and 26, which suggests that the current market may be more cautious relative to historical bull markets.
Figure 3: Bitcoin quarterly, monthly and weekly market performance (historical analysis)
We can evaluate Ethereum within a similar framework and see the massive impact that the Ethereum ETF approval had — the news triggered almost immediate buy-side pressure, leading to the first price moves of more than 20% across all three timeframes since late 2021.
Figure 4: Ethereum quarterly, monthly and weekly market performance (historical analysis)
ETF buyers return
At the beginning of March, Bitcoin price surpassed the new high of $73,000, and at the same time, supply from long-term holders was flooding into the market as they sold aggressively. This seller situation created an oversupply, which led to a period of price correction and consolidation. Over time, the lower Bitcoin price and sellers' investment potential that this situation brought began to give way to a new market trend of re-accumulation of the asset.
We can see this in Bitcoin ETF flows, which turned to net outflows throughout April. As the market sell-off drove Bitcoin prices down to local lows around $57,500, ETFs saw massive net outflows of up to $148 million per day. However, this proved to be just a short-term collapse in confidence, and the market trend has since reversed sharply.
In the penultimate week of May, the Bitcoin ETF experienced a massive $242 million in daily net inflows, indicating that buy-side demand has returned. Considering the natural selling pressure from miners since the Bitcoin halving is $32 million per day, the buying pressure on the ETF has almost surged 8 times. This highlights the huge scale and volume of the impact of the Bitcoin ETF, but also shows that the halving event has a relatively small impact.
Figure 5: Bitcoin ETF flow & net inflow of issuing trading platforms (7-day moving average)
Return to the euphoric stage
The % of circulating supply in profit metric provides valuable information about each market cycle, as well as a set of recurring patterns. In the early stages of a bull market, when prices attempt to reclaim previous historical peaks, the % of supply in profit crosses a statistical threshold of around 90%. A break of this statistical threshold marks the beginning of the pre-euphoric phase of the market, which historically attracts investors to take profits from the table.
In this situation, the selling pressure generated in the market usually comes from long-term holders - at this stage, they will seize the opportunity to sell assets at high prices and seek to take profits, especially after enduring the downward volatility of the entire bear market. Their impulse to sell assets at this stage is particularly obvious.
As new price discovery is completed and Bitcoin prices break through new historical peaks, the market begins to enter the euphoria stage, and in the next 6-12 months, the profit supply begins to fluctuate around the 90% level. The current market is still in the early stages of the euphoria stage, but it has also been active for about 2.5 months. As of the time of writing this article, 93.4% of the Bitcoin assets in the market supply are in a profitable state.
Figure 6: Bitcoin supply profitability
Another tool we can use to monitor corrections is the size of unrealized losses held by investors. Given that unrealized losses near historical peaks in price represent “local head buyers,” we can assess the fraction of supply assets that fall within a 90-day rolling window of losses. The goal is to assess the percentage of Bitcoin assets that are in the black relative to local price peaks.
Mechanistically, these deep declines occur as new capital enters the Bitcoin network, absorbing the buying pressure created by investors reallocating their assets during local uptrends, and this new capital then suffers losses in the subsequent price correction.
The depth of the retracement in the current uptrend is also similar to that of the 2015-2017 bull run, which again proves that the market is still relatively strong. This also shows that although Bitcoin's local price peak has been refreshed again, investors do not seem to be buying too many Bitcoin assets at too high a price.
Figure 7: Bitcoin supply profit quarterly retracement
"Diamond Hands" Dominate the Market
(Note: "Diamond Hands" refers to investors who hold highly volatile financial assets and hold on to them even under extremely high selling pressure)
As prices rise due to new buying pressure, the importance of selling pressure from long-term holders grows. Therefore, we can measure the incentives to sell by evaluating the unrealized profits of the long-term holder group, and the actual sellers by evaluating their realized profits.
First, the MVRV ratio of long-term holders reflects their average unrealized profit multiple. Historically, the transition phase between bear and bull markets has seen long-term holders trade at a profit of more than 1.5 but less than 3.5 and this phase can last one to two years.
If the market's upward trend continues and eventually forms a new historical price peak in the process, the unrealized profits of long-term holdings will expand, which will greatly increase their desire to sell and eventually lead to a certain degree of seller pressure, gradually exhausting the demand appearing in the market.
Figure 8: MVRV of long-term Bitcoin holders
To conclude this analysis, we will assess the spending rate of long-term holders by looking at the 30-day net position change in supply from long-term holders. The market experienced its first major asset allocation from long-term holders in March, as Bitcoin was heading towards a new all-time high.
In the past two bull markets, long-term holders have seen a net allocation rate of 836,000 to 971,000 bitcoins per month. Currently, net selling pressure from them peaked at 519,000 bitcoins per month at the end of March, of which about 20% came from holders of the Grayscale ETF.
After this period of “squandering,” the market entered a period of cooling off, with local accumulation of assets causing the total supply from long-term holders to grow by about 12,000 bitcoins per month.
Figure 9: Changes in long-term holders and Grayscale’s ETF holdings
Summarize
After Bitcoin hit an all-time high of $73,000, seller pressure shrank significantly as a large number of long-term holders began to reallocate their Bitcoin assets. Subsequently, long-term holders began to re-accumulate Bitcoin for the first time since December 2023. In addition, the market demand for spot Bitcoin ETFs also rebounded significantly, which led to positive inflows in the market and reflected huge buy-side pressure.
In addition, with the SEC’s approval of the U.S. Ethereum spot ETF, the playing field between Bitcoin and Ethereum has become evenly matched. This allows digital assets to further deepen their presence throughout the traditional financial system and is also an important step forward for the industry.
