“Bitcoin is consolidating above the on-chain cost-basis of multiple cohorts,” crypto analytics firm Glassnode reported in their latest weekly on-chain newsletter, following a month of rapid upside. As a result, “the typical BTC holder is now in a regime of unrealized profit, indicating a probable turning of the macro market tides,” according to Glassnode.
A 7-Day Exponential Moving Average (EMA) of Glassnode’s Realized Profit/Loss Ratio indicator is one approach to show this return to profitability. “We can see the first prolonged period of profitability since the Apr 2022 exit liquidity event, indicating the beginnings of a change in profitability regime,” Glassnode adds, referring to the chart.
According to Glassnode, if the Realized P/L Ratio (7-Day EMA) falls back below 1.0 with prices at current levels, it would signal a significant increase in realized loss dominance, which could only occur if investors who purchased their coins at a higher cost basis increased their spending.
Momentum in Unrealized Profitability Approaching a Tipping Point
Glassnode also draws attention to a second signal that emphasizes a similar theme. The Net Unrealized Profit/Loss Ratio (NUPL) of Glassnode “shows that the recent rise has launched the spot price of Bitcoin above the average acquisition price of the broader market,” they write. “This puts the market back into a regime of unrealized profit, where the average holding is back in the green”.
Glassnode sees historical parallels between the latest market cycle and previous bear market times in which the NUPL was negative for an extended length of time. The NUPL was negative for 166 days during the current cycle, compared to 157 days in 2011-12 and 134 days in 2018-19. However, this does not rule out the possibility of the NUPL remaining negative for an extended period of time; in 2015-16, it remained negative for 301 days.
“The ratio between the market’s total current unrealized profit and its yearly average can… give a macro scale indicator for a recovering market,” Glassnode says before introducing a new indicator called Relative Unrealized Profitability Momentum.
“This momentum indicator is now reaching the equilibrium break threshold and bears similarity to the recoveries from the 2015 and 2018 bad market years,” according to the crypto analytics firm. “Confirmed breaks above this equilibrium point have traditionally correlated with a transformation in macro market structure,” Glassnode adds.
HODLer Dominance Is Fading, Indicating a Capitulation Phase
The current price recovery in Bitcoin and return to profitability for the majority of the Bitcoin market has corresponded with a minor but significant fall in Bitcoin HOLDERS’ dominance. This is highlighted by Glassnode’s Realized Cap HODL Wave graphic, which shows the percentage of Bitcoins that have lately regained a few percent from late-2022 cycle lows around 12%.
Bitcoin bull markets are often characterized by an increase in the dominance of “young” Bitcoins (i.e. coins purchased by new investors from HODLers), whereas Bitcoin bear markets are defined by an increase in the dominance of coins that haven’t moved in a while. Glassnode claims that “the depth of this inflection point is very much in keeping with historical precedent” in reference to the recent bounce from lows.
Glassnode then presents the Realized HODL Ratio, a little more informative indicator. “This metric compares this balance of wealth held between between 1-week and 1y-2y old coins, producing a macro scale oscillator”, they explain, adding that “higher values indicate a disproportionate wealth held by new buyers and speculators” and “lower values indicate a disproportionate wealth held by long-term, higher conviction HODLers”.
According to the crypto analytics business, the Realized HODL Ratio is currently in a bottom-forming pattern, signifying a net transfer of wealth from HODLers to new investors.
“Signs of Complete Exuberance Detox” This suggests that the bear market may be coming to an end.
Glassnode claims that “there are hints that full detox of enthusiasm has taken place, and a cyclical transition may be begun” in light of the foregoing evidence that the Bitcoin market has returned to net profitability and that wealth may be starting to migrate back to new investors from HODLers.
Indeed, as noted in a previous piece, seven of the eight technical and on-chain indicators analyzed by analysts at crypto analytics firm Glassnode in their “Recovering from a Bitcoin Bear” dashboard indicate that the bottom has been reached. Separately, the Profit and Loss (PnL) Index, a crucial on-chain indicator maintained by crypto analytics firm CryptoQuant, has just given a definitive buy signal for the first time since 2019.
Positive on-chain and technical indicators emerge as Bitcoin’s acceptance by the general public continues, with the number of non-zero balance wallet addresses set to break a new record soon. Meanwhile, long-term market cycle research of Bitcoin, such as a recent thread from @CryptoHornHairs and according to Bitcoin’s stock-to-flow pricing model, indicate that the cryptocurrency is likely in the early stages of a multi-year bull market.
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