Coinmetrics | The bull market has not yet peaked

This article is from Crypto Valley Live, author: Nate Meddrey & Coin Metrics Team, translated by Li Hanbo.

Statement: Using on-chain metrics for market analysis is a relatively emerging field, and the metrics are still evolving and improving. It is important to note that past success does not guarantee future success; while these metrics have historical reference value, it does not necessarily mean they will always be so. The green and red indicator zones on each chart are based on past performance but are not an exact science. This article does not constitute investment advice—please conduct your own research and consider these metrics as part of the bigger picture.

In December 2020, we released "An Introduction to Bitcoin On-Chain Metrics," which delves into how to use on-chain data to help gauge cryptocurrency market cycles. Since then, a lot has happened, including several new historical highs for Bitcoin (BTC) and Ethereum (ETH). In this week's "Network Status," we update some of the charts from the report and take a look at how things have changed since the beginning of 2021.

Market Value to Realized Value Ratio

The Market Value to Realized Value ratio (MVRV) has historically been one of the most reliable on-chain indicators for measuring Bitcoin market tops and bottoms.

MVRV is calculated by dividing Bitcoin's market value by its realized value. Realized value can also be thought of as a total approximation of Bitcoin's total cost basis. In our calculation of MVRV, we use free-floating market value, which is calculated using liquidity supply rather than total supply.

Historically, a higher MVRV ratio indicates that Bitcoin's price is approaching a local maximum, while a lower ratio suggests that the price is nearing a local minimum. Several instances where MVRV fell below 1 have historically been the best times to buy Bitcoin. A continually increasing MVRV indicates that current sentiment is rapidly increasing relative to the estimated total cost basis, while a continually decreasing MVRV indicates the opposite.

On January 8, 2021, as BTC first reached $40,000, the free-floating MVRV hit 2.96. This was similar to the level when MVRV peaked at 3.05 in June 2017. The next day, BTC's price began to decline, falling below $34K by January 12.

On February 20, MVRV broke above 3.0 for the first time since December 2017, peaking at 3.09 on February 21. This marked another local peak, with BTC's price reaching about $57.5K on February 21, then dropping below $47K by February 28. An MVRV of 3.0 has been a signal of local tops in this market cycle (at least so far), as shown in the red area of the chart below.

On March 13, MVRV approached 3.0 again, rising to 2.96 as BTC briefly exceeded $61,000. Since then, it has fallen to 2.65 as of March 31. It still has not reached the levels seen at the tops of the last two bull runs.

Source: Coin Metrics Network Data Pro

Spent Output Profit Ratio (SOPR)

The Spent Output Profit Ratio (SOPR) provides another favorable condition for entering the Bitcoin market cycle. Launched by Renato Shirakashi in 2019, SOPR can serve as an indicator of whether holders are selling at a profit or a loss.

SOPR is the ratio of the price of Bitcoin when a UTXO is spent to the price of Bitcoin when it was created. In other words, it is the selling price divided by the purchase price. Each time a transaction occurs, we can compare the price of Bitcoin when the UTXOs were created to the price when they were spent. Creating the ratio of the two provides a simple way to estimate whether the Bitcoin in the UTXO is being sold at a profit or a loss.

SOPR can be calculated for a single UTXO but can also be calculated for a group of UTXOs. The chart below shows the aggregated SOPR ratio for all UTXOs, summarized daily. Since SOPR tends to be relatively volatile, this metric is also processed with a 7-day moving average.

Historically, high SOPR indicates that Bitcoin prices are reaching local maxima. Conversely, theoretically, low SOPR indicates that holders are selling at a loss, which has historically suggested a good time to buy. SOPR of 1 is also particularly noteworthy, as it indicates the critical point between selling at a profit and selling at a loss.

On January 8, as BTC prices broke $40,000, the BTC SOPR (7-day average) reached 1.048, the highest level since December 2017. The next day, BTC prices began to decline, and on January 26, SOPR fell to a low of 1.004, with BTC priced at $32,600. It then rebounded to around 1.015.

Source: Coin Metrics Network Data Pro

HODL Waves

The Bitcoin (BTC) coin age distribution band, also known as "HODL Waves," shows the supply of BTC grouped by the time since its last on-chain movement. Launched by Unchained Capital in 2018, HODL Waves provides a macro view of how BTC supply has changed over the past few years. Changes in Bitcoin supply can serve as indicators of market cycles.

Reading from the bottom of the chart upwards, the colored red bands show the percentage of recently active supply, ranging from less than a day to 90-180 days. The "1-7 days" band refers to the percentage of supply held for at least 1 day but less than 7 days, while "7-30 days" refers to the percentage of supply held for at least 7 days but less than 30 days, and so on.

Historically, short-term supply changes peak at market cycle tops. For example, in December 2017, as Bitcoin prices approached $20,000, over 32% of BTC supply had moved on-chain in the previous 90 days. By August 2018, the proportion of supply that had moved in 90 days had dropped to around 15%.

Conversely, reading down the chart shows the supply that has not moved for relatively long periods. These long-term bands tend to widen as prices reach cycle lows and contract at cycle tops as long-term holders begin to sell. The deep green band at the top represents coins that have never moved on-chain since issuance, accounting for about 12% of the total supply.

During the bull markets of 2013 and 2017, the proportion of short-term held supply (held for 180 days or less) reached around 50%, coinciding with market tops. Periods when long-term held supply exceeds 60% are typically good times to buy.

On January 8, short-term supply activity surged, with about 5% of the supply active in the past 1-7 days. As of March 31, only about 36% of the supply had been active in the past 180 days, still well below the peak of around 50% during January 2018.

Source: Coin Metrics Network Data Pro

Network Data Analysis

Summary Metrics

Source: Coin Metrics Network Data Pro

In the past week, ETH on-chain activity surged, with ETH breaking its historical high. Last week, the average daily active addresses for ETH reached 611K, surpassing 600,000 for the first time since February. Transaction fees continued to rise, averaging $26 million per day. With the increase in price and fees, Ethereum's hash rate grew by 5.2% week-over-week, again reaching a historical high.

Bitcoin (BTC) also performed well this week, with market value and realized value increasing by 7.6% and 3.0%, respectively. Fees rose by 22.8% week-over-week, averaging $5.1 million per day. This week, the hash rate slightly decreased but remained near historical highs.

Source: Coin Metrics Network Data Charts

Since the summer of 2020, the median transfer value of the Ethereum network priced in ETH has skyrocketed, likely due to the rise of decentralized finance (DeFi). The median transfer value of Bitcoin priced in BTC had previously declined in 2021 as prices rose.

Source: Coin Metrics Network Data Charts

Since the summer of 2020, the daily transfer numbers for ETH have narrowed the gap with BTC. However, the daily transfer number for BTC remains around 926,000, while ETH is approximately 854,000.

Source: Coin Metrics Network Data Charts

Since July 2020, the amount of ETH transferred via smart contracts has also significantly increased, likely due to DeFi. An average of 3-5 million ETH is transferred via smart contracts daily, accounting for a large portion of the surge in on-chain transfer value for ETH.

Source: Coin Metrics Network Data Charts