Bitcoin Onchain Data Update

Author: MICHAEL NADEAU, The DeFi Report

Compiler: Frank, Foresight News

Bitcoin rose 45% in February, and since the launch of the spot Bitcoin ETF, we have seen over $6.7 billion in net inflows into new ETF products. The current Bitcoin price is also less than 10% away from its historical high, yet the market feels unusually quiet.

My intuition is that incremental retail investors have not yet entered the market. Why? Because so far, I have not had any random conversations about cryptocurrency with anyone in my daily life, including Didi/taxi drivers, barbers, college students, real estate agents, neighbors, friends/family.

Everyone basically has no reaction, which makes me realize that we are still in the early stages of a new cycle—meaning that native cryptocurrency users make up the majority of market participants and are beginning to realize that we have entered a bull market.

However, when we examine on-chain data, there is no need to rely on intuition and gut feelings. To be honest, sometimes using on-chain data makes it feel like I have insider information, though I remind myself that public chains are transparent… Coincidentally, in terms of cryptocurrency and on-chain data, we are still in the early stages, and the market is not quite clear on what signals to look for.

But this situation will not last forever, so let’s enjoy it while it still exists. Therefore, in this report, we will quickly understand our position in the current cycle using purely on-chain signals, including: market indicators, long-term holder behavior, miner behavior, exchange balances, and leverage data, etc.

Total Market Cap to Realized Market Cap Ratio

First, let's look at the ratio of total market cap to realized market cap (MVRV)—as the name suggests, the MVRV ratio measures the relationship between the realized market cap (representing the base cost of all circulating Bitcoin) and the current total market value, which is one of the market's favorite signals for tops and bottoms.

Foresight News notes that the realized market cap is calculated based on the price of each Bitcoin at its last movement, considering the last price of all on-chain transactions, and can be seen as a more "real" long-term measure of Bitcoin's value, accurately reflecting Bitcoin's market cap.

What is the current situation? The MVRV has just reached 2, which is consistent with the early stages of past bull and bear cycles, indicating that the bull market cycle has just begun. Previously, in 2021, we reached a peak of 7.6 at the height of the bull market.

When the orange line in the chart above approaches the red level area, it indicates that the market has reached the expected price peak, and we are still far from that level.

What retail investors need to remember is that the only way to make money by investing in cryptocurrency is to buy quality cryptocurrencies when everyone wants to exit. In the chart above, these are the periods when the orange line touches the green level area.

Therefore, during the last bear market, everyone had six months to accumulate their chips, and those who really did so have seen 2-4 times gains on Bitcoin.

Bitcoin Dominance

Historically, Bitcoin often leads the way out of the bear market cycle in the crypto market and into the next bull market. In the early stages of a bull market cycle, Bitcoin's dominance gradually weakens as the wealth effect begins to take hold, and long-term holders turn to other cryptocurrencies for greater returns.

So what do we see today? Bitcoin's dominance is rising, once again leading the market out of the bear market, currently holding a 51% market share of the total cryptocurrency market cap. This further confirms that the market is in the early stages of a bull market. For reference, in the last cycle, Bitcoin reached a 70% dominance before the "altcoin summer" began. The market will not completely replicate that data, but it is expected that as Bitcoin approaches its historical high, its dominance will continue to strengthen.

Long-term Holder Holdings

Currently, long-term holders hold 14,658,031 Bitcoins, accounting for approximately 74.6% of the circulating supply. It is important to clarify that Glassnode defines long-term holders as Bitcoins that have not moved in on-chain addresses for more than 155 days.

This is the "smart money" in Bitcoin, such as those who bought at the cycle lows and have a long-term hold belief. We can see in the chart that as each cycle heats up, this group tends to reduce their holdings, as shown by the orange line starting to decline.

Long-term Holder Net Position Change

From the perspective of long-term holder net position changes, we see the first wave of selling from long-term holders since the market bottomed in December 2022, which again emphasizes the patterns of the early stages of a bull market.

Let’s take a different angle and see what miners are doing.

Miner Net Position Change

What are miners doing?

They have been selling BTC during the recent price increase. In fact, since early November last year, miners have been selling an average of 4,802 Bitcoins per day.

Considering that the entire Bitcoin network can only mine 900 Bitcoins per day, selling over 4,800 is quite a significant selling pressure.

Why is there so much selling pressure? We believe that mining companies are enhancing their financial reserves ahead of the halving—after all, the halving also means that the income of mining companies will be halved, so selling early to prepare financially is undoubtedly a wise move.

What is even more surprising is that even with such continuous selling pressure, Bitcoin's price continues to rise strongly.

The reason behind this is naturally linked to new financial products with liquidity, such as the spot Bitcoin ETF…

Spot Bitcoin ETF Net Inflows

Overall, the spot Bitcoin ETF has attracted over $6.7 billion in inflows, with all ETF funds currently holding 753,145 Bitcoins, accounting for 3.8% of the circulating supply.

Exchange Balances

Bitcoin seems to be becoming increasingly "illiquid," as the available amount on exchanges currently accounts for only 11.7% of the circulating supply, the lowest level since the end of 2017.

Perpetual Contract Funding Rates

The funding rates for Bitcoin perpetual contracts across exchanges have also begun to rise, but they are certainly far from the peak levels of previous bull market cycles.

Open Interest

The open interest for Bitcoin across exchanges has also started to approach the peak levels of previous bull market cycles—this is important data to watch in the short term.

Stock to Flow Ratio (S2F)

The Stock to Flow (S2F) ratio is a classic model, and according to its data fitting, in 2 months, Bitcoin will become the most scarce asset on Earth—with a stock to flow ratio exceeding 120.

As we can see in the chart, since Bitcoin's inception, its cyclical patterns have remained very stable—visualized here with a logarithmic chart, and the colors indicate the days until the next halving date.

Conclusion

Bitcoin has entered a bull market, but we are in the early stages. Incremental retail investors have not yet entered on a large scale, and this time, before their FOMO kicks in, institutions have bought a significant amount of Bitcoin.

So how do we determine when retail investors are entering on a large scale? The following signs may be details worth watching in the future:

• Media coverage of Bitcoin and cryptocurrency is frequently making headlines;
• The Coinbase app ranks first (or close to first) in app stores; currently, it ranks 186th;
• Google search volume for Bitcoin and cryptocurrency is growing exponentially;
• YouTubers promoting junk tokens see a surge in subscribers;
• Celebrities and politicians are supporting Bitcoin and cryptocurrency;
• Friends who know nothing about cryptocurrency are bragging about how much money they made;
• Your cousin tells you he bought "Bitcoin from Japan";
• Didi drivers, village aunties, and barber Tony are constantly discussing money-making projects in the Cardano ecosystem;
• Web2 founders who learned about cryptocurrency a few months ago are raising funds for new cryptocurrency projects.

Fortunately, we are not there yet.

Remember, Bitcoin leads the market, while the altcoin summer will come later, and a significant correction is expected—there were 6 corrections exceeding 30% in the last bull market cycle.

Good luck to us.