Glassnode: Market volatility is severe, but ordinary BTC investors remain profitable

Original Title: Establishing Equilibrium

Authors: UkuriaOC, CryptoVizArt, Glassnode

Compiled by: Tao Zhu, Jinse Finance

Summary:

· Despite the chaotic price movements, investor profitability remains strong, with an average unrealized profit of about 120% per token.

· The demand side is sufficient to absorb selling pressure and HODLer withdrawals, but not enough to promote further upward growth.

· Spot and arbitrage trading continue, especially with an increase in institutional traders, which temporarily enhances expectations for range trading.

Market Profitability Remains Strong

Lateral price fluctuations often manifest as investor fatigue and indifference, which seems to be the dominant reaction across all Bitcoin markets. BTC prices are consolidating within a mature trading range. Investors remain in a generally favorable position, with over 87% of the circulating supply in profit, as the cost basis is below the spot price.

Using the MVRV metric, we can assess the scale of unrealized profits held by ordinary investors.

Currently, the unrealized profit of the average token held is about +120%, which is typical for markets trading near previous cycle ATHs. The MVRV ratio remains above its annual baseline, indicating that the macro uptrend remains intact.

We can use the MVRV ratio to define pricing ranges to assess extreme deviations of investor profitability relative to long-term averages. Historically, breaking above 1 standard deviation aligns with the formation of long-term macro tops.

Currently, BTC prices are stabilizing and consolidating within the range of 0.5 to 1 standard deviation. This again highlights that despite recent market fluctuations, ordinary investors still hold statistically high profits.

When the market decisively broke through the 2021 ATH, there was a significant allocation of investors, primarily driven by long-term holders. This reflected considerable profits, which helped increase active trading and liquidity supply.

Typically, after a new ATH, the market requires ample time to consolidate and digest the introduced supply surplus. As equilibrium is established, this leads to a decline in realized profits and selling pressure.

The reduction of selling pressure and profit-taking naturally lowers market resistance. Nevertheless, since the March ATH, BTC prices have struggled to maintain significant upward momentum. This indicates that while the demand side is stable enough to sustain market range fluctuations, the ultimate growth is insufficient to re-establish upward momentum.

Low Trading Volume

Despite good investor profitability, the volume of transactions processed and transferred on the Bitcoin network has significantly decreased after reaching historical highs. This highlights a weakening of speculative desire and an intensification of market indecision.

A similar situation can be observed when assessing the spot trading volume across major centralized exchanges. This indicates a strong correlation between on-chain network settlement volume and trading volume, reflecting investor fatigue.

Significant Decline in Exchange Activity

Delving deeper, we can examine the on-chain inflow to exchanges denominated in BTC, where we again notice a significant decrease in activity.

Currently, short-term holders are sending about 17,400 BTC to exchanges daily. However, this is significantly lower than the peak of 55,000 BTC/day recorded when the market reached a high of $73,000 in March, when speculative levels became excessive. In contrast, the inflow of long-term holders to exchanges is relatively low, currently only a negligible inflow of just over 1,000 BTC per day.

We can visually see the sharp decline in LTH investor activity through the percentage of long-term holders' balances sent to exchanges.

LTHs are sending less than 0.006% of their total holdings to exchanges, indicating that this group has reached a balance and requires higher or lower prices to stimulate further action.

Currently, the volume of tokens transferred to exchanges at a profit (11,000 BTC) exceeds that of tokens transferred at a loss (8,200 BTC). This indicates that, although the magnitude is relatively small, there is still an overall tendency dominated by profit-taking.

Currently, the average token sent to exchanges realizes approximately +$55,000 in profit and -$735 in loss. This results in an average profit that is 7.5 times higher than the losses, with only 14.5% of trading days recording a higher ratio.

This indicates that HODLers are still withdrawing, with demand sufficient to absorb selling pressure but not enough to push market prices higher. This suggests that the market structure favors range traders and arbitrage strategies rather than directional and trend trading strategies.

Cash and Arbitrage Basis Trading

Another tool that allows us to describe the spot market is the cumulative trading volume delta (CVD). This metric describes the net deviation of buying volume versus selling volume in the market, measured in dollars.

Currently, a net seller bias dominates the spot market, but the market continues to trend sideways. This aligns with the aforementioned view that the demand side roughly equals the selling pressure, keeping the market in range fluctuations.

When assessing the futures market, we note that open interest continues to rise, currently exceeding $30 billion, slightly below previous highs. However, as emphasized in WoC -23, a significant portion of this open interest is related to neutral spot and arbitrage trading in the market.

In a market with range fluctuations, the increase in open interest may indicate a rise in volatility capture strategies, as traders can gain premiums from perpetual swaps, futures, and options markets.

The significant growth of open interest on the Chicago Mercantile Exchange highlights the increasing participation of institutional investors. The Chicago Mercantile Exchange currently holds over $10 billion in open interest, accounting for nearly one-third of the global market share.

In stark contrast to the increase in open interest, futures trading volume has also seen a similar decline as the spot market and on-chain transfer volumes. This indicates relatively low speculative interest, with fixed basis trading and arbitrage positions dominating.

Conclusion

Despite the market's volatility, ordinary Bitcoin investors remain largely profitable. However, investor decisiveness has decreased, with trading volumes in the spot, derivatives markets, and on-chain settlements shrinking.

Demand and selling pressure seem to have established a balance, leading to relatively stable prices and a noticeable reduction in volatility. The stagnation in market trends has led investors to feel a degree of boredom, indifference, and indecision. Historically, this indicates that decisive price movements in either direction are necessary to stimulate the next round of market activity.