Glassnode: Multiple indicators have fallen to historical lows, and greater volatility may occur in the short term

Original Title: Grounding Through Confluence

Author: Glassnode

Compiled by: Lila, BlockBeats

Summary

• Despite Bitcoin's price stagnating or declining, a significant portion of the market remains profitable, while short-term holders bear most of the losses.
• By combining on-chain pricing models and technical indicators, we explore the future development of the market.
• Volatility continues to compress historically, indicating investor apathy, but also suggesting the potential for greater fluctuations in the future.

Market Profitability Remains Strong

When Bitcoin's price fell into the $60,000 range, a degree of fear and bearish sentiment emerged among many digital asset investors. This situation is not uncommon when market volatility stagnates and enters a dormant state, as apathy gradually spreads.

Nevertheless, from the perspective of the MVRV ratio, overall investor profitability remains very strong, with an average profit of 2x per coin still held. This is typically an indicator or rule that distinguishes between the "enthusiasm" and "frenzy" phases of a bull market.

By categorizing all coins into unrealized profits or losses, we can assess the average cost basis for each group and the average magnitude of unrealized profits and losses per coin.

• The average profit-holding coin has an unrealized gain of $41.3k, with a cost basis of approximately $19.4k. It is worth noting that this data can be distorted by coins transferred from earlier cycles, including Patoshi entities, early miners, and those lost coins.

• The average loss-holding coin has an unrealized loss of $5.3k, with a cost basis of approximately $66.1k. These coins are primarily held by short-term holders, as very few "top buyers" from the 2021 cycle are still holding.

These two indicators help identify potential sell-off pressure points, as investors may wish to hold their gains or avoid larger unrealized losses.

By examining the unrealized profit/loss ratio for each coin, we can see that the paper gains held are 8.2 times greater than the paper losses. Only 18% of trading days recorded a greater relative value, all of which indicate that we are in a frenzy bull market phase.

It can be argued that the historical high (ATH) in March aligns with several characteristics post-ETF approval that are consistent with historical bull market peaks.

Determining Position in the Cycle

Since the historical high in March, Bitcoin's price has consolidated in the $60,000 to $70,000 range, with investor sentiment marked by apathy and boredom. This has led to indecision among most investors, preventing the market from establishing a robust trend.

To determine our position in the cycle, we will refer to a simplified framework for thinking about historical Bitcoin market cycles:

• Deep Bear Market: Price below realized price
• Early Bull Market: Price between realized price and true market mean
• Enthusiastic Bull Market: Price between historical high and true market mean
• Frenzied Bull Market: Price above the previous cycle's historical high

Currently, the price remains in the enthusiastic bull market phase, with only a few very brief entries into the frenzy zone. The true market mean is at $50k, representing the average cost basis for each active investor.

This level is a key pricing level for whether the market can continue its macro bull market.

Next, we will look at the short-term holder group and overlay their cost basis with their positive and negative 1 standard deviation levels. This provides areas where these price-sensitive holders may begin to react:

• Significant unrealized profit signals a potential overheated market, with the current value at $92k.
• The breakeven level for the short-term holder group is $64k, with the current spot price below this level but attempting to reclaim it.
• Significant unrealized loss signals a potential oversold market, with the current value at $50k. This aligns with the true market mean as a bull market demarcation point.

It is noteworthy that only 7% of trading days recorded spot prices below the -1 standard deviation band, which is a relatively uncommon occurrence.

As prices fall below the short-term holders' cost basis, it is necessary to examine the degree of financial pressure among different subsets within this group. By segmenting based on age metrics, we can dissect and examine the cost basis of different age components within the short-term holder group.

Currently, coins aged 1 day to 1 week, 1 week to 1 month, and 1 month to 3 months are mostly in an unrealized loss state. This indicates that this consolidation range has been largely unproductive for traders and investors.

The 3-month to 6-month group is the only subset still in unrealized profit, with an average cost basis of $58k. This aligns with the price low of this adjustment, marking it again as a key area of interest.

Turning to technical indicators, we can use the Mayer Multiple metric to assess the ratio of price to the 200DMA (200-day moving average). The 200DMA is typically used as a simple indicator to evaluate bullish or bearish momentum, making any breakout above or below a key market pivot point.

The current value of the 200DMA is $58k, which again aligns with the on-chain pricing model.

We can further assess the supply concentration around specific cost basis clusters using the URPD metric. Currently, the spot price is near the lower bound of a large supply node between $60k and $70k. This aligns with the cost basis model of short-term holders.

Currently, 2.63 million BTC (13.4% of circulating supply) are located in the $60k to $70k range, and slight price fluctuations could significantly impact the profitability of coins and investor portfolios.

Overall, this suggests that many investors may be sensitive to any price declines below $60k.

Volatility Expectations

After several months of range-bound price movements, we have noticed a significant decline in volatility across many rolling window time frames. To visualize this phenomenon, we introduce a simple tool to detect periods of realized volatility contraction, which typically provides an indication of impending higher volatility.

This model evaluates the 30-day changes in realized volatility across 1-week, 2-week, 1-month, 3-month, 6-month, and 1-year time frames. When all windows show negative 30-day changes, a signal is triggered, inferring that volatility is compressing and investor expectations for future volatility are also decreasing.

We can also assess market volatility by measuring the percentage range of highest and lowest prices over the past 60 days. According to this metric, volatility continues to compress to rare levels, but typically after prolonged consolidation and before significant market movements.

Finally, we can enhance our volatility assessment using the seller's risk ratio. This tool evaluates the absolute total of realized profits and losses locked in by investors relative to the size of the asset (realized market cap). We can consider this metric according to the following framework:

• High values indicate that investors are spending coins at significant profits or losses relative to their cost basis. This situation suggests that the market may need to find a new balance, typically after high volatility price movements.
• Low values indicate that most coins are spent relative to their breakeven cost basis, suggesting some degree of balance has been reached. This situation typically indicates that "profits and losses" are exhausted within the current price range and usually describes a low-volatility environment.

It is noteworthy that the short-term holder's seller risk ratio has contracted to historical lows, with only 274 out of 5,083 trading days recording lower values (5%). This indicates that a certain degree of balance has been established during this price consolidation and suggests recent high volatility expectations.

Conclusion

The Bitcoin market is at an interesting stage; despite being 20% lower than historical highs, apathy and boredom dominate. On average, each coin still holds 2x unrealized profit, but new buyers are in a loss position.

We also explored key factors that may shift investor behavior patterns. We sought a degree of confluence in on-chain and technical indicators, arriving at three key areas of focus.

• A drop below $58k to $60k would put a large number of short-term holders in a loss position and below the 200DMA price level.
• Fluctuations between $60k and $64k continue the current sideways trend of market indecision.
• A breakout above $64k would restore profitability for a large number of short-term holders, potentially boosting investor sentiment.

Volatility continues to compress across multiple time frames, both from a pricing and on-chain data perspective. Indicators such as the seller's risk ratio and the 60-day price range have fallen to historical lows. This suggests that the current trading range is in the later stages of expanding into the next range.