Data Interpretation: How Do Holders Act After Bitcoin Reaches New Highs?

Original Title: "Navigating Post-ATH Trends"

Author: Glassnode

Compiled by: Felix, PANews

Key Points:

• Bitcoin reached a new high of $99,400 after consolidating between $54,000 and $74,000 for a period of time (PANews note: it has now surpassed $100,000, reaching a new high of $104,000).
• Several monitored risk indicators have entered extremely high-risk zones, reflecting an increase in unrealized profits and heightened sensitivity of investor sentiment to corrections.
• The realized profit/loss ratio indicates a large-scale profit-taking, suggesting a potential demand exhaustion in the near term.
• The realized profit amount has decreased by 76% from its historical peak, and the perpetual contract funding rate is also declining, indicating that the market is rapidly cooling down.
• Early supply redistribution patterns suggest that key demand clusters are between $87,000 and $98,000, with almost no supply changing hands during the rise from $74,000 to $87,000.

Higher Range

After the market reached its first major peak in early March, Bitcoin's trading price hovered between $54,000 and $74,000 for about eight months, until early November. The long-term sideways movement within this narrow range allowed most of the circulating supply to be redistributed and concentrated at a relatively high cost basis.

When downward volatility reappears, this supply concentration may exacerbate the likelihood of investor panic. To track these dynamics, the Realized Supply Density indicator has been introduced, which quantifies the supply concentration of the current spot price within a ±15% price fluctuation range.

High supply concentration indicates that price fluctuations will significantly impact investor profitability, potentially exacerbating market volatility.

Looking back at significant market trends over the past five years, a common pattern can be observed:

• During periods of market indecision, typically more than 20% of the supply is concentrated within the ±15% range of the midpoint price.
• This often leads to sharp price fluctuations in either direction, resulting in profits or losses for that supply.

Such volatility typically causes the realized supply density indicator to fall below 10%, indicating that a large number of tokens now hold significantly different unrealized profits or losses.

The recent breakthrough of $74,000 triggered one of these redistribution cycles, pushing Bitcoin's price to a new high and lowering the realized supply density indicator (±15%) below 10%, in which many investors realized substantial unrealized profits.

Data Source: https://studio.glassnode.com/metrics?a=BTC&ema=0&m=indicators.RealizedSupplyDensity&mAvg=7&mMedian=0&s=1592139633&u=1733252892&zoom=&utm_source=gn_insights&utm_medium=insights_woc&utm_campaign=woc_49_2024

Post-New High Range Band

To explore the dynamics of supply changing hands during the price discovery period, a new concept called Bitcoin Cost Basis Distribution (CBD) can be utilized. This indicator tracks the supply concentration at different price points through a heatmap. The Bitcoin CBD indicator provides insights into how supply is redistributed over time at different price levels, helping to identify key areas of demand and investor interest.

As the early stages of price discovery are entered, the upper and lower range bands have not yet fully formed. The most important supply clusters are hovering between $87,000 and $98,000, with almost no supply changing hands during the rise to $87,000.

This indicates that the current trading range is still seeking a balance between buyers and sellers, but risks remain.

Data Source: https://studio.glassnode.com/dashboards/cost-basis-distribution?&utm_source=gn_insights&utm_medium=insights_woc&utm_campaign=woc_49_2024

Assessing Market Risk

The following will reference a set of indicators designed to classify different risk thresholds using on-chain data.

1. Measuring Supply Profitability

The Profit Supply Percentage (PSIP) indicator utilizes the proportion of supply holding unrealized profits to describe market cycles. This can provide insights into potential sell-off pressure risks, as investors holding unrealized profits are often incentivized to lock in gains.

The PSIP indicator is divided into four risk levels:

• Extremely High Risk: PSIP > 90%, more than one standard deviation above its historical average
• High Risk: 75% < PSIP < 90%, slightly above its historical average
• Low Risk: 58% < PSIP < 75%, below its average but above the lower limit
• Extremely Low Risk: PSIP < 58%, more than one standard deviation below its historical average

Periods when PSIP trades above the upper limit typically coincide with the euphoric phase of a bull market. The recent price breakout has pushed the PSIP indicator into the euphoric phase, historically associated with increased vulnerability to downward corrections, as investors have the motivation to realize profits, leading to indirect supply.

This indicates that market participants need to exercise caution, as the likelihood of increased sell-off pressure is also rising.

Data Source: https://studio.glassnode.com/workbench/854e02b0-9b75-45cb-56d5-26962edc0186?&utm_source=gn_insights&utm_medium=insights_woc&utm_campaign=woc_49_2024

2. Measuring Fear and Greed

The Net Unrealized Profit/Loss (NUPL) indicator quantifies the total amount of profits or losses held in the market as a percentage of market capitalization. Considering the magnitude of unrealized profits or losses can provide deeper insights into the market's psychological state.

Based on the aforementioned profit supply percentage indicator, NUPL can provide a deeper understanding of the magnitude of profitability, thus driving investor sentiment—from optimism to excitement and fear.

NUPL is divided into four risk levels:

• Extremely High Risk: NUPL exceeds 0.59, more than one standard deviation above the four-year average. This stage is marked by extreme unrealized profits, reflecting market euphoria and heightened adjustment risks.
• High Risk: NUPL between 0.35 and 0.59, indicating the market is in a profitable state but has not yet reached euphoric levels.
• Low Risk: NUPL between 0.12 and 0.35, indicating moderate profitability, typically in a stable or early recovery phase.
• Extremely Low Risk: NUPL falls below 0.12, coinciding with market capitulation and bottom discovery phases in bear markets.

As the price broke through $88,000, NUPL also entered the extremely high-risk zone, indicating that the market now holds extremely high unrealized profits. This high level suggests that investors are beginning to increase selling pressure, taking advantage of higher prices and strong new demand.

Data Source: https://studio.glassnode.com/workbench/add6a7d8-dd98-4f5f-4aff-2303facc5615?&utm_source=gn_insights&utm_medium=insights_woc&utm_campaign=woc_49_2024

3. Measuring Investor Spending Patterns

Given the high levels of unrealized profits in the system, the Realized Profit/Loss Ratio (RPLR) can be used to measure how investors adjust their spending patterns as Bitcoin approaches the $100,000 level.

RPLR tracks the ratio of profit-taking events to loss events occurring on-chain, thus providing insights into changes in investor behavior. By applying a 14-day moving average (14D-MA), other factors can be filtered out to gain a clearer understanding of macro trends.

The RPLR framework divides market risk into four levels:

• Extremely High Risk: RPLR exceeds 9, indicating that more than 90% of tokens moving on-chain are being used for profit-taking—common signs of demand exhaustion.
• High Risk: RPLR between 3 and 9, where 75%-90% of tokens are used for profit-taking, typically occurring during market peaks.
• Low Risk: RPLR falls below 3, indicating a transitional phase between profit and loss spending balance (1 < RPLR < 3).
• Extremely Low Risk: RPLR falls below 1, dominated by loss tokens, typically observed during market capitulation.

The RPLR indicator has also entered the extremely high-risk zone, highlighting the intensity of profit-taking activity during this price discovery rebound, which may create indirect supply for the market.

Data Source: https://studio.glassnode.com/workbench/add6a7d8-dd98-4f5f-4aff-2303facc5615?&utm_source=gn_insights&utm_medium=insights_woc&utm_campaign=woc_49_2024

Cooling Down

While all three indicators are in the extremely high-risk zone, it is worth noting that these situations are typical characteristics of explosive rebounds during price discovery.

This assessment can be supported by observing the speed at which these indicators have cooled down over the past week. In particular, focusing on realized profits and perpetual contract funding rates as key indicators of sell-side pressure and excessive leveraged demand.

Realized profits track the dollar gains of moving tokens, peaking at an average daily profit of $10.5 billion as Bitcoin approached $100,000. This subsequently dropped to around $2.5 billion per day, a decline of 76%. This sharp decline suggests a significant cooling down, indicating that profit-taking may be more impulsive rather than sustained.

Data Source: https://studio.glassnode.com/metrics?a=BTC&m=indicators.RealizedProfit&utm_source=gn_insights&utm_medium=insights_woc&utm_campaign=woc_49_2024

The perpetual contract market also corroborates this insight, as speculative demand begins to stabilize and funding rates start to level off.

Funding rates measure the cost of interest for holding open perpetual futures contracts, where long traders must pay interest to short traders. Funding costs soared during the rebound, but not to the extent seen in March of this year.

If funding rates begin to decline, it indicates that a significant amount of long leverage is starting to exit the market, while a renewed rise may suggest that long risks are increasing.

Data Source: https://studio.glassnode.com/metrics?a=BTC&m=derivatives.FuturesFundingRatePerpetualAllV2&utm_source=gn_insights&utm_medium=insights_woc&utm_campaign=woc_49_2024

Conclusion

Bitcoin's recent rise to a historic high of $99,400 marks a key moment in this cycle, pushing the market into the price discovery phase. It has broken through the long-standing price range of $54,000 to $74,000, generating unrealized profits for a large amount of supply and triggering several high indicators used to track short-term overheating risks.

At the same time, some indicators have begun to cool down, such as the decline in realized profits and perpetual contract funding rates. This indicates a slowdown in excessive speculative interest and a net decrease in spot selling activity. The Bitcoin market is attempting to rebalance, with the current supply density cluster bottoming at $88,000.