Glassnode’s on-chain weekly report shows that the performance of Bitcoin since its low point in 2022 is highly similar to previous cycles, although the recovery speed has been slower, it is more flexible than in the past. After the approval of ETFs, most long-term Bitcoin investors still choose to hold Bitcoin. This article is sourced from “The Impact of Digesting Excessive Supply of GBTC” compiled, edited, and written by Foresight News.
Summary:
Positioning in the Cycle
Recovery Meets Excessive Supply of GBTC
ETF HODLers Unwilling to Relax
On-Chain and Exchange Activity
Conclusion
In terms of physicality, internet activity is still relatively low, but the amount of currency transferred on-chain, especially the amount transferred to exchanges, remains strong and similar to previous bull market cycles.
The first chart assesses the price performance of BTC since the last all-time high. In this case, we consider April 2021 (Coinbase direct listing) as the historical high point in order to better interpret the duration, as we believe it was the peak of investor sentiment.
History rhymes astonishingly, and Bitcoin’s performance in the past three cycles is extremely similar. Our current cycle is still slightly ahead of 2016-17 and 2019-20, partly because 2023 is an exceptionally strong year.
Cycle 2: 45.7% below previous high
Cycle 3: 43.6% below previous high
⚫ Current cycle: 37.3% below previous high
However, in our current cycle, a higher level of resilience can be observed, with corrections from local highs remaining relatively shallow. The largest drawdown so far was -20.1% in August 2023.
If we compare the proportion of days traded during deep corrections, this insight becomes increasingly apparent:
Genesis to 2011: 164-294 days (55.7%)
2011 to 2013: 352-741 days (47.5%)
2015 to 2017: 222-1066 days (20.8%)
2018 to 2021: 514-1056 days (48.7%)
Nevertheless, as the market digests the new dynamics of spot ETFs, the price momentum has been declining in recent weeks.
Here, we consult two key on-chain price levels:
Short-term holder cost basis ($38,300), representing the average acquisition price of new demand.
True market average price ($33,300), representing the cost basis model of active investors.
During an upward trend, the short-term holder cost basis is usually retested as support, but if decisively broken, the true market average price needs to be considered. The true market average price is often the “center” of the Bitcoin market and can help distinguish between bull and bear markets.
We can assess the severity of capital outflows and the duration of recovery using the fundamental “realized market cap” indicator. The realized market cap is only 5.4% below the previous peak market cap of $467 billion and is currently experiencing strong capital inflows. However, compared to previous cycles, the current recovery has been noticeably slower, possibly due to challenging trades such as GBTC arbitrage causing significant supply surpluses.
In this cycle, the speed of recovery in realized market cap is the slowest on record:
2012-13 cycle: 0.22% daily recovery
2015-16 cycle: 0.09% daily recovery
2019-20 cycle: 0.17% daily recovery
2023-24 cycle: 0.05% daily recovery
This phenomenon is partially attributed to the massive redemptions of Grayscale’s GBTC product. As a closed-end trust fund, GBTC accumulated an unusually high 661,700 BTC at the beginning of 2021 as traders attempted to close the asset’s net asset value premium.
After years of severe NAV discount trading (2% fees were high), the conversion to spot ETFs triggered significant rebalancing events. Since the ETF’s approval, approximately 115,600 BTC has been redeemed from GBTC, which has brought significant adverse factors to the market.
In the midst of a strong rebound, sell-off news events, and dynamic markets, the majority of HODLers seem to be calmly sailing. The “Last Active Supply” metric measures the proportion of circulating supply that has been held for multiple years.
We can see that the trading volume for the 1-year and 2-year periods has slightly decreased, with much of the volume being related to GBTC but not all. This indicates that there has been a considerable amount of old supply moving in recent weeks.
However, in absolute terms, the majority of BTC holders still remain steady, with the proportion of holdings in multiple age brackets only slightly below historical highs:
Over 1 year ago: 69.9%
Over 2 years ago: 56.7%
Over 3 years ago: 43.8%
Over 5 years ago: 31.5%
In the Week 46 report of 2023, we introduced and compared various metrics for “Stored Supply” and “Active Supply.” At that time, we noted a significant divergence between the two, with dormant, inactive, and illiquid Bitcoin dominating.
This year, we have seen preliminary signs of this divergence narrowing, with all indicators for “Active Supply” showing significant increases. This aligns with the aforementioned rise in the selling of old coins.
This has triggered the largest increase in activity since the capitulation event in December 2022. This once again supports the analysis above, suggesting that as some investors relinquish a portion of their long-held Bitcoin, the number of coin days destroyed has increased.
However, from a macro perspective, activity is still near multi-year lows, indicating that the majority of supply is still tightly held, potentially waiting for higher spot prices or using increased volatility as an incentive to spend.
Assessing Bitcoin’s on-chain activity provides important information for understanding the health, adoption, and growth of the network. However, despite strong price performance, there has been a counterintuitive phenomenon of a decrease in the number of active entities to a cycle low of 219,000 daily.
At first glance, this may imply that Bitcoin’s user growth has not kept up despite the significant increase in price. This is primarily due to increased activity associated with ordinal and script-related activities, where many participants are reusing Bitcoin addresses, reducing the number of “active entities” (not counted repeatedly).
On the other hand, transfer volume remains very strong, with approximately $7.7 billion in economic transactions processed daily. The difference between active entities and the growing transfer volume highlights the increasing presence of active large entities in the market, with the average transaction value per entity soaring to $263,000.
This indicates that institutional investors and capital inflows are increasing.
Exchanges continue to be the main venue for trading activity, with deposit and withdrawal volumes seeing significant growth, reaching $6.8 billion daily. Currently, exchange-related deposit and withdrawal activity accounts for approximately 88% of all on-chain transaction volume.
The current volume of inflows and outflows from exchanges can be compared to the peak during the 2021 bull market, with only 68 trading days (1.5%) having volumes higher than the peak based on the 30D-SMA method.
This once again highlights the expanding interest of market participants in Bitcoin.
With the increase in exchange flows, profit-taking has also occurred. The chart below shows the average profit (or loss) per coin on exchanges for each cryptocurrency.
During the peak of ETF speculation, this indicator reached an average profit of $3,100, which was achieved during the rebound peak in April 2023. This is still far from the average profit of $10,500 during the peak of the 2021 bull market, and it has started to cool significantly.
The approval of nine physical Bitcoin ETFs is a milestone event for digital assets, and institutional funds are openly flowing into this asset class. As investors rebalance away from the long-debated GBTC ETF product, capital inflows are currently accelerating despite significant supply surpluses.
The value of on-chain exchange flow has also reached the peak of the 2021 bull market, and the average transfer value is showing an increasing trend, indicating the presence of more institutions and large capital investors.
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