Despite the sideways movement and decline in Bitcoin trading price, a significant portion of the market is still profitable, with short-term holders bearing most of the losses.
By combining on-chain pricing models and technical indicators, we have defined and explored a range of potential scenarios for the future development of the market.
Volatility continues to remain historically compressed, indicating a certain level of indifference among investors, but also suggesting a lack of sufficient index for future volatility intensification.
Profitability in the market remains strong
As BTC prices dropped to the $60,000 range, many digital asset investors felt a sense of fear and bearish sentiment. This situation is not uncommon when the market volatility stagnates and enters a dormant state.
Nevertheless, from the perspective of the MVRV ratio, investors’ overall profitability remains very strong, with an average token maintaining a profit multiple of 2x. This level typically characterizes the “enthusiastic” and “excited” phase of a bull market.
Going deeper, we can separate all tokens that hold unrealized profits or losses. This allows us to assess the average cost basis for each group, as well as the average magnitude of unrealized gains and losses held by each token.
The unrealized gains for the average profitable token amount to +$41,300, with a cost basis of approximately $19,400. It is worth noting that this number will be partly influenced by tokens that moved late in the early cycle, including the Patoshi entity, early miners, and lost tokens.
(red)
The unrealized losses for the average losing token amount to -$5,300, with a cost basis of approximately $661,000. These tokens are mainly held by short-term holders, as very few of the “top buyers” of the 2021 cycle still hold them.
(blue)
Both of these indicators can help identify potential selling pressure points as investors seek to maintain profits and avoid holding the most significant unrealized losses.
If we look at the ratio between unrealized profits/losses per token, we can see that the size of the book profits held is 8.2 times larger than the book losses. Only 18% of trading days record larger relative values, all of which fall within the excited bull market range.
It can be said that the ATH set in March after ETF approval has several characteristics consistent with historical bull market peaks.
Focus on the group of short-term holders
Since reaching the ATH in March, the Bitcoin price has been consolidating within a clear range of $60,000 to $70,000, with the market failing to establish a strong trend in either direction.
To establish our position in the cycle, we will refer to a simplified framework for thinking about historical Bitcoin market cycles:
Deep Bear Market:
Prices trade below realized prices. (red)
Early Bull Market:
Prices trade between realized prices and the true market mean. (blue)
Enthusiastic Bull Market:
Prices trade between ATH and the true market mean. (orange)
Excited Bull Market:
Prices trade above the ATH of the previous cycle. (green)
Currently, after several very brief forays into the excited range, prices are still within the enthusiastic bull market territory. The true market mean is $50,000, representing the average cost basis for each active investor.
If the macro bull market is expected to continue, this level remains a key pricing level for the market to hold above.
Next, we will focus on the group of short-term holders and overlay their cost basis with levels representing +-1 standard deviation. This provides insights into areas where these price-sensitive holders may start to react:
A large amount of unrealized profits indicates a potential overheated market, currently valued at $92,000. (red)
The breakeven level for the STH cohort is $64,000, with the spot price currently trading below this level but attempting to recover. (orange)
Significant unrealized losses indicate a potential oversold market, currently valued at $50,000. This aligns with the true market mean as a turning point for the bull market. (blue)
It is worth noting that only 7% of trading days have spot prices trading below the -1SD range, making this situation relatively rare.
As prices trade below certain cost bases, it is wise to examine the financial pressure levels of subsets within this group. By using our breakdown by vintage indicator, we can dissect and examine the cost basis of different cohorts of short-term holders.
Currently, the 1d-1w, 1w-1m, and 1m-3m vintage averages all have unrealized losses. This indicates that this consolidation range has been largely ineffective for both traders and investors.
The cohort of 3 to 6 million people still remains the only subset holding unrealized profits, with an average cost basis of $58,000. This aligns with the low price of this correction and again marks this as a critical area of focus.
Turning to technical indicators. We can use the widely used Mayer Multiple indicator, which evaluates the ratio of price to its 200DMA. The 200DMA is often used as a simple indicator to assess bullish or bearish momentum, making any break or hold crucial pivot points in the market.
The current value of the 200DMA is $58,000, once again providing convergence with the on-chain pricing model.
We can further evaluate the concentration of supply around specific cost basis clusters using the URPD indicator. Currently, the spot price is approaching the lower bound of large supply nodes between $60,000 and ATH. This aligns with the cost basis model of short-term holders.
With 2.63 million BTC (13.4% of the circulating supply) located within the $60,000 to $70,000 range, small price fluctuations can significantly impact the profitability of tokens and investor portfolios.
Overall, this suggests that many investors may be sensitive to prices dropping below $60,000.
Expectations for volatility
After months of range-bound price action, we have noticed a significant decrease in volatility within various rolling window time frames. To visualize this phenomenon, we have introduced a simple tool to detect periods of realized volatility contraction, which typically provides an indicator of potential future volatility intensification.
The model assesses the changes in 30-day realized volatility over periods of 1 week, 2 weeks, 1 month, 3 months, 6 months, and 1 year. When all windows show a negative change of 30 days, a signal is triggered, inferring a compression of volatility and expectations of reduced future volatility among investors.
We can also assess market volatility by measuring the percentage range between the highest and lowest price movements within the past 60 days. According to this indicator, volatility continues to compress to rare levels, but typically precedes significant market fluctuations after prolonged consolidation.
Finally, we can strengthen our volatility assessment by using the seller risk ratio. This tool evaluates the absolute sum of investors’ locked-in realized profits and losses relative to the asset’s market cap (realized cap). We can consider this indicator within the following framework:
High values indicate that investors are spending tokens with relatively larger profits or losses compared to their cost basis. This situation suggests that the market may need to find a new equilibrium and often results in significant price fluctuations.
Low values indicate that most tokens are being spent relatively close to their breakeven cost basis, indicating a certain level of balance has been reached. This situation typically means the “profit and loss” within the current price range has been exhausted and describes a low-volatility environment.
It is worth noting that the STH seller risk has reached historical lows, with only 274 out of 5,083 trading days (5%) recording lower values. This indicates a certain level of balance has been established during the price consolidation period and suggests expectations of increased volatility in the near future.
In summary, the Bitcoin market is in an interesting place, with a dominance of indifference and boredom despite the price being 20% lower than ATH. The average token still holds 2x unrealized profits. However, there is a severe shortage of new buyers.
We have also explored key pricing levels where investor behavior patterns may change. We seek a certain level of convergence between on-chain indicators and technical indicators and have identified three key areas of interest.
Breaking below $58,000 to $60,000 would result in significant losses for a large number of short-term holders and trade below the 200-day moving average price level.
The price range between $60,000 and $64,000 continues the sideways trajectory of current market decisions.
A breakout above $64,000 would lead to a significant number of STH tokens returning to profitability, potentially boosting investor sentiment.
From a pricing and on-chain perspective, volatility continues to compress across multiple time frames. Indicators such as the seller risk ratio and the 60-day price range have reached historical lows. This suggests that the current trading range is in the late stages of the next range expansion.
