Bitcoin (BTC) market consolidation, with on chain trading hovering near cyclical lows

The Bitcoin market traded within an extremely narrow price range this week, while on chain trading volume was very light, hovering near cyclical lows. At the same time, a large amount of token supply is still stuck in investors' wallets, and the supply of several key age groups has reached historic highs

The Bitcoin market traded within an extremely narrow price range this week, while on chain trading volume was very light, hovering near cyclical lows. At the same time, a large amount of token supply is still stuck in investors' wallets, and the supply of several key age groups has reached historic highs.

The Bitcoin market was in consolidation this week, trading within a relatively narrow 3.4% price range, with a minimum price of $26600 and a maximum price of $27500. In fact, this is one of the narrowest trading ranges in the past few years, with the most recent examples being the opening in 2023 and the recovery from COVID selling in July 2020.

At the same time, the trading volume on the chain is extremely small, and the total volume, physical adjustments, and exchange related traffic are still at cyclical lows. At the same time, a large amount of token supply is still stuck in investors' wallets, and several key age groups of tokens have reached historic highs.

In this issue, we will explore this interesting game state, as well as the investor confidence, incentive measures, and views on the 2023 market it tells us.

volume down

In last week's version, we showed how Bitcoin's on chain activities reached historical highs in transaction counts and other indicators, mainly related to ordinal numbers, inscriptions, and BRC-20 tokens. However, these types of transactions often represent a relatively small number of BTCs, with ordinal numbers typically transferred together with a small number of BTCs (typically around 10 ksats=0.0001 BTC).

Assessing the transfer volume of Bitcoin network settlement over the past three years, we have noticed a significant decline in overall economic throughput since the beginning of 2021, dropping from a cyclical high of $13.1B to a cyclical low of $1.9B, a decrease of 85.5%. The transfer volume slightly increased in 2023, but is still close to the cyclical low point between $1.9B and $4.4B.

The exchange remains the core of BTC trading, and studying the inflow and outflow of traffic provides powerful alternative indicators for trading volume, awareness, speculative demand, and investor confidence. We have seen a similar structural decline in foreign exchange deposits, from a peak of $4.2B in May 2021 to today's low of $343.4 million (-91.8%).

Another useful proxy for evaluating network utilization is the absolute value of realized profit and loss events. This provides insight into capital flows into or out of assets, as coins are revalued higher or lower. The realized gains and losses after the merger are near the lowest level in the past three years.

This indicates that most holders with significant profits or losses are unwilling to spend money.

Unrealized potential

We have determined that both nominal and actual network throughput remain periodically low. This may be due to the fact that the cost base of many market participants is very close to current prices, indicating that there is little motivation for current consumption. Participants may need greater volatility in either direction to attract consumer behavior.

The adjusted implementation price provides an improved model to estimate the cost basis for this market range. Its working principle is to eliminate the huge unrealized profits held by long-term dormant (and potentially lost) coins (> 7 years), isolate the economically active and more price sensitive group of holders.

The spot price is currently just above the adjusted actual price ($25200), and if there is a pullback, this may be an interesting psychological area. This also confirms the argument that active participants in the market simply cannot obtain significant profits (or losses).

Recently, the rebound has exceeded $30000, and the adjusted MVRV ratio has risen to a value of 1.21, indicating a relatively moderate level of 21% unrealized profit.

Currently, the value of aMVRV is 1.09, indicating that only 9% of the unrealized profits remain in the market. This is consistent with the historical oversold levels at the low points of the 2018, 2019, and 2020 cycles.

Supply remains unchanged

Despite a booming start to the entire digital asset sector this year, the supply of BTCs that have been held for over a year continues to reach new highs. The following figure shows the proportion of the four subsets of this dormant supply to the total circulation supply:

• Last active supply 1+years ago: 68.1%
• Last active supply 2+years ago: 55.2%
• Last active supply 3+years ago: 40.0%
• 28.9% of last active supply over 5 years

The significant level of HODLing in the entire supply chain continues, with such high token inactivity supporting extremely low levels of on-chain throughput.

This phenomenon is also reflected in the long-term holder supply (holding coins for 155 days), with a new ATH of 14.46 million Bitcoins. This reflects that the coins obtained immediately after the FTX failure matured into an LTH state.

Confluence can be found in the Livelihood indicator, which compares the relative balance between HODLing and expenditure behavior. Currently, online activity is declining to its lowest record since breaking through $20000 in December 2020. The continuous downward trend of Livelihood once again confirms that HODLing is undoubtedly the main market dynamics for most of the current supply.

If we look at the Short Term Holders (STH) queue, we can evaluate the "holding time" spent by the group (measured by the destruction of coins in the past 90 days). According to this indicator, the destruction of STH coinday is very low and significantly lower than the two major panic surrender events that occurred in June and November 2022.

This indicates that STH is usually unwilling to consume within the current price range and requires greater volatility, and may require higher prices (to achieve profits) as incentives.

Overall, these indicators depict a relatively constructive perspective on the beliefs of Bitcoin holders, with most of them showing no interest in spending their coins.

The bracket from the previous cycle was forged

After the low point in November, the wealth held in US dollars in coins from 2 to 3 years has increased from 3.1% to 27.7%, as a large supply matures across the 2-year boundary. This reflects the supply obtained after selling from $56000 to $29000 in May 2021.

The following figure shows the changes in the proportion of US dollar wealth held by these age groups:

• Wealth held over 2-3 years: 3.1% to 27.7% (up+24.6%)
• Wealth held over 1-2 years: 43.5% to 28.3% (down -15.2%)
• Wealth held at 6m-1y: 25.5% to 10.6% (decrease -14.9%)

We can also use a new variant of the RHODL ratio to compare wealth aged 2 and above with wealth aged 6 million to 2 years. This helps us evaluate the balance between experienced (over 2 years) and single cycle long-term holders (6m-2y).

At present, this RHODL variant is growing exponentially, indicating that a large portion of holders in the 2021-22 cycle are growing into experienced HODLers. Given the extraordinary and mainly downward fluctuations experienced during this period, this indicates that the group of Bitcoin holders remains very determined, which is a noteworthy and potentially constructive observation.

Summary and Conclusion

One of the important assets of on chain analysis is that we can observe the behavior of both parties of the holder; Their willingness to hold and consume. What we continue to observe is that despite extreme volatility and significant deleveraging over the past two years, the beliefs of existing Bitcoin holders are still very high.

It is important to emphasize that the current throughput is very low, indicating that the inflow of new demand can be said to be lackluster, and that the dominant position of low capacity serial number/inscription transactions is increasing. However, this matches the existing holder base, and it can be said that they are becoming increasingly insensitive to prices.

Given that there are reasons for panic, surrender, and other exits from the market in 2022, it is worth noting that coins have aged to a multi-year age group. This indicates that those who survive in 2022 may need higher prices to open their refrigerated wallets.