Bitcoin On-Chain Update (February 26th 2022)

BTC On-Chain Update

Bitcoin On-Chain Update (February 26th 2022)

Bitcoin on-chain analysis is an emerging field that involves examining a cryptocurrency’s fundamentals, utility, transaction activity, and blockchain data.

On-chain analysts attempt to improve their understanding of a network to predict future price movements by analyzing various metrics. As we will discuss below, on-chain analysis involves gaining insights from the following types of blockchain data:

  • Bitcoin Reserves
  • Bitcoin Netflows
  • Bitcoin Miners Position Index
  • Exchange inflows and outflows
  • And more…

Table of Contents

Bitcoin Spent Output Profit Ratio (SOPR)

Adjusted SOPR, The danger Zone is > 1.12. Currently, it is at 1
Long term Holder’s SOPR (yellow) is at 1.12
Short term (green) is at 0.99

As we have learned in previous reports, the Short-term holder’s SOPR is an excellent oscillator to identify ‘buy the dip or fade the rally opportunities’: “Given” that broader trend has been established using other metrics.

After the recent shakeout, SOPR has been below 1, which means that the Short Term Holders who bought in the past few months spent their coins at a loss in this down move.

In a bull market, you want to buy the retests of 1 as support. You want to sell the underside retests of 1 as resistance in bear markets. When SOPR is equal to 1, it signifies a neutral state i.e., when the profit and losses being realized balance each other out.

Reading STH-SOPR.
>>STH-SOPR greater than 1.1 signifies high amount of profit-taking.
>>STH-SOPR below or at 1 t has historically bounced price during bull runs as STHs cost-basis gets tested and top buyers capitulate.
>>STH-SOPR remaining below 1 for an extended period would signals market participants to take caution and increase the probabilities of an extended downside.
>>STH-SOPR values on the macro scale remain relatively flat compared to the early 2021 price run-up, possibly signaling that the market hasn’t become overly saturated with profit-taking yet.

Bitcoin Spent Output Profit Ratio (SOPR)

Short-term Holder’s SOPR IS BELOW 1 at .99

Short-term holders’ SOPR only includes UTxO’s of which alive time is more than 1 hour and less than 155 days. 

Shorterm Holder's Sopr

Adjusted SOPR

The danger Zone is > 1.12. Currently, it is at 1

Adjusted SOPR which only includes UTxO of which alive time is more than 1 hour.

Adjusted sopr
Long Term Holder SOPR at 1.12 Long-term holders’ SOPR. only includes UTxO of which alive time is more than 155 days. It is the average ‘spent coin cost-basis’or for LTH’s spent coins each day, what was the average price they were last moved at? LTH-SOPR metric is in a macro decline, indicating that since March, the profitability of LTH spent coins has been falling. Market price has now come even more closer to the cost basis of LTH.
Long Term Holder SOPR
LTH-SOPR metric

HODL waves

When young HODL waves buy (accumulate), then the BTC price falls, i.e., older HODL waves fix their profits at the young’s expense.

Conversely, the BTC price rises when young coins are sold, and the old ones buy back coins sold at a loss by young.

Currently, 76.5% of Bitcoin’s supply hasn’t moved in at least 6 months, which is an all-time high.

HODL waves
BTC HODL Waves

Bitcoin Market-Value-to-Realized-Value (MVRV)

MVRV (Market Value to Realized Value) ratio is defined as an asset’s market capitalization divided by realized capitalization. BTC has been consolidating as the realized price has been trending upwards. The lower MVRV goes the more attractive BTC becomes to buy
MVRV is currently bouncing from the zone where the previous bottom at 29k was formed. Red lines on the chart have marked the tops of the previous 3 cycles and green have marked the previous 3 important bottoms. In the case of the downside, the bottom green line would be the area of interest. This present place of 33-34k bottom is also an area of good support according to this metric.

MVRV (Market Value to Realized Value)

STH MVRV values = 1 represent a typical bull/bear line in the sand. It indicates the price has returned to the STH on-chain cost basis, and they typically aim to defend that level in bull markets. Conversely, in a bear market, STHs will generally offload coins at their break-even price, forming resistance.

MVRV Z score

MVRV Z-Score is useful for predicting Bitcoin price at the extremes of market conditions.
The MVRV Z-score has historically been very effective in identifying periods where market value is moving unusually high above realised value. These periods are highlighted by the z-score (red line) entering the pink box and indicate the top of market cycles. It has been able to pick the market high of each cycle to within two weeks.

It also shows when the market value is far below-realized value, highlighted by z-score entering the green box. Buying Bitcoin during these periods has historically produced outsized returns. The danger zone is at >7, Currently, it is at 0.93, 0.15 area has been the place to get in and has marked previous bear cycle bottoms (green zone). It compares realized price to market price and then adjusts it for volatility

MVRV Z score

Bitcoin Reserves

BTC reserves have been slow in the decline. They are at a 3 year low After the May deleveraging, we saw 140k BTC on net flow into exchanges. This took months for HODLers to re-accumulate and clean up. In this instance, however, we have actually just broken back to multi-year lows on exchange reserves.

BTC reserves

BTC Netflows
are negative meaning more of outflows than inflows

BTC Netflows

Bitcoin Miners Position Index

Miners have not been selling in whole of this dump and their position index remains at the bottom zone (Miners’ Position Index (MPI) is defined as the ratio of the number of all miners’ outflows in USD divided by 365 days moving average of it.)

Miners’ Position Index (MPI) takes the average behavior of miners into account by using 365 days moving average. Also, MPI explains the relative miner’s liquidation behavior compared to the historical average, assuming that most of the outflows from miners are heading to exchanges for selling. Also assuming that miners are good at selling their positions at the right time as professional traders, MPI is a good indicator for timing exit points (selling) by duplicating their behaviors. This also helps to view miners’ profitability along with Puell Multiple.

BTC MINERS POSITION INDEX
Bitcoin Miners Position Index​

The Puell Multiple

(Created By David Puell)
This metric looks at the supply side of Bitcoin’s economy – bitcoin miners and their revenue. It explores market cycles from a mining revenue perspective. Bitcoin miners are sometimes referred to as compulsory sellers due to their need to cover fixed costs of mining hardware in a market where price is extremely volatile. The revenue they generate can therefore influence price over time.

The Puell Multiple is calculated by dividing the daily issuance value of bitcoins (in USD) by the 365-day moving average of daily issuance value.

There are periods of time where the value of bitcoins being mined and entering the ecosystem is too great or too little relative to historical norms. Understanding these periods of time can be beneficial to the strategic Bitcoin investor.

The chart highlights periods where the value of Bitcoin’s issued on a daily basis has historically been extremely low (Puell Multiple entering green box), which produced outsized returns for Bitcoin investors who bought Bitcoin here. It also shows periods where the daily issuance value was extremely high (Puell Multiple entering red box), providing advantageous profit-taking for Bitcoin investors who sold here.

Currently, we are close to the green box

The Puell Multiple​

Illiquid supply

The amount of supply held by Hodlers or the entities who have very low outflows, these are participants with long term time horizon. It includes smart money. These entities have just been increasing their supply in face of liquidations and capitulation events.

Illiquid supply continues to climb, indicating a flow of supply to entities who hold over 75% of the coins they take in or conversely sell less than 25% of the coins they take in.

76% of supply is currently “illiquid”.

Illiquid supply

Dormancy Flow

Dormancy measures the average age of transactions (in days) on-chain per unit of BTC spent. It Compares the market cap to the USD value of annualized dormancy. Dormancy is coin days destroyed divided by volume, which just gives you the adjusted amount of coin destruction. Currently, it is far from any exuberant signature no matter how you want to look at it.

This is demonstrating high conviction, despite extreme volatility and losses

The value of Coin destruction or the Age of coins moving onchain is still very low…

The average coins moving or the age of coins transacting on-chain, both weighed by volume of by transaction, show that both of them are declining. It means that older coins are dormant and activity is by old hands are declining it means that mostly the younger coins have been selling at the low prices.

>Rising Dormancy means older coins are being spent at higher volumes.
>Declining Dormancy indicates a reduction in older coin spending volume.

The average baseline level for 2020 was a Dormancy level of 40 days, and we are well below that value now, sitting at an average of 25 days. In fact, Dormancy has been in a macro decline since the height of the bull run in January. The implication is that HODLer cohorts are exhibiting steady maturation behavior, and activity on-chain is dominated by younger coins

Dormancy Flow

Bitcoin Estimated Leverage Ratio

we saw a drop in leverage as the short squeeze occurred. We were looking for the squeeze from 10th of feb. there is still more room to go

BTC ESTIMATED LEVERAGE RATIO

Funding and Open Interest

Funding means “Periodic payments either to traders that are long or to those who are short short based on the difference in price between “perpetual contract markets” and “spot”.

>>When the funding rates are positive, long traders are paying a premium to shorts for the privilege of keeping their positions open. In periods of sustained bullish price, this can be the cost of doing business.
>>Likewise, when the funding rates are negative, shorts are paying longs as a majority bear bias dominates futures.

Funding becomes effectively actionable when it has an inverse co-relation with a price. For e.g when price is going down but funding is increasing, it means that the spot is buying while the leverage/margin traders are fading the increase in price, which leads to added strength for the demand side because of sell-side liquidations. Similarly, when the price is going down but the funding is increasing it means that margin traders are buying the dip, this can lead to sell-side liquidity to increase as margin traders get liquidated ultimately causing a liquidation cascade. Chances of liquidation cascades increase if the collateral which these traders are using is the same asset rather than stable coins.
we need to see Negative Funding Rates for a while. That will show Bearish sentiment on futures market and strengthen the case for the bottom formation
Avg Funding Rate Danger Zone is >0.08%, Currently it is neutral at 0

FUNDING AND OPEN INTEREST

Bitcoin Open Interest

The “total” number of “outstanding contracts” on “all exchanges”

Estimated Leverage Ratio and Open Interest have decreased quite a bit

OPEN INTEREST

OI can help you in detecting who is behind aggressive orderflow

is aggressive buying coming from new longs or old shorts?

is aggressive selling coming from new shorts or old longs?

This Friday 25Feb2022 approximately $1.48 B worth of Bitcoin options contracts expired in DeribitExchange with the max_pain price was at $40k

Max Pain Btc

Active Address Sentiment Indicator

Active Address Sentiment Indicator

in our previous report we had noted the overly bearish sentiment and how it can result in a squeeze, which we eventually got, presently we are approaching resistance on this metric

in our previous report we had noted the overly bearish sentiment and how it can result in a squeeze, which we eventually got, presently we are approaching resistance on this metric

Bitcoin Net Unrealized Profit/Loss

(Net Unrealized Profit/Loss) looks at the difference between Unrealized Profit and Unrealized Loss to determine whether the network as a whole is currently in a state of profit or loss.

We have seen uptrend in nupl during the bull market and the opposite for the bear.

Currently, we have a hl on short time frame.. This is a significant support area where 29k, 9k bottoms were formed and we saw the price rally after bouncing from this level. However, If this support is broken then capitulation levels to buy are mentioned in green which are way down.

btc Net Unrealized Profit-Loss

We were buying at a lower 33k region in our exclusive discord channel.

 

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