5 On-Chain Indicators Suggesting the End of the Bitcoin Bear Market
In today’s chain analysis, BeInCrypto presents a ranking of the TOP 5 metrics that indicate the end of the BTC bear market. Although many on-chain indicators already signaled the mid-2022 bottom, many others remained neutral.
However, as 2022 draws to a close, more and more key indicators appear to be signaling a bottoming of the Bitcoin price. Our list of TOP 5 on-chain indicators pointing to the end of the decline includes:
- BTC price pull from ATH
- Percentage offer in surplus
- Net realized profit/loss
- Realized earnings-to-value
- MVRV Z-score
BTC price pull from ATH
The first of the TOP 5 on-chain indicators that suggest that Bitcoin has reached the end of the bear market is the Price Drawdown from ATH. It measures the percentage decline in BTC price from successive all-time highs (ATH).
On a long-term chart of this indicator and the Bitcoin price, we see 4 periods where the price decline from the ATH stayed in extremely low areas. Naturally, they correlate with the ends of historical bear markets and macro bottoms of the BTC price. The lowest points for previous declines were recorded at -93% (2011), -85% (2015) and -83.5% (2018).
Currently, the lowest point of BTC price decline from ATH was recorded at -77% on November 21, 2022. Although this is not as low as the bottom of previous bear markets, we see the depth of declines weaken in subsequent cycles.
In addition, we see that the extremely low deviation from ATH has persisted for at least several months in the past. Therefore, although BTC has already reached a macro bottom, we should not expect a quick resumption of the uptrend.
TOP 5 on-chain indicators: Percentage offer in profit
Another indicator that signals the end of a bear market is percentage in profit. It shows the percentage of existing coins whose price at the time of the last draw was lower than the current price.
On a long-term chart of the 14-day moving average of this indicator, we see that the demarcation line for extreme lows is the 50% offer-in-profit level (green area). So far Bitcoin has been below this line only 5 times. Twice it briefly touched the 48% range, in 2011 and now; corresponding to the 50% level during the March 2020 COVID-19 crash (blue circles).
However, on two occasions the index fell deeper, registering a bottom of 42%. This happened in the bottoms of 2015 and 2019 (red areas). Therefore, depending on which scenario comes true this time, the indicator may have already reached the bottom of 48%, or further decline in BTC price and the 42% level is on the horizon.
Another way to illustrate the same thing is to draw the market extremes on the chart. Again, we can see that the current situation is more similar to the declines of 2011 and the crash of 2020, rather than the two previous bear markets.
Net realized profit/loss
The third in our list of TOP 5 on-chain indicators is net realized profit/loss. It is defined as the net profit or loss of all moved coins expressed in dollars (USD). In other words, it is the simple difference between realized profit and realized loss.
The dollar value of Bitcoin in the current market is so high that the net realized profit/loss ratio is at an all-time low. It reached an all-time low (ATL) of -$4.30 billion on November 18, 2022. Previous records were set on June 13, 2022 ($-4.23 billion) and June 25, 2021 ($-3.46 billion).
If we compare these extremes to the previous bear market or even the COVID-19 crash, we notice that the realized net result was much milder. On March 12, 2020, the ratio hit a low of -$1.39 billion. In contrast, the bottom of the previous bear market was only -$948 million on December 5, 2018.
But if one were to normalize realized net profit by market value, we see that the lowest level was reached during the June declines. At that time, the ratio reached ATL of -6.22%. In comparison, in historical bear markets it fell to -6.00% in January 2015 and -5.39% in December 2018.
Realized earnings-to-value
Another interesting indicator is the Realized Profits-to-Value (RPV) ratio. It is defined as the ratio between realized profit and realized market value. This calculation compares the market’s profit realization to its total dollar-for-dollar cost basis.
According to data from Glassnode, the green area between the levels 0.00005 and 0.00017 signals good opportunities for Bitcoin purchases. But in exceptional situations, the indicator even falls below this range and signals excellent buying opportunities.
So far this has only happened three times in history – in 2015, in 2019 and now (blue areas). Moreover, on the previous two occasions these extreme lows occurred after the BTC price had already bottomed out. If this were to happen again now, it is possible that Bitcoin has already reached the bottom of this bear market.
TOP 5 on-chain indicators: MVRV Z-score
The last on the list of TOP 5 on-chain indicators that signal a bottom in the price of BTC is the well-known MVRV Z-score. In short, it is used to assess when Bitcoin is over- or undervalued in relation to its so-called “fair value”. It is calculated as the ratio between the difference between market value and realized value, and the standard deviation of all historical market value data.
On the long-term chart, we can see that whenever the MVRV Z-score was in the green area, it was a very good signal of a bottom in the Bitcoin price. The capitulation of the indicator has always correlated with the capitulation of the BTC price.
Also, we see that each successive bear market drove the MVRV Z-score to slightly smaller extremes. This allows us to draw a rising support line (blue), where the indicator is currently positioned. If that holds, it’s possible that Bitcoin has already bottomed out in the current bear market.
To further understand the relevance of the MVRV Z-score to the health of the cryptocurrency market, you can superimpose the colors that represent it on a Bitcoin chart. This gives an indication of an overvalued (red, overheated) or undervalued (green, overcooled) market. According to this calculation, the current Bitcoin price in the $16-20k range appears to be extremely undervalued.
For BeInCrypto’s latest crypto market analysis, click here.
Disclaimer
BeInCrypto strives to provide accurate and up-to-date information, but it will not be responsible for missing facts or inaccurate information. You comply and understand that you should use all such information at your own risk. Cryptocurrencies are highly volatile financial assets, so do your research and make your own financial decisions.
