On-Chain Data Shows Bottom for Bitcoin – Bitcoin Magazine
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On-Chain Data Trends
November was a painful month. By looking at the realized profit and loss data on the chain, we can see that this was true for many forced sellers of bitcoin. Before any bitcoin price bottom, a characteristic you want to see is extended periods of forced selling, capitulation, and increases in realized losses. One way to see this is by looking at the sum of realized profits and losses for each month in relation to bitcoin’s total market capitalization. We saw these bottom signals in November 2022, and similarly in the Terra/LUNA crash in July 2022, the COVID scare in March 2020, and the capitulation events in December 2018.
Net realized profit above market value
Looking at the 2018 cycle, the end was characterized by excess realized losses, although this was much different with the forced liquidations and cascades of private balance sheet leverage and paper-bitcoin unwinding that we saw this year.
30-day cumulative net realized profit
We’ve talked about the current decline in bitcoin’s price and how it compares to previous cycles many times over the past few months. Another way to look at cyclical moves is to focus on bitcoin’s realized market cap – the average cost basis of the network that tracks the last price at which each UTXO last moved. With the price being more volatile, realized price is a more stable view of bitcoin’s growth and capital inflow. The realized market value is now down 17.33%, which is significantly higher than the 2015 and 2018 cycles of 14.13% and 16.51% respectively.
Bitcoin realized cap drawdown
In terms of duration, we have a total of 176 days until the price is below bitcoin’s realized price. These are not consecutive days when the price may temporarily exceed realized price, but price trends below realized price in bear market periods. For context, the 2018 trends were short-lived at around 134 days and the 2014-15 trends lasted 384 days.
On the one hand, bitcoin’s realized market value has taken a significant hit in the previous capitulation round. It is a promising bottom-like sign. On the other hand, it is a case to highlight that the price below the realized price can easily last another six months from historical cycles, and the lack of capitulation in the stock markets remains a major headwind and concern.
Net unrealized gain/loss
According to the net unrealized profit/loss ratio (NUPL), we are well into the capitulation phase. NUPL can be calculated by subtracting the realized value from the market value and dividing the result by the market value, as described in this article written by Tuur Demeester, Tamás Blummer and Michiel Lescrauwaet.
It cannot be denied: for bitcoin native cycles, we are well into the capitulation phase. Currently, only 56% of circulating supply was last moved on-chain in profit. On a two-week moving average basis, less than 50% of bids were last moved above the current exchange rate, which has only ever happened in the depths of previous bear markets.
Percentage of bitcoin supply in profit
14-day moving average of the percentage of bitcoin supply in profit
When you think about the bitcoin exchange rate, the counter side of the equation is historically cheap. The Bitcoin network continues to produce a block roughly every 10 minutes unabated, as the hash rate ticks higher and as the ledger offers an immutable settlement layer for global value. The speculation, influence and fraud of the previous cycle wash ashore and bitcoin continues to exchange hands.
Bitcoin is objectively cheap relative to its all-time history and adoption phases. The real question about the immediate future is the denominator. We have talked at length about the global liquidity cycle and its current track. Despite being historically cheap, bitcoin is not immune to a sudden strengthening of the dollar because nothing really is. Exchange rates are relative, and if the dollar pushes higher, everything else will fall later – at least momentarily. As always, position size and time preference are key for all.
As for the catalyst for an increase in the dollar denominator of the bitcoin exchange rate (BTC/USD), there are 80 trillion possible catalysts…
