Data analysis: Bitcoin bottoming out is nearing completion

In recent weeks, the price of Bitcoin has been unusually stable, in stark contrast to the equity, credit, and foreign exchange markets, where interest rate hikes, inflation, and the strength of the U.S. dollar continue to cause violent shocks. Against this backdrop, Bitcoin has been very stable. Compared to many other assets, Bitcoin has made progress to some extent.

The Bitcoin market edged higher this week, rebounding from a low of $19,037 to a high of $20,406. Since the massive deleveraging event in mid-June, the Bitcoin price has remained range-bound for more than 120 days.

When investors try to build a bear market bottom, we can compare the market structure to past cycle lows. In this article, we conduct a series of studies on the behavior of large account subjects and make adjustments to many bottom-forming indicators to better illustrate the impact of lost and long-held Bitcoins.

Data analysis: Bitcoin bottoming out is nearing completion

Bitcoin: The price of the 41st week

Whale-driven sell-off

In general, sustained price movements are usually related to the trend of net over- or under-holdings on the chain. This correlation is often primarily driven by the behavior of larger subjects (i.e., high-net-worth individuals, whales, and institutional capital).

The importance of large entities can be measured by their share of total circulating supply. As the relative address supply distribution graph shows, since early 2011, the share of larger entities (holding > 100 BTC) in total supply has gradually declined from 70% to 60% (although the value of Bitcoin has changed significantly over time).

Data analysis: Bitcoin bottoming out is nearing completion

Bitcoin: Distribution of relevant address supply

The cumulative trend reflects the intensity of the change in the total balance of active investors over the past 30 days, with larger entities holding higher weights. A weight close to 1 indicates that, overall, larger entities are increasing their on-chain balance count (and vice versa).

Looking back at the late 2018-2019 bear market, a series of different ranges can be identified:

  • Equilibrium before sell-off: When spot prices converge to the long-term cycle baseline (dotted line), the supply and demand sides remain equilibrium.
  • Sell-off: As price action falls below the cycle baseline, the market enters a sell-off phase. Interestingly, larger subjects tend to increase their holdings further (green), and these strong overweight zones usually follow equilibrium.
  • Bottom formation: Throughout the bottom formation phase, there are one or more short-term Bitcoin rallies that coincide with a large subject sell-off (red) due to insufficient demand (known as a bear market rally).

It is worth noting that after falling below the cycle baseline of $30,000, a series of events similar to the 2018-2019 bear market occurred in a row. Throughout the sell-off in early 2022, cumulative trend scores indicate a large overweight by large entities and a sell-off when the recent bear market rebounded to $24,500. Currently, the indicator indicates that the market has a similar equilibrium (neutral) structure as at the beginning of 2019.

Data analysis: Bitcoin bottoming out is nearing completion

Bitcoin: Accumulation Trend (7 days)

For a more detailed analysis, you can refer to the accumulation trend of wallets of different sizes. Here, we compare the market structure to the post-sell-off phase of the 2018-2019 bear market.

We can see that large subjects, especially wallets holding 1000-10000 BTC, drove a sell-off (red) during the March 2019 bounce on the lows. Retail investors (holding < 1 BTC) increased their holdings significantly in 2018 and 2019 (blue).

Data analysis: Bitcoin bottoming out is nearing completion

Accumulation trend of wallets of different sizes

In our current market structure (which is about 10x higher than the Bitcoin price in 2019), we can see very similar behavior happening among large subjects, but in the August rally, the 100-1000 BTC subjects drive more impact.

The relative neutrality of small and medium-sized wallet groups, while the cumulative trend of whales holding 1000-10000 BTC highlights the strong holdings since late September. The cumulative trend of whales with more than 10,000 BTC has weakened in recent months.

Data analysis: Bitcoin bottoming out is nearing completion

Accumulation trend of different wallet sizes

We can see an increase in whale net withdrawals in recent weeks, with the trading platform’s net outflow reaching 15,700 BTC, the largest outflow since June 2022.

Data analysis: Bitcoin bottoming out is nearing completion

Bitcoin: The amount of deposits and withdrawals made by whales on the trading platform

We can calculate the underlying cost of all whales that actively speculate over a given period of time to arrive at a threshold level that affects the psychology of these investors. By exploring the amount of deposits and withdrawals in and out of the trading platform by the whale queue (holding 1000+ BTC), we estimate the average price of whale deposits/withdrawals since January 2017. The whale base cost is currently about $15,800.

Data analysis: Bitcoin bottoming out is nearing completion

Bitcoin: The relevant price of a whale on the trading platform

Losses intensified

The reduction in profitable supply will cause increased financial pressures, and in previous cycles sellers have fully shipped.

Exploring the supply share of earnings in the formation phase of the previous bear market bottom, we find that cyclical lows usually coincide with a 40%-42% share of profitable supply. Currently, 50% of circulating supply is in an unrealized profit state, which indicates that supply profitability is still high relative to the bear market in the same period. This may hint that a significant decline in our profitability has not yet occurred.

Data analysis: Bitcoin bottoming out is nearing completion

Bitcoin: The share of profitable supply

In addition, since the 2014-2015 bear market, the cyclical lows in the profit supply percentage chart have shown an upward trend. A key driver of this macro trend is the “lost” Bitcoin and inactive supply, including the impact of the Patoshi model (where Mining once acquired about 1.1 million bitcoins between 2009 and 2010). To study the impact of these bitcoins, the chart below shows the total supply in earnings and the supply that was last active 7 years ago, and it can be assumed that they are lost or inactive.

Currently, 3.7 million bitcoins have been idle for the past 7 years, equivalent to 34% of the current profitable supply.

Data analysis: Bitcoin bottoming out is nearing completion

Bitcoin: Profitable supply & 7 years + inactive supply

By adjusting the supply in the profit (yellow) to the inactive supply, we can calculate the percentage of supply in the adjusted profit (blue). The resulting chart shows that at the lowest point of the bear market cycle, the share of profitable supply fell to around 39%, and in previous cycles, the share of profitable supply fell even more. However, it is consistent with the conclusions of the above introduction.

Data analysis: Bitcoin bottoming out is nearing completion

Bitcoin: Adjusted Profit Supply Ratio (7 days)

The potential financial pressure on the remaining investors can be tracked by the unrealized profit metric. This metric measures the standardized total profit of all bitcoins in the supply and adjusts for the increase in bitcoin assets in each cycle.

Surveys of historical data show that when the cumulative unrealized profit is compressed to about 30% of the market capitalization, a large part of the selling pressure is alleviated (Bitcoin is sold out). Since November 2021, the continued downside of the Bitcoin price has caused the ratio to drop to 0.37, which is slightly slower than the previous low.

Data analysis: Bitcoin bottoming out is nearing completion

Bitcoin: Related unrealized profits

Net unrealized net profit and loss (NUPL) is a measure of the difference between network unrealized profit and loss as a percentage of market capitalization, which takes into account losses and earnings in supply at various stages of the market cycle.

Since the beginning of June, the NUPL has fallen to a compressed negative range of 0% to -15% in two different periods, which has lasted for 88 days to date. By comparison, we can see that the NUPL has fallen below -25% in previous cycles, and has been negative for up to 134 days (2018-19) and 301 days (2014-15).

Note that NUPL cycle lows are also gradually climbing due to lost and long-held Bitcoins.

Data analysis: Bitcoin bottoming out is nearing completion

Bitcoin: Unrealized Net Profit and Loss (NUPL) (7 days)

Next, we can use the same method to adjust the percentage of profit supply of the NUPL indicator. This results in the indicator of unrealized net profit and loss (aNUPL) after adjusting for inactive supply.

The main observation of this correction is that by eliminating the impact of holding bitcoins for more than 7 years (inactive supply), aNUPL has been in a negative state for the past 119 days, which is comparable to the length of time that the previous bearish bottom formation phase was taken.

In addition, the lowest recorded value of aNUPL (-39%) in the current bear market has fallen below the -25% threshold, indicating that the extent of losses in the market structure is persistently grossly undervalued.

Data analysis: Bitcoin bottoming out is nearing completion

Bitcoin: Adjusted unrealized net profit and loss (7 days)

STH has a lower base cost

After assessing the financial pressures across the network, we can examine its distribution among long-term (LTH) and short-term holders (STH). The analysis aims to determine the market structure during bear markets.

From the perspective of the SH supply of profit/loss, when all (more than 99%) of the supply of STH (blue) is in the red, the price will pause the correction. Currently, STH supply accounts for 18.1% of total supply, of which 15.1% is an unrealized loss. This leaves STH holding only 3% of the profitable supply, which could be close to the point where Bitcoin is sold out after such a long downtrend.

Data analysis: Bitcoin bottoming out is nearing completion

Bitcoin: Profit/loss STH supply

A study of the Long-Term Loss Supply indicator shows that the probability of these investors selling off peaks when the losing LTH supply exceeds 20% of the total supply (red).

LTH currently holds more than 31% of the supply at a loss (red) and there is a good chance that the market has reached the sell-off phase, which is similar to the previous bottom-forming phase. The market has been at this stage for 1.5 months, with the duration of this phase of the previous cycle ranging from 6 months to 10 months.

Data analysis: Bitcoin bottoming out is nearing completion

Bitcoin: Long-term loss of supply

Finally, we can explore the relative pressure level by comparing the average purchase price of each bitcoin for STH (red) with the average purchase price of LTH (blue). In a long bear market, the continued downward movement of the price causes the realization price of STH to be lower than the realization price of LTH (purple).

This market structure means that the average acquisition cost over the past 155 days is currently lower than the average LTH base cost. In other words, STH has a lower base cost than LTH.

This is a direct result of the LTH sell-off, where they buy Bitcoin near the top of the cycle and sell it at a much lower price and change hands.

Two weeks ago, the market entered this phase, and compared to the previous bear market, we guessed that it would take 145 days to 339 days to recover. The LTH base cost is $23,300 and the STH is $22,100, which sets a key price range.

Data analysis: Bitcoin bottoming out is nearing completion

Bitcoin: Base Cost

The formation of the bottom of a bear market

Compared to the highly volatile traditional market, the Bitcoin price has recently shown a significant comparative advantage. Several macro indicators suggest that Bitcoin investors may be building on the bottom of a bear market, with many similarities to previous cycle lows.

Network profitability hasn’t fully reached the level of losses as severe as in past cycles, but adjustments to the parameters of lost and long-term Bitcoin holdings can reasonably explain the difference.

In many ways, many on-chain indicators, market structures, and investor behavior patterns revolve around a textbook bear market bottom line. These data can’t tell us how long it will take for the bottom to form, but historical indications may be a few more months.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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