Key Glassnode Metrics for Post-Halving Market Dynamics

On April 20, 2024, Bitcoin experienced its fourth halving, a scheduled event that occurs approximately every four years, reducing the block reward for miners by 50%. The recent halving decreased the reward from 6.25 BTC to 3.125 BTC per block. In practical terms, this means that Bitcoin’s annualized inflation rate has now dropped to about 0.85%. For comparison, gold's long-term supply growth stands at approximately 2.3% which positions Bitcoin as a rarer asset compared to gold, strengthening its appeal as a 'digital gold' for some investors.

The Market’s Response

Interestingly, the immediate market reaction to the halving was mixed. Bitcoin's price has continued to consolidate around the $60K range - without making a strong push towards higher prices but suffering no significant declines either.

However, transaction fees saw a significant spike due to increased demand for block space, particularly from new protocols such as Runes, which utilize Bitcoin's block space for issuing fungible tokens. This phenomenon shifted a substantial portion of miners' revenues from block rewards to transaction fees, highlighting a critical dynamic in the mining economy post-halving. These conditions underscore the need for investors to monitor transaction fees closely as they now play a more significant role in the ecosystem 

Mining stocks, on the other hand, responded positively. The Bitcoin miner ETF ($WGMI) saw an 18% increase in the five trading days following the Halving, suggesting that the investment community retains confidence in the profitability and sustainability of Bitcoin mining operations post-halving.

What On-Chain Trends Can We See in the Aftermath?

Post-Halving, the on-chain dynamics of Bitcoin have shown several interesting trends:

• Transaction Fees and Mining Revenue: A substantial part of the mining revenue now comes from transaction fees, which constituted 75% of total mining revenue the day after the halving. Although this level subsided shortly thereafter, the fees remained elevated above historical norms due to the increased demand for transactions, particularly those related to new Bitcoin-based protocols.
• Hashrate Stability: Despite the reduced block reward, Bitcoin's hashrate - a measure of the network's computational power - has remained stable or even grown, suggesting that miners are still finding it profitable to mine Bitcoin. This is likely due to the efficiency improvements in mining technology and operational adjustments within the mining sector
• Investor Profitability: The MVRV ratio, which measures the unrealised profit of Bitcoin holders, indicates that investors are holding coins at a significant profit relative to their cost basis.

Essential Glassnode Metrics to Monitor Post-Halving

For traders, monitoring specific Glassnode metrics post-halving can provide insights into the network's health, economic dynamics, and market sentiment, all of which are vital for making informed trading decisions. Understanding these metrics can help traders both capitalize on trends and mitigate risks. Here are a few that are especially worth monitoring in the coming weeks:

• Hash Rate: This metric assesses the total computational power used by miners and is crucial for understanding the security and robustness of the Bitcoin network. A continuous increase in hash rate, even at ATHs, suggests strong miner commitment and a robust security budget. This can indicate the health of the mining sector and by extension, the network’s stability. Below, you can find an interactive explanation of the metric:

• MVRV Ratio: The Market Value to Realized Value (MVRV) ratio provides insights into the profitability of bitcoin holdings over time. An MVRV ratio above 1 suggests that most holders are in profit, which can be a critical indicator for understanding market sentiment and potential selling pressure. Post-halving, monitoring this ratio can help traders gauge the timing of entry or exit points based on historical profitability. Click through the interactive explanation below to learn more:

• Miner Revenue and Transaction Fees: Tracking changes in miner revenue - comprising block rewards and transaction fees - is vital. Although the halving reduces block rewards, increasing transaction fees can offset this decrease. A rising miner revenue, despite the halving, signals a healthy network activity and can hint at a bullish market sentiment. Additionally, given the shift in revenue generation towards transaction fees, monitoring these fees is increasingly important for understanding miner profitability and network activity. An increase in fees suggests higher network demand, which is vital for assessing the network's economic conditions post-halving. Learn more below:

• Realized Cap: This metric calculates the total value of all bitcoins at the price they were bought and moved, serving as an indicator of network liquidity. A growing realized cap post-halving can signal increasing investor confidence and a consolidation of Bitcoin as a store of value, useful for long-term investment strategies. Learn more below:

What’s Next

As we have noted in our previous research articles, the halving did not significantly impact Bitcoin's price in the short term, but its long-term effects remain to be seen. At the moment, other dynamics, such as the significant demand from ETFs and the distribution cycle of long-term holders, play a more prominent role in shaping the market. 

We encourage investors and traders to monitor these dynamics closely through Glassnode's comprehensive research and analytics provided in articles like Trading Strategies for Bitcoin Halving 2024 or The Week Onchain Week 17 2024. Once a month, we also provide a comprehensive view of the Ethereum landscape. In this recent article, for example, we explore the evolving dynamics around staking. 

These resources can prove invaluable for enhancing trading strategies for both momentum and long-only traders, providing a deeper understanding of the current Bitcoin market landscape.