Bitcoin Breaks to New Highs

Executive Summary

• Bitcoin has broken to a new ATH of $72k relative to the US Dollar, entering price discovery, and pushing investor sentiment closer to Euphoria.
• Numerous metrics indicate a striking similarity to past ATH breaks, where a wealth transfer from old HODLers to new investors and speculators is well underway.
• Realized profit metrics and futures funding rates have also spiked to significantly positive levels, suggesting elevated profit taking and demand for long side leverage.

Entering The Euphoria Zone

Bitcoin has broken to new all-time-highs relative to the USD this week, clearing the $69.2k level, and rallying over $72.3k. If we only consider the major breaks above the prior cycle ATH, this would be the fourth new cycle ATH in history.

In this edition, we will examine this phase shift into the 'Euphoria Zone' which tends to accompany new ATHs. From an on-chain data perspective, this moment has historically triggered a distinct shift in investor behaviour patterns, particularly in the relative balance between HODLers and the Speculator cohorts.

The price is not the only metric to have recently reached a new ATH. The Bitcoin Realized Cap, being a measure of the total wealth stored in BTC on-chain, has also marched to set a new high of $504B, adding over $40B in capital inflows since 1-March alone.

The Realized Cap is currently increasing at a rate of $54B/month, approaching levels last seen during the run-up in early 2021. This highlights just how significant the capital inflows have been for Bitcoin, driven in part by the tremendous success and demand for the new US ETF products.

A Steady Transfer of Wealth

One of the classic patterns observed during Bitcoin bull markets is a transfer of wealth from old to young. Investors who accumulated BTC at cheaper prices several months to years in the past, tend to accelerate their distribution pressure as new ATHs are reached (see our prior report).

This wealth transfer is once again in play, with the proportion of wealth held by 'Young coins' (moved within the last 3-months), increasing by 138% since October 2023. This reflects a net expenditure by longer-term investors who had previously held their coins for at least 3-months.

We can see this dynamic play out over prior cycles through the lens of Short-Term and Long-Term Holder Supply. Here we can see that LTH supply has declined by -660k BTC since the peak in Nov 2023. As we covered last week (WoC-10), approximately 57% of this decline can be attributed to redemption from the GBTC ETF product.

Conversely, STH Supply has increased by +810k BTC over that same period, absorbing coins from two regions:

• 660k BTC transferred from Long-Term Holders.
• 150k BTC withdrawn from Exchange Balances we monitor.

Overall, this transfer of wealth appears to be following a very similar path to all prior Bitcoin cycles, and represents both a shifting ownership structure, but also the dynamic balance between supply, demand, and price.

As LTHs distribute coins, their sell-side must be absorbed by an influx of new demand. The challenge for analysts is to identify periods when this distribution pressure may be reaching a point of over-saturation and exhaustion of new demand. The chart below shows two traces:

• 🔵 The percent drawdown of LTH Supply from its peak.
• 🔴 The percent uptick of STH supply from its cycle low.

At previous bull market peaks, LTH supply had declined by between -14%, and up to -25%, suggesting a relative degree of distribution pressure each cycle. Conversely, STH Supply tends to reach a maximum around the cycle top, increasing by more than 83% from its cycle low.

If we make the overly-simplistic, ballpark-grade assumption that these drawdown/uptick magnitudes reflect a point of supply/demand inflection at cycle peaks, it would indicate that the current market has experienced around 30% of the typical distribution cycle.

The RHODL Ratio is another popular metric for tracking this transfer of wealth from old HODLers to new investors and Speculators. It is constructed as the ratio between wealth stored within in 1-week old vs 1y-2y old coins.

The chart below has highlighted in 🔵 where the RHODL Ratio crosses above its current value of 6.3k. We can see that this indicator is in a very similar position to all prior ATH breaks, suggesting the transfer of wealth is firmly in line with historical precedents.

By isolating traces for the wealth stored in each age band component (🔴 1wk and 🔵 1y-2y), we can visualise this transfer of wealth over the course of the cycle.

• At the lows of bear markets, the HODLer cohort holds a dominant proportion of the wealth, with the 1y-2y curve 🔵 reaching its cycle peak.
• At the tops of bull markets, the Speculator cohort now dominates the supply, with the 1-week curve 🔴 peaking, alongside prices reaching their cyclical top.

Once again, a market break to new ATHs corresponds with a switching of dominance, where the capital held by new investors and Speculators overtakes that held by longer-term HODLers.

Taking Profits

This distribution pressure by Long-Term Holders is of course balanced by an equal magnitude of inflowing demand from the Short-Term Holder cohort (since every seller is matched with a buyer). The revaluation of older coins from a lower cost basis to a higher one necessitates a capital inflow, as the new buyer must acquire those coins at a higher aggregate value.

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We can therefore relate capital inflows to both upticks in the realized cap, but more directly with the Realized Profit metric. This week, the magnitude of Realized profit locked in via on-chain spending reached statistically high levels, trading more than one standard deviation above its long-term mean.

This also reflects very similar conditions to the start of prior 'Euphoria' phases, such as the 2017 and 2021 bull markets.

In this final chart, we highlight quite an intriguing observation, relating a popular on-chain metric, SOPR, to the funding rates observed in futures markets. The chart below has two traces:

• 🔵 Entity-Adjusted SOPR (minus 1), reflecting the average profit/loss multiple locked in by economical on-chain spending (filters out internal transfers and similar). Higher values indicate that the average coin being spent are locking increasingly large profit magnitudes on average.
• 🟠 Futures Funding Rates (Annualized), which reflects the interest rate paid from longs to shorts (when positive, and vice versa when negative). Funding rates can help measure both the magnitude, and direction of leverage in futures markets, as well as the incentive for market makers to add liquidity to orderbooks to arbitrage the premium (via a cash-and-carry trade).

The similarity between these traces is quite striking, suggesting they are telling analysts a similar story, but from a different lens. Both metrics have increased to levels coincident with the late-2020 to early-2021 bull market. This indicates that profit taking is elevated, ans so is long biased leverage in futures markets.

More specifically, the average on-chain spend is locking in a profit of +27%, whilst speculators in futures markets are willing to pay an interest rate in excess of 35% to 45% for access to leverage. Both metrics have reached and persisted at much higher levels in the past, but are certainly now well within 'Euphoria Zone' territory.

Summary and Conclusions

Bitcoin has broken to its fourth new cycle ATH this week, trading above $72k for the first time. This move is supported by massive capital inflows to the asset, with the Realized Cap climbing at a rate of around $54B/month, in line with the 2021 bull cycle highs.

Across numerous metrics, the current cycle is surprisingly and eerily similar to previous ATH breaks, with the transfer of wealth from HODLers to new investors and speculators well under way. This dynamic reflects a healthy balance between distribution pressure, and new demand, but also gives us a glimpse into the mechanics which, eventually, go on to establish cyclical tops.

Disclaimer: This report does not provide any investment advice. All data is provided for information and educational purposes only. No investment decision shall be based on the information provided here and you are solely responsible for your own investment decisions.

Exchange balances presented are derived from Glassnode’s comprehensive database of address labels, which are amassed through both officially published exchange information and proprietary clustering algorithms. While we strive to ensure the utmost accuracy in representing exchange balances, it is important to note that these figures might not always encapsulate the entirety of an exchange’s reserves, particularly when exchanges refrain from disclosing their official addresses. We urge users to exercise caution and discretion when utilizing these metrics. Glassnode shall not be held responsible for any discrepancies or potential inaccuracies. Please read our Transparency Notice when using exchange data.

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