Is the Bitcoin Bear Behind Us?

The Bitcoin market has broken above $30k in recent weeks, posting the strongest Quarterly returns (+70%) since the Oct 2021 all-time-high. This has also been the second time weekly returns have reached +36%, firmly placing Bitcoin as the best performing asset class YTD, once again.

The strong market performance in 2023 is a stark contrast to 2022, and suggests a favorable regime shift is under way. In this report, we will explore several on-chain indicators which support this notion, and help to assess whether a robust recovery from a bear market is in play, and if the bear market may well be behind us.

🪟 View all charts covered in this report in The Week On-chain Dashboard.

An interesting development over the last 12 months has been the increased correlation between the performance of BTC prices, relative to Gold, the traditional sound money safe haven. On a 30-day, 90-day, and 365-day basis, the correlation between these two assets is now strongly positive, remaining elevated during the recent US banking crisis a few weeks ago.

This does suggest that an appreciation for both sound money, and the realities of counter-party risk are increasingly front of mind for investors.

🪟 Related Dashboard: We have recently rolled out a suite of Forex and Commodity price metrics, utilizing oracle prices found on the Ethereum blockchain.

Sound Support Below

The Bitcoin market sits within an interesting position, whereby our Long/Short-Term Holder threshold of 155-days is approximately the date when FTX imploded. As such, we can interpret LTH and STH metrics as follows:

• 🟦 Long-Term Holders acquired coins before FTX failed, and currently hold a total supply balance of 14.161M BTC, which is just shy of a new ATH.
• 🟥 Short-Term Holders acquired coins after FTX failed, and have seen their supply balance of 2.914M BTC remain fairly constant in 2023.

If we bring this observation into a distribution chart of investor acquisition prices, we can see three important supply clusters:

• Bottom Formation Cluster < $25k: These coins are those that largely changed hands between June 2022 and Jan 2023. There is an fairly even balance of LTH (pre-FTX) and STH (post-FTX) buyers in this range.
• Recent Acquisition $25k to $30k: These coins amount to 7.25% of the supply, and are much more heavily weighted towards STH coins. This reflects a combination of profit taking from below, and coins sold to break-out buyers as price rallied above $25k.
• Cycle Survivors $30k+: The remaining Long-Term Holders who weathered the volatility and chaos of the 2021-22 cycle, and are still holding, amounting to 22.2% of the supply.

We can also view the current market cycle from the lens of Long-Term Holder behavior, expressed via changes in their held Supply. We can see three key phases:

• Plateau of Patience, where LTH supply tends to hover around its ATH, often from several months, to over a year.
• Peak HODL, where LTH supply in profit (dark blue) rises rapidly, and is usually associated with a run-up in prices towards the ATH.
• Distribution upon Breaking ATH, where LTHs start to distribute heavily into waves of new demand that are entering the market.

The market currently sits well within the Plateau of Patience, with over 23.3% of the supply held outside exchanges owned by LTHs who are underwater on their position. The current supply structure also has many similarities to early 2016 and early 2019.

We can see that the YTD market strength is supported by an explosive uptick in coins held at a profit. Bear market floors are characterised by wide-scale capitulation, which by definition, has an equal and opposite inflow of demand to absorb it.

As price rallies out of the bottom formation zone, all of these coins return to profit. In 2023, a total of 6.2M BTC have returned to profit (32.3% of supply), giving an indication of just how large this cost basis foundation is below $30k.

With so many coins returning to an unrealized profit, it follows that the incentive to spend and sell will start to rise. The popular NUPL metric provides a measure of how much of the Bitcoin market cap is held as an unrealized profit.

At the current reading of 0.36, the market is at a very neutral level, with 55.8% of days recording a higher reading, and thus 44.2% being lower. This is coincident with past cycles where a transition between a bear and bull markets have taken place. It also suggests that the market is neither heavily discounted (like it was at $16k), nor heavily overvalued (like at the $60k+ peak).

HODLer Holdings

Despite the Bitcoin price climbing over 100% since the lows, there is yet to be any significant uptick in older coins being spent. The chart below shows that coins younger than 3-months still represent less than 20% of the wealth held in Bitcoin, which is usually associated with bear cycle lows.

By contrast, this means coins older than 3-months (HODLers) hold over 80% of the wealth, despite the brutal drawdown of 2022, and market upswing in 2023.

Both of the above two observations can be visualized within the RHODL ratio, which is in the process of reversing from a point of peak HODLer saturation. By this metric, the cycle has most likely turned in the favour of the bulls, however is is also no longer in undervalued territory (nor overvalued by historical standards).

65.8% of all trading days have recorded higher RHODL Ratio, providing further evidence that HODLers remain the dominant entity within the market, and supply holdings.

A Healthy Recovery

Whilst HODLers are often associated with coin dormancy, the Bitcoin network remains very much alive with activity. Organic transaction counts are now over 270k/day, which is approaching cycle, highs on a monthly average basis.

This is associated with both monetary transfers, but also with the emergence of Inscriptions, which have surpassed 1 million total milestone this week.

🪟 Related Dashboard: Several On-chain Activity metrics are available within a live dashboard, designed to identify trends in Bitcoin network adoption.

With increased on-chain activity, comes elevated fee pressure. The 2yr Z-Score below is designed such that an increase in fee pressure relative to the recent bear market will stand out.

We can see that this has now flipped positive, suggesting demand for Bitcoin blockspace has increased by a statistically meaningful amount.

Bringing it All Together

The above suite of indicators consider the Bitcoin on-chain environment from a number of angles. Generally speaking, the behavior of Bitcoin investors has been remarkably consistent over cycles, which allows us to develop tools that find confluence.

The chart below is one of our on-chain signals, which uses eight metrics, across four areas, and seeks confluence pointing to a healthy and robust market recovery. As can be seen, the current market has 8-of-8 indicators in positive territory, suggesting the Bitcoin bear could very well be behind us.

🪟 Related Dashboard: This chart is available within our Recovering From a Bitcoin Bear Signals dashboard, designed to identify confluence of a robust market recovery.

Summary and Conclusions

Whilst Bitcoin and digital assets experience a relatively high degree of market volatility, many on-chain indicators, which reflect collective human decisions, are surprisingly consistent.

Exactly 64-weeks ago, we covered how several on-chain indicators were likely entering bear market territory (WoC 4-2022: Sizing Up a Bitcoin Bear). Readers may also find our review of the May 2021 Sell-off informative, as this can be argued to be the 'psychological start' of the bear.

In this piece, we cover how several on-chain indicators are suggesting that bear market conditions (or at least the worst of it) may now be behind us. Bitcoin sits in somewhat neutral territory, and above the foundation forming supply cluster between $16k to $25k, where significant coin volume changed hands. We note that much of this supply remains tightly held by those buyers, whilst profits are being taken (WoC 12), and network utilization is improving, all supporting the strong market performance YTD.

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.

• Join our Telegram channel.
• Visit Glassnode Forum for long-form discussions and analysis.
• For on-chain metrics, dashboards, and alerts, visit Glassnode Studio.
• For automated alerts on core on-chain metrics and activity on exchanges, visit our Glassnode Alerts Twitter.