The Allure of Profit

After an incredible quarter of price performance, Bitcoin price action has taken a breather. In this edition, we evaluate participant spending behavior to assess the markets conviction towards the prevailing trend.

The Allure of Profit


The Bitcoin market found resistance this week, reverting from the weekly high above $30,456k, back down to a low of $27,169k. The opening to 2023 has been historically strong from a price performance perspective, with remarkably few significant corrections along the way, with the largest being -18.6%.

If we allow ourselves the assumption that the November low is indeed a longer-term low, we can see that the scale of drawdowns during this upswing so far, are small relative to past cycles.

With this as context, in this edition, we will focus on both the supply foundation formed over recent months, and then follow up with the profit taking behavior seen this week. We will consult several SOPR variants which offer a lens into the typical behavior patterns seen during corrections in a upswing, as compared to more structural bearish trends.

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

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A Supply Foundation Below

With the strong opening to 2023, the aggregate market has confidently transitioned out of a regime of unrealized loss, towards one of unrealized profit, shown by the sharp divergence between supply held in profit vs loss. As this takes place, the incentive to take profits grows.

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We can also see this by taking the ratio between Supply in Profit and Supply in Loss. This oscillator has achieved escape velocity this year, confirming the transition out of a regime of loss dominance near cycle lows, observed on only 415-of-4638 trading days (9%).

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Mechanically, these large rebounds in unrealized profit occurs as price rallies above the dense concentration of supply which was accumulated during the bottoming formation process. We can quantify this mechanic by inspecting the 100 day change in profitable supply coming off major cycle lows in both BTC, and Percent of Circulating terms:

  • 2011 Cycle Low: +1.99M BTC (19.8%)
  • 2015 Cycle Low: +4.94M BTC (32.2%)
  • 2019 Cycle Low: +6.86M BTC (38.4%)
  • 2022 Cycle Low: +4.87M BTC (25.5%)

The current cycle has seen a comparable volume of the supply re-enter a profitable position, suggesting an equally robust floor.

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Exploring Profit Taking Behavior

The Bitcoin spot price is currently trading between two popular On-chain pricing models; the Realized Price at $19.9k representing the average acquisition price of the supply, and the Realized-to-Liveliness Ratio at $33.0k.

This second model is akin to a HODLer Implied Fair Value 🟠, and will trade higher when more of the coin supply is dormant in investor wallets. Spot markets fell short of reaching this level this week, topping out around $30.5k.

This suggests that the market has transitioned out of the ‘deep-value’ zone as signaled by trading below the Realized Price, and has reverted back towards a holder implied ‘fair value’ level. With this, we can also expect an increase in the probability of profit taking behavior from coins acquired at cheaper prices.

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We can evaluate changes in the accumulation and distribution behavior of various cohorts over the last six months using the chart below:

  • Phase 1: Heavy accumulation post-FTX across all cohorts, effectively starting the cycle low formation.
  • Phase 2: Distribution during the Jan-Feb impulse higher as the first significant rally after the brutal bear of 2022 rolled around.
  • Phase 3: Light accumulation on the rally back to $28k as market momentum increased, and prices finally broke above $30k.

Over recent weeks, we can see a mix of behavior, suggesting indecision across all cohorts bar the largest of entities with 10k+ BTC. This aligns with aggregate consolidation, the brief break above $30k, and the subsequent sell-off back to $27k this week.

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Following on, the SOPR metric can also be used track the magnitude of profit and loss taking events across the wider market. Here, we define a framework consisting of two binary regimes, which we shall utilize to define market behavior patterns:

  • 🟥 Loss Dominant Regime: Successive prints below 1.0 indicate investors are locking in losses, whilst any returns to breakeven profitability is often utilized as exit point (forming resistance).
  • 🟩 Profit Dominant Regime: Successive SOPR prints above 1.0 indicates a return of profit taking. This is often accompanied by SOPR returning to breakeven being considered a near term value point.

A clear shift between these two regimes was noted in January, as market behavior started to exhibit patterns aligned with a profit dominated regime. With aSOPR currently retesting the break-even level of 1.0, this puts the market close to a decision point.

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We can see a similar structure within the Short-Term Holder SOPR variant, as newly acquired coins have returned to an unrealized profit. The correction in March traded below the psychological $20k level, before experiencing a powerful reversion higher.

This is SOPR pattern is typically observed during constructive pullbacks, and provides a guide for interpreting moving forwards. A sustained period below 1.0 however, could signify a more onerous scenario, where underwater holders start to panic, adding further sell-side.

🎓 SOPR Guide: We have a detailed metric guide for SOPR, and different variants available within Glassnode Academy for further reference.

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Long-Term Holder SOPR variant tends to better reflect macro market shifts. Following an extended period of realized losses (LTH-SOPR < 1.0), the LTH cohort are finally transitioning back into a regime of profitable spending, a structure similar once again to past cycle transition points.

This thesis was further explored last week (WoC 16), where the LTH cohort at the moment consist of many 2021-22 cycle holders, many of whom remain underwater, and are likely to create resistance throughout the market recovery.

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A Return of Capital Inflows

In this final section, we shall inspect the changes in USD denominated profit and loss events, to put the above observations into context, relative to total market size.

The chart below shows, the magnitude of USD denominated profit taken this year, remains well below 2021 cycle highs. It is however of a similar scale to that observed in 2019. It is important to note that market prices rallied from $4k to $14k in 2019, which has a peak 50% lower than our current price of just below $28k.

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This sentiment is also echoed across the realized loss domain, which continues to decline. Total losses remain quite low relative to all major sell-off events throughout 2021-22. This does suggest that a degree of sell-exhaustion has been reached at a macro scale, at least from the lens of wide-scale holders locking in significant losses (i.e. cycle top buyers).

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Finally, we can evaluate the cumulative sum of all realized profit and loss events, more commonly referred to as the Realized Cap. After experiencing significant growth during both legs of the bull market in 2020-21, the Bitcoin network experienced a significant net capital outflow in 2022, contracting back to July 2021 levels.

The Realized Cap has finally stabilized in 2023, and is beginning to see growth, and positive capital inflows once more.

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Summary and Conclusions

After a remarkably strong start to 2023, the BTC market has run up against its first appreciable resistance, reverting the rally up to $30k. This comes alongside a very large cross section of the market seeing their holdings recover above acquisition price, creating a more favorable, and profitable environment.

The aggregate value of profits realized remain relatively small compared to the size of the asset, however, they are of a USD magnitude equivalent to the 2019 rally to $14k. With accumulation and distribution behavior across several wallet cohorts mixed at the moment, the market appears less decisive than it has been in the first quarter of the year.

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.