Glassnode’s weekly on-chain report shows that the performance of Bitcoin since its low point in 2022 is highly similar to previous cycles, although the recovery speed is slower but more resilient than in the past. After the approval of ETFs, most long-term Bitcoin investors still choose to hold Bitcoin. This article is sourced from “The Impact of Digesting GBTC Excess Supply” compiled, translated, and written by Foresight News.
Summary:
Cycle Positioning
Recovery Faces GBTC’s Excess Supply
ETF HODLers Unwilling to Relax
On-chain and Exchange Activities
Conclusion
In terms of physical activity, internet activity is still relatively low, but the volume of coins transferred on-chain, especially to exchanges, remains strong and similar to previous bull market cycles.
The first chart evaluates Bitcoin’s price performance since the previous all-time high. In this case, we consider April 2021 (Coinbase direct listing) as the previous all-time high in order to better interpret the duration, as we believe it was the peak of investor sentiment.
History rhymes amazingly, and Bitcoin’s performance in the past three cycles is remarkably similar. Our current cycle is still slightly ahead of the 2016-17 and 2019-20 cycles, partly due to the strength of 2023.
Cycle 2: Down 45.7% from previous all-time high
Cycle 3: Down 43.6% from previous all-time high
⚫ Current Cycle: Down 37.3% from previous all-time high
However, in our current cycle, it can be noted that there is a higher level of resilience, with corrections from local highs remaining relatively shallow. The largest drawdown so far was -20.1% in August 2023.
If we compare the proportion of days traded during deep corrections, the insight becomes more evident:
Genesis to 2011: 164-294 days (55.7%)
2011 to 2013: 352-741 days (47.5%)
2015 to 2017: 222-1066 days (20.8%)
2018 to 2021: 514-1056 days (48.7%)
However, due to the market digesting the new dynamics of the spot ETF, the price momentum has been declining in recent weeks.
Here, we consult two critical on-chain price levels:
Short-term holder cost basis ($38,300), the average acquisition price describing new demand.
Realized market average price ($33,300), the cost basis model of active investors.
During an upward trend, the short-term holder cost basis is usually retested as support, but if decisively broken, the real market average price needs to be considered. The real market average price serves as a “center point” of the Bitcoin market and can often differentiate bull and bear markets.
We can assess the severity of capital outflows and the duration of recovery using the fundamental “realized market cap” indicator. The realized market cap is only 5.4% below the previous peak market cap of $467 billion and is currently experiencing strong capital inflows. However, compared to previous cycles, the current recovery has been significantly slower, possibly due to challenging trades such as GBTC arbitrage causing a significant supply surplus.
The recovery rate of the realized market cap in this cycle is the slowest on record:
2012-13 Cycle: 0.22% daily recovery
2015-16 Cycle: 0.09% daily recovery
2019-20 Cycle: 0.17% daily recovery
2023-24 Cycle: 0.05% daily recovery
This phenomenon is partly attributed to the substantial redemptions of the Grayscale GBTC product. As a closed-end trust fund, GBTC accumulated an extraordinary 661,700 BTC at the beginning of 2021 as traders attempted to close the asset’s NAV premium arbitrage.
After years of significant NAV discount trading (2% fee is high), the conversion to a spot ETF triggered significant rebalancing events. Since the ETF’s approval, approximately 115,600 BTC have been redeemed from the GBTC ETF, which has brought significant adverse factors to the market.
In the midst of a strong rebound, sell-off news events, and dynamic markets, the majority of HODLers seem to be weathering the storm calmly. The “Last Active Supply” metric measures the proportion of circulating supply held for multiple years.
We can see a slight decline in trading activity for the 1-year and 2-year periods, many of which are related to GBTC, but not all trading activity is related to GBTC. This indicates that there has been a considerable amount of old supply in circulation in recent weeks.
However, in absolute numbers, the majority of BTC holders still remain steady, with the proportion of holdings for multiple age ranges slightly below historical highs:
1 year and older: 69.9%
2 years and older: 56.7%
3 years and older: 43.8%
5 years and older: 31.5%
In the 46th week report of 2023, we introduced and compared several measures of “Stored Supply” and “Active Supply.” At that time, we noted a significant divergence between the two, with dormant, inactive, and illiquid Bitcoin dominating.
This year, we are seeing preliminary signs of this divergence narrowing, with all indicators of “Active Supply” significantly increasing. This aligns with the aforementioned increase in old coin sell-off.
This has led to the largest increase in activity since the capitulation event in December 2022. This once again supports the analysis mentioned above, indicating that as some investors abandon part of their long-term Bitcoin holdings, coin days destroyed has increased.
However, from a macro perspective, activity is still near multi-year lows, suggesting that the majority of the supply is still tightly held, waiting for higher spot prices or using increased volatility as a catalyst for spending.
Evaluating Bitcoin’s on-chain activity provides crucial information for understanding the health, adoption, and growth of the network. However, despite strong price performance, there is a counterintuitive phenomenon of a decline in the number of active entities to a cycle low of 219,000 daily.
At first glance, this may indicate that Bitcoin’s user growth has not kept up despite the significant price increase.
This is mainly due to the increase in activity related to ordinal and script activity, where many participants are reusing Bitcoin addresses, thereby reducing the number of “active entities” (not counted repeatedly).
On the other hand, transaction volume remains very strong, with approximately $7.7 billion in economic transactions processed daily. The difference between active entities and the growing transaction volume highlights the increasing presence of active large entities in the market, with the average transaction volume per entity soaring to $263,000.
This indicates that institutional investors and capital inflows are increasing.
Exchanges remain the primary venue for trading activity, with deposit and withdrawal transaction volumes experiencing significant growth, reaching $6.8 billion daily. Currently, exchange-related deposit and withdrawal activity accounts for approximately 88% of all on-chain transaction volume.
The current volume of in and outflows from exchanges is comparable to the peak of the 2021 bull market, with only 68 trading days (1.5%) having volumes higher than the peak (based on 30D-SMA method).
This once again highlights the expanding interest of market participants in Bitcoin.
As exchange flows increase, profit-taking is also occurring. The chart below shows the average profit (or loss) per coin on exchanges for each coin.
During the peak of ETF speculation, this indicator reached an average profit of $3,100, which is still significantly lower compared to the average profit of $10,500 during the peak of the 2021 bull market and has started to cool down meaningfully.
The approval of nine physical Bitcoin ETFs is a milestone event for digital assets, and institutional funds are openly flowing into this asset class. As investors rebalance away from the GBTC ETF product, despite the significant supply surplus, capital inflows are currently accelerating.
The value of on-chain exchange flows has also reached the peak of the 2021 bull market, and the average size of transferred value indicates the increasing presence of institutions and large capital investors.
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