Let’s cut to the chase: Glassnode thinks we’re in a bear market. In their latest “The Week On-Chain” newsletter, the company tries to “establish the likelihood that a prolonged bear market is in play” by “using historical investor behaviour, and profitability patterns as our guide.” One thing’s for sure, the recent crash was severe, and “such a heavy drawdown is likely to change investor perceptions and sentiment at a macro scale.”
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How severe was it? According to Glassnode, “this is now the second worst sell-off since the 2018-20 bear market, eclipsed only by July 2021, where the market fell -54% from the highs set in April.” Apart from the price, investors “capitulated over $2.5 Billion in net realised value on-chain this week.” Who were those paper hand investors? “The lion’s share of these losses are attributed to Short-Term Holders.” Of course.
Glassnode Points Out The Bear Market Indicators
The first indicator Glassnode goes for is “The Net Unrealised Profit/Loss (NUPL) metric.” Which measures “the overall market profitability as a proportion of market cap.” How is Bitcoin doing on that front? “NUPL is currently trading at 0.325 which indicates that an equivalent to 32.5% of the Bitcoin market cap is held as an unrealised profit.”
BTC Price Drawdown from ATH | Source: Glassnode
How does this point to a bear market? “Considering previous cycles, such low profitability is typical in the early to mid phase of a bear market (orange). One could also reasonably argue that a bear market started in May 2021 based on this observation.” This is not enough, though. But Glassnode has more.
The second indicator the company hit us with is “The MVRV Ratio.” This one “is calculated as the market cap, divided by the realised cap; and is a useful tool for identifying periods of high, and poor investor profitability.”
How does this point to a bear market? “With a current MVRV-Z reading of 0.85, the market is well within territory visited in bearish markets, and a bearish divergence is noted, similar to the NUPL metric above.” Is this enough? No way. But Glassnode has an ace up its sleeve.
The third indicator is “the Realised-to-Liveliness Ratio (RTLR).” They use “the Realised Price using Liveliness in the denominator” to calculate this one.
How does this point to a bear market? “The market is now trading below the RTLR price of $39.2k, but above the Realised price of $24.2k. Again, this is often observed during early to mid stage bear markets.”
Who Sold And Who Is Still Holding Strong?
There’s no surprise here. The “Short-Term Holders (STH)” are selling. How does Glassnode define STHs, though? By the age of their coins. “Coins are considered to be owned by STHs when they are younger than ~155-days, and are statistically more likely to be spent in the face of volatility.” No surprise there either.
It’s worth pointing out that the STH’s coins are “currently held at a loss.” In fact, “as of this week, almost the entire STH supply is underwater.” That could be scary for newcomers, so those coins are at risk of being sold. At a loss. These people are going to regret their emotional decisions for life, but that’s a topic for another article.
BTC price chart for 01/24/2022 on Oanda | Source: BTC/USD on TradingView.com
The other question here is, who’s holding strong? According to Glassnode, “Interestingly, STH supply remains near multi-year lows, which is indicative of their counter-part, the Long-Term Holders (LTHs), who appear impressively unfazed by such a severe drawdown.” Of course. People who already understood the game are not easy to shake.
How are the LTH’s coins doing? “Over 59.3% of the circulating supply has now been dormant for over 1yr, increasing by 5.8% of circulating supply in the last three months.” This sounds bullish, but Glassnode finds a way to rain on the LTH’s parade. “Whilst a rising, and large proportion of mature coins is generally considered constructive, it once again bears similarities to a bear market, a time when only the HODLers and patient accumulators remain.”
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Conclusions And Hopium
According to Glassnode, one could argue that the “bear market started in May 2021.” Does it feel like a bear market, though? No, it doesn’t. It doesn’t feel like a bull market, either. We may be in a new phase. The Bitcoin cycle might be dead. Or maybe we’re just in a bear market as Glassnode tried to prove. Either way, LTHs are not selling.
Featured Image by mana5280 on Unsplash | Charts by Glassnode and TradingView