Bitcoin (BTC) On-Chain Analysis – An Undecided Market Structure?

Bitcoin holds the $40,000 mark

The price of Bitcoin (BTC) is hovering around the $40,000 support and adopting a particularly indecisive pricing structure.

In a state of consolidation throughout the first quarter of 2022, bitcoin nevertheless printed successive lows higher and higher, sowing the doubt about its short and medium term trend for many investors.

Figure 1: Daily price of Bitcoin (BTC)

This week we will study the lifetime of BTC spent then the state of profitability of short and long term investors before discussing network security and the behavior of the cohort of minors.

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Age of expenses drops

Let us begin this analysis by studying the account of Coin Days (JP) destroyed in recent weeks.

Particularly effective in identifying the spending behavior of seasoned investors and HODLers, the graph below makes it possible to distinguish two distinct phases of spending:

  • the periods of strong destruction of JP (green) indicate that old BTC is being spent in a profit-taking perspective and serve as catalysts in bull markets;
  • the periods of low JP destruction (red) are a sign of a rejuvenation of expenditure and testify to a savings behavior from long-term investors.

BTC Coin Days Destroyed 200422

Figure 2: Days of Parts Destroyed

We can then notice that over the past few months the downtrend of JP’s destruction has eased. In addition, during the recent rise that brought BTC back to the gates of $50,000, there appeared a peak destruction of 20 million JP indicating a moderately aged expense.

The same behavioral pattern can be read on the graph of the age bands of volume spent (SVAB), where we can however observe that spending on bitcoins older than 6 months is down constant since March 2022.

BTC SVAB 200422

Figure 3: Volume Spent Age Bands (SVAB)

It therefore seems that the peak of destruction mentioned above is an isolated phenomenon of spending and does not currently constitute an overall trend involving a large number of investors.

By referring to the average age of spent UTXOs, named ASOL, we can further support this thesis. ASOL is a service life indicator that works as follows:

  • the high values and increases indicate that the average spending age is higha sign that long-term investors are spending their assets;
  • the low values indicate that the majority of UTXO spent is young and immature.

BTC ASOL 200422

Figure 4: Average Age of UTXOs Spent (ASOL)

We therefore find a similar increase in the ASOL at the end of 2020 and the beginning of 2021, followed by a constant drop in the peaks indicating a lack of an identifiable bullish spending pattern.

Corroborating the previous elements, the livelinessdefined as the ratio between the sum of JPs destroyed and the sum of all JPs ever created, continues to fall, a sign that accumulation remains the dominant behavior within the market.

BTC Vivacity 200422

Figure 5: Liveness

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A third of the market in a state of loss

Let’s then turn to the metrics relating to the state of profitability of the market and its cohorts. Essential tools, they allow gauge the extent of selling or buying pressurebut also investors’ reactions to market stimuli.

Let’s start by highlighting a salient fact: the estimated supply of BTC in circulation estimated in a state of loss (and therefore more likely to be spent) is now almost similar to that recorded during the final decline of the May-June 2021 capitulation. .

BTC Supply in Loss 200422

Figure 6: Lost offer

With nearly 6 million BTC in a state of latent loss (one-third of BTC in circulation), the market is currently harboring strong potential selling pressure, although its structure is noticeably different.

Indeed, the tracking of realized gains and losses clearly indicates that the current period (yellow) is not dominated by salesas was the case in May-June 2022 (red).

BTC Profit & Loss 200422

Figure 7: Realized Losses and Profits

Back in the range state, the short-term price action therefore exacerbates profit and loss taking, providing a catalyst for selling and buying pressures.

On the side of short-term investors (STH), participants sensitive to volatility, the state of latent loss still largely dominatesbut did not reach the level of pain (>99% of the cohort’s holdings in losses) recorded during final declines, a sign that a fall in the price cannot be ruled out.

BTC STH Profit & Loss 200422

Figure 8: Supply held in Loss or Profit by STHs

Long-term investors (LTH), although mostly profitable, share a similar portion of supply in loss condition (15% to 16%) with the STHs. They are, however, less likely to spend their BTC on a decline, preferring the behavior of HODL and accumulation.

BTC LTH Profit & Loss 200422

Figure 9: Supply held in Loss or Profit by LTHs

The state of profitability of the market nevertheless remains not very alarming, with less than half of the supply losing and LTH not conducive to selling. Should a price drop occur, the short-term behavior of STHs will set the direction for the next few days.

Miners are waiting for the next bull market

As far as the Bitcoin network is concerned, the weather is good. The computational capacity needed to forge a block reaches 200 Exahash, ensuring a high network security by miners now recovered from the Great Migration linked to mining bans in China.

BTC Hash Rate 200422

Figure 10: Hash Rate

The Mining Pulse, calculating the difference between the average block interval over 14 days and the target time of 10 minutes, oscillates close to its neutral zone.

The values ​​of this oscillator can be interpreted as the number of seconds ofacceleration (negative) or slow-down (positive) mined blocks compared to the target block time of 600s.

BTC Pulse 200422

Figure 11: Mining Pulse

We can easily identify periods of slowdown (green), directly related to the fall in hashrate. This usually happens when the hashrate slows more than the downward difficulty adjustments, and indicates that miners go offline, explaining peak seen in July 2021.

It thus appears that the Bitcoin network, both in terms of security and rhythm, is performing in a healthy way, despite on-chain activity far from the levels known during bull markets.

BTC Miner Balance 200422

Figure 12: Miners’ Reserves

The cohort of miners turns out to be very conservative since the November 2021 ATH. After a coordinated profit-taking of almost 30,000 BTC between January and April 2021, these entities, known to be both compulsive sellers for OPEX spend and high-conviction HODLers, to say the least cautious.

Indeed, the Change in Net Position of Miners, calculated as the monthly average of the net flows associated with the portfolios of this cohort, shows strong outflows in early 2021 linked to high token destruction, a sign of profit taking.

BTC Miner Net Pos 200422

Figure 13: Change in Net Position of Miners

A minor part of these participants then gave in to selling pressure in July 2021, forced to liquidate a portion of their savings in order to cover their travel and installation costs following the Chinese exodus.

This is followed in September 2021 by a steady decline in miner spending, reflecting savings behaviorexpecting a new bull market structure in which the cohort will again realize the BTC profits from the block reward.

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Summary of this on-chain analysis

Ultimately, the market approaches an undecided structurewithout any particular willingness to spend on the part of the LTHs or minors.

The age of the BTC spent indicates that hoarding and saving behavior still dominatesa sign of a cautious bias on the part of investors.

With still a third of supply in a state of loss, evenly split between STH and LTH, the potential selling pressure does not prove to be alarming although a surrender event is not out of reach.

Finally, the security of the Bitcoin network and the rate of release of blocks indicate a healthy fundamental, operated by miners unwilling to sell their tokens at such price levels.

Sources – Figure 1: Coinigy ; Figures 2 to 13: Glassnode

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About the Author : Teacher. Chain

1650483084 55 Bitcoin BTC On Chain Analysis – An Undecided Market Structure

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On-chain analyst, fervent fighter of informational asymmetry.

My goal is to inform everyone about the state of Bitcoin (as an asset and a distributed network) through the prism of on-chain analysis.
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Bitcoin (BTC) On-Chain Analysis – An Undecided Market Structure?


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