Glassnode: Who benefits from the current market structure?

Author: UkuriaOC, CryptoVizArt, Glassnode; Compiler: Tao Zhu, Golden Finance

Summary:

• Despite chaotic price action, investor profitability remains strong, with an average unrealized profit of about 120% per coin.

• The demand side is strong enough to absorb sell-side pressure and HODLer withdrawals, but not enough to promote further upward growth.

• Spot and carry trading continues, especially with the increase in institutional traders, which temporarily strengthens expectations of range trading.

Market profitability remains strong

Sideways price fluctuations often manifest as investor boredom and apathy, which seems to be the dominant reaction in all Bitcoin markets. BTC prices are consolidating in a mature trading range. Investors remain in a generally favorable position with over 87% of circulating supply in profit and cost basis below spot price.

Using the MVRV metric, we can assess the size of unrealized profits held by the average investor.

Currently, the average token holding unrealized profits is around +120%, which is typical of the market trading near the ATH in the previous cycle. The MVRV ratio remains above its yearly baseline, suggesting that the macro uptrend remains intact.

We can use the MVRV ratio to define pricing ranges to assess extreme deviations of investor profitability relative to the long-term average. Historically, a breakout of 1 standard deviation has coincided with the formation of a long-term macro top.

Currently, BTC prices are stabilizing and consolidating within a range of 0.5 to 1 standard deviation. This once again highlights that despite the recent volatility in market conditions, the average investor is still holding statistically high profits.

When the market decisively broke through the 2021 ATH, there was a large amount of investor allocation, mainly driven by the long-term holder group. This reflected significant profits, which helped increase active trading and liquidity supply.

Usually, after a new ATH, the market needs ample time to consolidate and digest the introduced supply glut. As equilibrium is established, this leads to a decline in realized profits and sell-side pressure.

The reduction in sell-side pressure and profit-taking naturally reduces market resistance. Nonetheless, BTC price has been unable to sustain a clear upward momentum since its March ATH. This suggests that while the demand side was stable enough to keep the market range-bound, ultimately the growth was not enough to re-establish upward momentum.

Low Volume

Despite healthy investor profitability, the volume of transactions processed and transferred on the Bitcoin network has fallen sharply after hitting a new all-time high. This highlights waning speculative appetite and growing market indecision. A similar situation can be observed when evaluating the spot trading volume of major centralized exchanges. This shows that there is a strong correlation between on-chain network settlement volume and trading volume, reflecting investor fatigue.

Exchange Activity Has Declined Sharply

Going one level deeper, we can examine on-chain inflows to exchanges denominated in BTC, and we again notice a significant drop in activity.

Currently, short-term holders are sending around 17,400 BTC/day to exchanges. However, this is significantly lower than the peak of 55,000 BTC/day recorded when the market reached a high of $73,000 in March, when speculative levels became excessive. Conversely, inflows to exchanges from long-term holders are relatively low, currently seeing a negligible inflow of just 1000+ BTC/day.

We can visually see the sharp drop in LTH investor activity by the percentage of long-term holder balances sent to exchanges.

LTH sent less than 0.006% of its total holdings to exchanges, suggesting that the group has reached equilibrium and requires higher or lower prices to stimulate further action.

Currently, the amount of token transfers with profit (11,000 BTC) is greater than the amount of token transfers with loss (8,200 BTC). This shows that, although the amplitude is relatively small, there is still an overall tendency to lead with profit.

Currently, the average token sent to exchanges has realized a profit of about +$55k and a loss of -$735, respectively. This makes the average profit 7.5 times higher than the loss, with only 14.5% of trading days recording a higher ratio.

This means that HODLers are still withdrawing funds and the demand is enough to absorb the sell-side pressure, but not enough to push the market price higher. This shows that the market structure is more favorable for range traders and arbitrage strategies rather than directional and trend trading strategies.

Cash and Carry Basis Trading

Another tool that allows us to describe the spot market is the spot cumulative volume delta (CVD). This metric describes the net deviation of market taker buy volume from sell volume, measured in USD.

Currently, a net seller bias dominates the spot market, but the market continues to trend sideways. This is consistent with the above view that the demand side is roughly equivalent to the selling pressure, keeping the market range-bound.

Assessing futures markets, we note that open interest continues to rise and currently stands at over $30 billion, just below previous highs. However, as highlighted in WoC-23, a large portion of this open interest is related to market-neutral spot and carry trades.

In range-bound markets, an increase in open interest could mean an increase in volatility capture strategies as traders can capture premiums from perpetual swaps, futures, and options markets.

Chicago Mercantile Exchange's open interest has grown significantly, highlighting the growing participation of institutional investors. The Chicago Mercantile Exchange currently holds more than $10 billion in open interest, accounting for nearly one-third of the global market share.

In sharp contrast to the increase in open interest, futures trading volume has seen a similar decline as the spot market and on-chain transfers. This suggests that speculative interest is relatively low, while fixed basis trading and arbitrage positions dominate.

Summary

Despite the volatility, the average Bitcoin investor has remained largely profitable. However, investor decisiveness has declined, with trading volumes in the spot and derivative markets, as well as on-chain settlement, shrinking.

Demand and sellers appear to have established a balance, resulting in relatively stable prices and significantly lower volatility. The stagnation of market trends has led to a degree of boredom, apathy, and indecision among investors. Historically, this suggests that a decisive price move in either direction is necessary to stimulate the next round of market activity.