Are We In A Bear Market? Glassnode Analyses The Latest Bitcoin Crash
January 24 2022 - 9:56PM
NEWSBTC
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.” Related Reading | Bitcoin Leads As
Markets Sees Record Outflows. Bear Market Incoming? 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.” Related Reading | Bitcoin Bottom
Signal From Bear Market, Black Thursday Could Save The Bull Run
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
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