Research Summary
This report from Glassnode revisits key profitability metrics to assess the current state of the Bitcoin market. It also explores metrics related to liquidity in the crypto markets and how they can inform investors of potential risks. The report discusses market momentum, risk vectors, and on-chain basics, providing insights into the dynamics, long-term effects, and unique aspects of the Bitcoin market.
Key Takeaways
Market Momentum
- Shift in Bitcoin’s profitability metrics: Metrics such as Realized Profit and Loss Ratio and SOPR indicate a shift in market momentum. While previously showcasing confidence with a majority of profitable transactions, recent trends lean towards a market in uncertainty, suggesting traders exercise caution and consider protective strategies.
- Uncertainty in the market: The Realized P/L Ratio, which stayed above 1 for the majority of the year, has trended downwards since mid-July, signaling a market in a state of uncertainty.
- Majority of transactions bear a loss: The Spent Output Profit Ratio (SOPR) points to a period where the majority of transactions bear a loss, suggesting that the downtrend may be gaining momentum.
Risk Vectors
- Macroeconomic uncertainties: Amid macroeconomic uncertainties, changes in the crypto derivatives and stablecoin markets suggest capital is flowing out of the crypto space, exacerbating concerns related to liquidity and market depth.
- Decline in derivatives trade volume: There has been a notable decline in activity across Ethereum futures and options markets, suggesting a risk-off sentiment and reduced confidence among sophisticated and institutional investors.
- Outflow from stablecoins: A consistent decrease in stablecoin supplies indicates capital outflow from the crypto market, potentially reflecting a bearish sentiment, which can adversely affect liquidity and market depth.
On-Chain Basics
- Realized Cap: Realized Cap, a metric that values each cryptocurrency coin at the time of its last on-chain movement, offers a nuanced alternative to the traditional market cap by reflecting the asset’s perceived value over time.
- Insights into asset’s perceived value: By taking into consideration the age of coins and the price at which they last transacted, Realized Cap provides insights into an asset’s perceived value over time.
- Use of Realized Cap: Realized Cap can be used to answer critical questions like what the smart money is currently doing with their coins, how to pinpoint the moment when the market cycle starts to shift, and whether the market is experiencing a robust inflow of capital.
Actionable Insights
- Exercise caution: Given the shift in market momentum and the state of uncertainty, traders should exercise caution and consider protective strategies.
- Monitor macroeconomic factors: Investors should keep an eye on macroeconomic factors and their impact on the crypto market, especially in relation to liquidity and market depth.
- Utilize on-chain metrics: On-chain metrics such as Realized Cap can provide valuable insights into market dynamics and can be integrated into the analytical toolkit of hedge funds and asset managers.
