Research Summary
The report provides an in-depth analysis of on-chain data to track market momentum for digital assets, particularly Bitcoin. It explores four key areas: on-chain activity, market profitability, spending behavior, and wealth distribution. The report also introduces a composite index to assess the strength and direction of market momentum.
Key Takeaways
On-chain Activity and Adoption
- Increasing Network Usage: The report highlights that an uptick in on-chain activity, such as rising fee pressure and exchange inflow volume, typically indicates periods of growth and positive market momentum.
- Fee Pressure as a Market Indicator: The report uses on-chain fee revenue as a proxy for blockspace demand, suggesting that increased fee pressure indicates heightened user urgency and a willingness to pay elevated fees for inclusion in the next block.
Market Profitability
- Unrealized Profit and Pricing: The report uses the Unrealized Profit/Loss toolkit to identify price zones where a large volume of the supply has changed hands. It suggests that during sustained market uptrends, the spot price continues to climb above the cost basis of increasing volumes of the coin supply.
- Inflection Points in Investor Profitability: The report uses the MVRV Ratio and the AVIV Ratio to monitor inflection points in investor profitability. These ratios can indicate when investor profitability is improving or worsening.
Spending Behavior
- Realized Market Response: The report evaluates the realized market response to unrealized profit/loss incentives. It uses the SOPR indicator to identify periods when profit taking is increasing relative to a longer-term baseline.
- Realized Profit/Loss Ratio: The report uses the ratio between Realized Profit and Realized Loss to identify regime shifts, such as strong uptrends and bear cycle lows.
Wealth Distribution
- Wealth Transfer: The report discusses the transfer of wealth from longer-term investors to newer investors. It uses the SLVR metric to compare the wealth held by coins aged 24hrs to coins aged 6m-1y, providing insight into the position of the current cycle.
Actionable Insights
- Utilize On-chain Data: Analysts and investors can leverage on-chain data to gain transparency into the performance, adoption, and investor positioning within digital assets. This can help in identifying periods of growth and positive market momentum.
- Monitor Fee Pressure: Tracking on-chain fee revenue can provide insights into blockspace demand and user urgency, which can be indicative of market trends.
- Track Unrealized Profit/Loss: The Unrealized Profit/Loss toolkit can be used to identify price zones where a large volume of the supply has changed hands, providing insights into market profitability.
- Assess Realized Market Response: Evaluating the realized market response to unrealized profit/loss incentives can provide insights into spending behavior and market trends.
- Observe Wealth Transfer: Monitoring the transfer of wealth from longer-term investors to newer investors can provide insights into wealth distribution and the position of the current cycle.
