Bitcoin On-Chain Data Analysis

By Viga Liu

In my previous article, I have analyzed the impact of macroeconomic data on Bitcoin. In this article, I will delve into on-chain data to help readers quantify the Bitcoin market situation more accurately. Based on the analysis of on-chain data, it is understood that Bitcoin has not yet reached the top of the bull market; currently, there is little risk of overheating. It is anticipated that there will be another major upward trend, but the market may experience short-term fluctuations. It is recommended that during pullbacks, investors should refer to the indicators I will discuss below to buy at short-term bottoms for safer entries.

To sum up, as of December 2^nd, 2024, most of the metrics indicate continue holding Bitcoins if one already own some from a long-term perspective. A few metrics points out taking profits for the short term since there are some resistance from $97000 to $98000. Investors who wish to build positions should be patient to wait for a buy signal.

Capital Flow Indicator

USDC/USDT Supply

The supply of stablecoins continues to increase, indicating a sustained inflow of capital into the cryptocurrency market, with demand remaining strong.

Source: Glassnode

Sentiment Indicator

Regional Month-over-Month Price Change

Observing the changes in Bitcoin prices in the United States, Europe, and Asia can help determine the influence of investors in these regions on Bitcoin's price. Generally speaking, the United States has the greatest influence due to the presence of institutional funds. Currently, investor sentiment in the United States and Europe has waned a bit, but Asian investors still have a very strong bullish sentiment.

Source: Glassnode

Bitcoin Holders’ Metrics

MVRV (Market Value to Realized Value)

“Market Value” refers to the circulating market capitalization of Bitcoin, while "Realized Value" is based on the UTXO model and is the sum of the last movement values of all Bitcoin on the chain. RV is the profit or loss an investor locked in, comparing values when the coins was acquired to when it is disposed. RV can approximately measure the long-term cost of all Bitcoin holders in the market.

MVRV also equals Price/Realized Price. When MVRV is too high, the market capitalization of Bitcoin is overvalued relative to its actual value; conversely, it is undervalued. An MVRV of 1 indicates investors are at break-even.

1. Absolute Values:

MVRV < 0.8  is close to the bottom.

MVRV < 1.0 indicates panic selling.

MVRV > 2.4 means the market is very excited.

MVRV > 3.2 suggests that the top is near.

Currently, Bitcoin's MVRV is around 2.6, indicating a strong bullish market sentiment.

2. Divergence: When the price of Bitcoin rises but the MVRV value falls, a divergence is formed. This could signal a potential top for the short term. As MV increases and MVRV decreases, it indicates that the RV value is growing even higher, meaning that the cost price of the coins in investors' hands is higher. After exchanging, more coins are transacted in high-price areas, which could lead to significant selling pressure.

Source: Glassnode

Long-Term Holders Supply (LTH) & Short-Term Holders Supply (STH)

LTH can be regarded as the supply of Bitcoin, while STH can be seen as the demand for Bitcoin. When LTH rises, it indicates that long-term investors are accumulating coins. When LTH falls, long-term investors are distributing coins, exerting selling pressure on the market. When STH rises, short-term speculators enter the market to take over the coins distributed by long-term investors, further driving up prices. When STH falls, short-term investors begin to sell their coins at a loss to long-term investors.

Therefore, the peak of STH corresponds to the bottom of LTH, which is the highest point of demand and the lowest point of selling pressure. When long-term investors finish distributing their coins, the market trend comes to an end, and there are generally two peaks of STH during a wave of rising prices.

In this bull market now, short-term speculators are acquiring Bitcoins from LTH and have not yet reached their peak.

Source: Glassnode

Realised Price

The Realised Price reflects the total price at which Bitcoin was last transacted on-chain. The Realised Price can be calculated for each group of investors. These three lines of holding cost can serve as price support for Bitcoin, with all three lines only being broken during deep bear markets.

Current cost price:

STH Realised Price (holding period less than 155 days): $77,000.

LTH Realised Price (holding period greater than 155 days): $25,000.

Average cost for all Bitcoin holders: $37,000.

Source: Glassnode

Long Term Holder Net Unrealised Profit/Loss (LTH-NUPL)

LTH-NUPL is a metric that considers only UTXOs with a lifespan of at least 155 days and serves as an indicator to assess the behavior of long-term investors. When the LTH-NUPL is below -0.3, the Bitcoin price is considered undervalued. When this indicator crosses above the zero axis, it typically precedes a market upswing. When the LTH-NUPL is greater than 0.9 and in the mean time the trend of the indicator flattens out or starts to decline, it is generally a sign that the market top is near, as indicated by the blue areas in the chart. The market now is in the green line which is still safe.

Source: Glassnode

Short Term Holder in Profit (%)

When the percentage of short-term holders who are in profit reaches over 95%, it indicates that nearly everyone in the market is making money. Unless this is during a major upward trend where the price rising can be sustained, in other cases, it is important to be aware of the risk of short-term overheating. When the Percent of Short Term Holder in Profit drops to below 20%, the price may have entered a bottom.

Source: ChainExposed

Relative Unrealized Profit(RUP)

Unrealized Profit indicates that a coin was acquired at a price below the current spot price at each timestamp. Relative Unrealized Profit is defined as the total profit in USD of all coins in existence whose price at the time of realization was lower than the current price, normalized by the market capitalization. When the RUP is greater than 0.7, it indicates entering into the top range of the market, and it may be considered a good time to sell as there is a large amount of unrealized profit. Once investors start to take profit, there could be a significant market correction. When the RUP is less than 0.4, it is generally considered to be in the bottom range of the market, which could be a good time to build positions. Currently, with the RUP around 0.6, there is still some distance to the top of this bull market.

Source: Glassnode

Address Distribution

By observing the Bitcoin balance held by addresses with different quantities, we can gain insights into the behavior of various investors. From the chart, it can be seen that high-net-worth investors are currently selling Bitcoin, while retail investors continuing to buy.

Source: Glassnode

UTXO Realized Price Distribution (URPD)

Each bar represents the quantity of existing Bitcoin that was last moved within a specified price range. This is used to view the price distribution. The gray bar represents the current price. It can be seen that the dense trading zone for Bitcoins is between $60,000 to $70,000, which is a very significant price support level. There was a large volume of trading at $15,000 during the ancient times, and this part of the coins has been held for a long time and not sold. Recently, there was also a very large volume of trading at around $97,000, indicating loss at high price, where may be some price resistance.

Source: Glassnode

Liquidation Map

The Liquidation Map is a forecast of the liquidation prices based on users' position holdings and the distribution of long and short positions at different price levels. It quantifies the intensity of liquidation for both long and short positions. The denser the cluster of bars, the greater the intensity of liquidation. When the liquidation price is triggered, traders' positions will be forcibly closed. The fewer the positions, the smaller the impact on the price and the market. The taller the bar, the more positions that will be liquidated at that price, which will have a significant impact on the price. As shown in the map, there is a substantial number of short positions at $98,000. Once this price level is broken through, the forced closure of these short positions will drive the price to rise further.

Source: CoinAnk

Miners’ Behavior

Mining Difficulty

When there is a significant decrease in Mining Difficulty, it often indicates that some miners have exited the market due to operational difficulties or policy issues. This usually marks a temporary bottom in the market. In a bear market, it can be used to identify potential market bottoms, while in a bull market, it can be used to find opportunities for adding to positions during price corrections.

Source: Glassnode

Cost of Mining Pricing Model

This model, proposed by @paulewaulpaul, uses Difficulty as input and Issuance as output to simulate the cost of BTC production. The three lines represent strong support levels for the Bitcoin price, with the red line indicating the minimum cost. If the price falls below the line, mining operations will incur losses, leading to a reduction in Bitcoin supply. It can be observed that the Bitcoin price generally does not fall below the miners' minimum mining cost. When the price pulls back to the cost line, it is a good opportunity to establish a position.

Source: Glassnode

Miner Revenue-to-Cost Ratio

When the miner profit margin is less than 1, miners are operating at a loss, which typically indicates a bottom area for Bitcoin. It is very cost-effective to establish a position at this time. When the miner profit margin is greater than 1, the Bitcoin price is in an upward trend. Historically, when the miner profit margin exceeds 4, it is generally close to the top. Currently, the miner profit margin is at 3.

Source: Glassnode

Bitcoin Halving

Bitcoin’s price behavior following each halving event has shown a similar pattern. After each halving, the supply of new Bitcoin entering the market is reduced by half, which historically has led to a period of increased scarcity and potentially higher prices. By examining the historical trends after the first three Bitcoin halvings, we can make predictions about the direction of Bitcoin’s price following the fifth halving, which occurred in April 2024. It appears that the market is currently in the early stages of a bull run.

Source: Glassnode

On-chain Pricing Model

There are some well-known pricing models developed using on-chain metrics over the years. These models are best for bear markets to find the floor price, but in bull markets, most of the models seem conservative. The Top Price Model, however, is used to find the price ceiling.

Source: Glassnode