On-chain analysis of Bitcoin (BTC) – the beginning of a reversal?

The sharp improvement in Bitcoin (BTC) fundamentals signals that a large group of holders have their heads above the water, favoring a short-term bullish bias. All things considered, the cryptocurrency market is starting to show encouraging signs of strength. On-chain analysis of the situation.

Bitcoin is trying to bullish push

Much to the delight of investors,Bitcoin price (BTC) pushes back bullish hurdles from last week. Having risen from $17,500 to $21,700 in the past seven days, BTC has already broken several key resistance levels on the network.

Having registered an increase of almost 23% since the beginning of the year, the BTC market seems to be close to a trend reversal and renewed long-term bullish momentum.

Figure 1: BTC daily price

In order to closely watch this transition between the end of the bear market and the start of the upcoming bull cycle, we will be watching this week and following a variety of different indicators regarding the behavior of the underlying market-leading asset.

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Fundamentals drive growth

The recent rise in prices allowed several fundamental indicators to turn green, signaling an intranet context favorable for the onset of a medium-term and long-term uptrend.

For the first time since December 2021, the BTC spot price has exceeded the total strike price (orange) as well as the strike price of short-term holders (red).

The crossover, which we patiently awaited during our analysis of the last quarter of 2022, signals a return to profitability for most of the entities that make up the market.

Base price BTC 170123

Figure 2: Basic Cost of a BTC Holder (Average, STH, LTH)

Coming out of the water and out of a state of hidden losses causing implicit pressure from BTC holders, a break above two of the three main network costs marks another victory for the bulls over the sellers.

The next and final move is a crossover of the long-term holders’ selling price (indicated in blue) located at $22,100. Once this final wave is broken, the major hurdles to BTC’s growth will be cleared.

In order to appreciate the underlying trend that dictates the direction of BTC, examining the delta gradient (in blue) gives us valuable information about the momentum of its price.

This oscillator models the strength/exhaustion of participants during market phases and is based on the relationship between the spot price and the sale price. To better understand this indicator, I invite you to read this Twitter thread about implemented market gradient.

Bitcoin Gradient Delta 14 170123

Figure 3: Delta gradient after 14 days.

What follows from observing this indicator in its short-term version (14 days) is a clear and distinct support for the delta gradient in the neutral zone (red), which allowed an exemplary rise to new positive values.

To sum up: in the short term, organic capital inflows indicate that the market direction is changing upwards after a period of stagnation that lasted almost 6 months.

A very similar observation can be made on the medium-term version (28 days) of this oscillator. Indeed, over the past few months, it seems that the bullish and bearish ranges of the market have gradually lost intensity, leading us to the context of low volatility that has taken place since October 2021.

Bitcoin Gradient Delta 28 170123

Figure 4: Delta gradient after 28 days.

However, since last week, bullish ranges seem to be picking up strength after establishing a stable support position at the level of the neutral zone (realized gradient = 0, zero momentum).

Now that the underlying momentum seems to be on the rise, a retest and then a final bounce in the neutral zone would securely lock in the price recovery that many are waiting for. It will also confirm that the fundamentals are clearly improving.

Finally, from a long-term perspective (140 day variable) we can clearly see a gradual easing of bearish market amplitudes (black arrow), which heralds a transition from a bearish to a bullish cycle.

After a failed attempt in October, which was aborted by a fiasco during the FTX crash, the long-term delta gradient crosses the neutral zone again before being bullishly retested.

Bitcoin Gradient Delta 140 170123

Figure 5: Delta gradient after 140 days.

The overall bullish momentum of the delta gradient on three different timeframes clearly shows that a momentum reversal is at work. Salesman burnout begins to be offset by new capital inflows attracted by a generation investment opportunity.

While the full reversal of fundamentals has yet to be confirmed and needs to be confirmed within a few more weeks, the current momentum is still very encouraging.

Confirming previous observations, total cost-to-spending ratios (aSOPR) and short-term profitability ratios (STH-SOPR) began to rise markedly, reaching 1.011 and 1.027 respectively.

BTC SOPR 170123

Figure 6: Value for Money (average, STH)

Here again, there seems to be a trend reversal in the indicator, indicating a return to profitability for both the short-term holder and the average investor. This dynamic is very similar to that of April 2019 and September 2021, as profitability recovers as quickly as it does in a big way.

With more holders now able to make substantial gains, the current bear cycle seems to be experiencing gradual declines that only bitcoin detractors and shorties will regret.

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Summary of this on-chain BTC analysis

Overall, this week’s data points to a marked improvement in BTC fundamentals following the recent price rally.

The market’s hidden and realized returns are signaling that a large group of holders are out of the water favoring a bullish bias in the short term.

Examination of short-term, medium-term and long-term momentum indicates that a structural trend reversal is materializing as the exhaustion of sellers is exacerbated by the arrival of new buyers.

All things considered, the cryptocurrency market is starting to show encouraging signs of strength. However, these signals will need to be confirmed and the macroeconomic and financial context will need to be closely monitored to ensure the sustainability of potential growth going forward.

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Sources – Figures 1 to 5: Glassnode

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