Are we in a bear market? Glassnode Analyzes Bitcoin’s Latest Crash

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Let’s cut to the chase: Glassnode thinks we are in a bear market. In its latest “The Week On-Chain” newsletter, the company attempts to “establish the likelihood that a prolonged bear market is in play” by “using historical investor behavior and profitability models as a guide.” One thing is certain, the recent crash was severe, and “such a large drop is likely to alter investor perceptions and sentiment on a macro scale.”

Related Reading | Bitcoin leads as markets see record outflows. Bear market coming?

How bad was it? According to Glassnode, “this is now the second worst selloff since the 2018-2020 bear market, eclipsed only in July 2021, when the market fell -54% from highs set in April.” Price aside, investors “have capitulated over $2.5 billion in realized net worth on the channel this week.” Who were these manual paper investors? “The lion’s share of these losses are attributed to short-term holders.” Sure.

Glassnode Highlights Bear Market Indicators The first indicator Glassnode looks for is “the net unrealized profit/loss (NUPL) measure”. Which measures “overall market profitability as a proportion of market capitalization”. How is Bitcoin doing on this front? “NUPL is currently trading at 0.325, indicating that an equivalent of 32.5% of Bitcoin’s market capitalization is held as unrealized profit.”

ATH BTC Price Decline | Source: Glassnode

How does this indicate a bear market? “Given previous cycles, such low profitability is typical of 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. That’s not enough, however, but Glassnode has more.

The second indicator the company hit us with is “the MVRV ratio”. This “is calculated as the market capitalization, divided by the realized capitalization; and is a useful tool for identifying periods of high and low profitability for investors. »

How does this indicate 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 it enough? Certainly not. But Glassnode has a trick up its sleeve.

The third indicator is “the achievement to liveliness ratio (RTLR)”. They use “the realized price using liveness as the denominator” to calculate this.

How does this indicate a bear market? “The market is now trading below the RTLR price of $39.2k, but above the realized price of $24.2k. Again, this is often seen during early to mid-term bear markets.

Who sold and who is still holding?

There are no surprises here. “Short-term holders (STH)” are selling. How does Glassnode define STHs? By the age of their parts. “Coins are considered STH-owned when less than ~155 days old and are statistically more likely to be spent in the face of volatility.” No surprise there either.

It should be noted that the STH coins are “currently held at a loss”. In fact, “as of this week, almost all of the STH supply is under water.” This might be scary for newcomers, so these coins are likely to sell out. At a loss. These people will 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 is holding on? According to Glassnode, “Interestingly, STH supply remains close to multi-year lows, indicating their counterpart, long-term holders (LTH), who seem remarkably unfazed by such a large drop.” Sure. People who have already understood the game are not easy to shake off.

How are the LTH parts doing? “Over 59.3% of circulating supply has now been idle for over a year, increasing from 5.8% of circulating supply over the past three months.” Sounds optimistic, but Glassnode finds a way to make it rain on the LTH parade. “While a growing and large proportion of mature coins is generally considered constructive, it again bears similarities to a bear market, a time when only HODLers and patient hoarders remain.”

Related Reading | Bitcoin Bottom Bear Market Signal, Black Thursday Could Save the Bull Run

Conclusions and hopium

According to Glassnode, it could be argued that the “bear market started in May 2021”. Does this look like a bear market, though? No, this is not the case. It doesn’t look like a bull market either. We may be in a new phase. The Bitcoin cycle may be dead. Or maybe we’re just in a bear market, as Glassnode tried to prove. Anyway, LTHs don’t sell.

Image featured by mana5280 on Unsplash | Charts by Glassnode and TradingView

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