As the magnitude of losses realized by short-term investors declines, a volume of more than 2.3 million BTC having changed hands in the price range between $18.5k and $22k does so far support office. However, the selling pressure built up by long-term investors has yet to be fully expressed.

Bitcoin tests the top of the range 

The price of Bitcoin (BTC ) is pushing above the upper limit of the range established over the past two months following the forced closing of tens of millions of dollars of short positions yesterday.

While the final redistribution phase is in full swing, one of the dynamics that allows us to identify the transition from a bear market to a bull market is the exhaustion of participants’ selling pressure .

BTCUSD 190722

Figure 1: Daily price of BTC

In order to assess the selling potential remaining to be expressed following the two bearish episodes of May and June, we will analyze this week:

  • the formation of an onchain support level at the level of the old ATH;
  • the degree of profitability of investors’ spending in the short and long term;
  • the fall of the bearish momentum of the price of BTC.

A solid level of support?

Taking our long-term view, it appears that the current bear market has spawned one of the worst monthly performances in BTC history .

Closely rivaling a historic drop of -38.5%, when BTC tumbled from $13.3 to $8.2 in August 2011, July 2022 sees a drop of -37.9%.

BTC Monthly Performance 190722

Figure 2: Monthly price performance of bitcoin (BTC)

Following such a record, it is legitimate to wonder if we are closer to the end of the bear market than to its beginning and if the worst is behind us.

Given the current record levels of speculation, and despite the installation of strong demand , it is too early to say with certainty that a further decline is impossible .

Ever since price broke through the $20k level, the popular belief that the previous cycle’s ATH was an untouchable stronghold has been shattered.

That said, while this zone has created a sense of panic among some investors, pushing to sell, many investors have identified here a rare buying opportunity .

GIF 190722

Figure 3: Evolution of the realized price distribution of UTXOs (May 1 – July 19)

Thus, more than 2.3 million BTC (12.4% of the circulating supply) changed ownership in the price range between $18.5k and $22k.

Now established, this strong cluster of trading volume provides a level of onchain support associated with the cost basis of new entrants , with the potential to turn into a bear market floor.

Transferring selling pressure over the long term

By studying the degree of profitability of the losses/profits made by participants during recent periods of price decline, it is possible to identify their spending behaviors and observe accelerations or decelerations in their selling pressure.

Regarding short-term investors, we can observe an increasing loss realization ranging from -6% to -9.9% from May 11th to June 16th .

STH-SOPR 190722

Figure 4: Short-term investor return on spending ratio

Following the drop that brought the market to the threshold of $20k, the return on expenses ratio for this cohort gradually approached the neutral zone (STH-SOPR = 1).

This dynamic is observable during the end of short, medium and long-term corrections and signals that the selling pressure associated with this cohort is easing following several months of forced distribution .

The profitability of spending of the cohort of long-term investors, comprising all coins older than 155 days, has meanwhile fluctuated greatly, while maintaining an overall bearish trend.

Indeed, we can measure an increase in the extent of loss taking by these entities, ranging from -21.5% in May to -40.9% in June .

Unlike short-term investors, more seasoned investors are currently making colossal losses , a sign that their convictions are being tested.

LTH-SOPR 190722

Figure 5 : Long-term investor return to expense ratio

The LTH-SOPR has been moving since June in a downtrend, indicating that LTH is actively participating in the selling pressure. Today, the majority of the remaining selling pressure comes from these entities .

The graph below represents the relative percentage of losing supply held by the two cohorts.

While the supply at a loss associated with STHs varies little over bear cycles (peaks between 18% and 20%), the portion of supply held at a loss by LTHs tends to decrease over time, from 41 .93% in 2015 to 28.85% in June 2022.

LTH/STH Profit/Loss 190722

Figure 6: Supply of STH and LTH in loss state

Since long-term investors favor HODLing behavior during bear markets and spending behavior during bull markets , this dynamic suggests that selling pressure is wearing off, especially at this late stage in the bear cycle.

Considering the evolution of the LTH-SOPR, however, we can expect a final drop in the market, forcing the LTH into a final sell-off.

Reversal of market momentum

Finally, let’s look at market momentum. Momentum is the momentum, the inertia variable of an asset’s price as it trends .

Shown here on three time scales (14 days, 28 days, and 140 days), the market’s realized gradient delta (in blue) measures the upward or downward tilt of bitcoin’s price to gauge the power of the market. ‘a movement.

  • Higher or deeper peaks mean more vertical and wider movements.
  • A rising price, coupled with successive new highs, implies more power with every move.
  • A descending price, accompanied by negative peaks, indicates dissipation of momentum.
MRG14 090722

Figure 7: Market realized gradient delta (14 days)

Whether on the short (14 days) or medium term (28 days) time scales, we can notice two salient facts:

  • Deltas are currently positive, a sign that market momentum is near an inflection point that can act as a pivot for a trend reversal .
  • The bearish amplitudes of these two oscillators are narrowing, a sign that the bearish inertia is waning, with each wave of selling gradually exhausting the selling pressure .
MRG28 090722

Figure 8: Market realized gradient delta (28 days)

Given these observations, an uptrend in the short to medium term, from several weeks to 1 or 2 months, is possible if the two oscillators take support above the neutral zone. This bullish divergence corroborates technical indicators such as the RSI.

However, while it is encouraging to see positive momentum in the short to medium term, these indicators can only herald a full trend reversal if the 140-day variable is also positive .

MRG140 090722

Figure 9: Market realized gradient delta (140 days)

In order to confirm with certainty a bullish reversal of the market and the return of a bull market of several years, it will be necessary to wait:

  • The return of a positive long-term momentum , which is not currently the case.
  • Confirmation that this inertia is in a stable direction , testing the neutral zone as long-term support.

Note however that this oscillator also indicates increasingly weak bearish amplitudes, which constitutes a first constructive signal.

Summary of this onchain analysis

In sum, this week’s data allowed us to determine that, despite a historically low monthly performance and the realization of record losses during the two violent falls in May and June, the market is at a level that could serve as a floor for bear market .

With more than 2.3 million BTC having changed hands in the price range between $18.5k and $22k, a large trading volume is currently acting as short-term support.

While the magnitude of the losses made by short-term investors is diminishing, the selling pressure stored up by long-term investors has yet to be fully expressed .

The short and medium term momentums of the price indicate that a potential increase of a few weeks to 1 or 2 months is possible if the market breaks free from the upper limit of the current range . However, a long-term trend reversal is not yet identifiable.

Sources – Figures 2 to 8: Glassnode 

What's your reaction?

Leave a comment

Minimum 4 characters