Written by: UkuriaOC, CryptoVizArt, Glassnode
Despite the dramatic market price swings, Bitcoin investors are currently sitting on significant unrealized profits, however, all trading volumes in the market have been falling significantly in recent days as the balance between buyer demand and seller power is reestablished.
- The current market price trend is chaotic, but investors still maintain strong profitability in such market turmoil. Currently, their average unrealized profit has reached a high value of about 120%.
- Although strong buyer demand can completely absorb the pressure from sellers and drive static investors to withdraw their assets from the market, it is still insufficient to further drive the market upward.
- Spot arbitrage trading is still going on. Among them, the trading volume from institutional traders has increased significantly, so it is expected that range trading will temporarily increase.
When market prices fluctuate sideways, investor behavior tends to become weary and apathetic, a phenomenon that is reflected in all Bitcoin markets. Currently, Bitcoin prices are consolidating in a solid price range, and investors are still generally profitable - 87% of the Bitcoin market supply is still profitable because the cost basis of their assets is lower than the spot price.
Figure 1: Profitable Bitcoin Supply
Currently, the average unrealized profit of market investors is about 120%, which is comparable to the situation in previous cycles when the price of Bitcoin reached near its historical high. The current MVRV ratio is still above its annual benchmark, indicating that the macro upward trend of the entire market remains unchanged.
We can use the MVRV ratio to identify price ranges that assess the extreme deviations of an investor's current profitability from the long-term average. Historically, the current MVRV ratio is well above the long-term macro tops formed by the market, by as much as +1 standard deviation.
Currently, Bitcoin price is stable and consolidating within the 0.5 to 1 standard deviation range, which once again highlights the fact that despite the recent volatile market conditions, ordinary investors are still holding statistically high profits.
Figure 3: Bitcoin MVRV extreme deviation price range
After the market broke through the all-time high price in 2021, driven by the long-term holder group, investors began to allocate their assets in the market on a large scale. This reflects the huge profits contained in the market at the time. Undoubtedly, this vitality in the market brought it a large number of active transactions and abundant liquidity supply.
Usually, after Bitcoin price reaches a new historical peak, the market needs enough time to consolidate and digest the excess new supply that flowed in during the previous rise. As the market balance is re-established, investors' realized profits and seller pressure will further decrease.
The reduction in seller pressure and its reduction in profit-taking will naturally reduce market resistance, but since Bitcoin price broke through its previous historical peak in March, it has been unable to maintain a clear upward momentum. This shows that the demand side has stagnated and fixed the market in a limited range. In other words, it ultimately failed to generate enough momentum in the market to drive the entire market to re-establish upward momentum.
Figure 4: The decline in realized profits after several historical peaks of Bitcoin
Although investor profitability remains healthy, the volume of transactions related to asset transfers processed by the entire Bitcoin network has dropped significantly after the price broke through the all-time high, highlighting the market's waning interest in speculative trading and their shocking hesitancy in such a bull market.
Figure 5: Total Bitcoin Transaction Volume (Adjusted for Intra-Entity Transactions) [Unit: USD] (7-Day Moving Average)
When evaluating spot volumes on CEXs, we can observe a similar slump, which suggests a strong correlation between on-chain network settlement volume and trading volume, which together reflect the fact that investors are deeply fatigued and investment activity is similarly sluggish.
Figure 6: Bitcoin spot trading volume (staked volume) [Unit: USD] (7-day moving average)
Going a step deeper, by examining on-chain inflows of Bitcoin-denominated exchanges, we can notice that asset trading activity from exchanges has also dropped significantly.
Currently, short-term holders transfer about 17,400 bitcoins per day to CEX, which is significantly lower than the peak recorded in March when the market hit a record high of $73,000 (at that time, the indicator reached 55,000 bitcoins/day under the stimulus of strong speculation). Correspondingly, long-term holders transfer relatively few bitcoins to CEX. Currently, only about 1,000 bitcoins flow from long-term holders to CEX every day.
Figure 7: Bitcoin exchange inflows by group
We can visually see the clear decline in trading activity by long-term investors by looking at the percentage change in asset balances coming from long-term holders.
Long-term investors only transferred less than 0.006% of their total holdings to trading platforms, which shows that the buying and selling demand of this group has reached equilibrium, and they may need more rapid rises and falls in Bitcoin prices to stimulate further trading behavior.
Figure 8: Percentage of Bitcoin transferred to exchanges by long-term holders
In the current market, the number of profitable transactions (+11,000 BTC) is greater than the number of losing transactions (8,200 BTC). This shows that the market is still biased towards profit, although the amplitude is relatively small.
Figure 9: Bitcoin exchange inflows broken down by profit/loss
Currently, the average realized profit for each Bitcoin flowing into the trading platform is US$5,500, while the realized loss is US$735; the average profit gained by each Bitcoin is 7.5 times the loss it suffers, and during our entire observation period of the market, only 14.5% of the trading days had a profit-loss ratio higher than this value.
This means that the current investors who are still holding the market are still selling their Bitcoin assets, and the buyer demand is sufficient to absorb the seller pressure, but the remaining buyer power is not enough to further push up the market price. This shows that the market structure is more conducive to range traders and arbitrage strategies, rather than trend trading strategies that chase ups and downs.
Figure 10: Average realized profit/loss on Bitcoin exchanges
Another indicator tool that can help identify spot market trading conditions is the spot cumulative volume delta (CVD), which is the net deviation between the buy and sell volumes of investors who take orders on the trading platform in US dollar terms.
Currently, the spot market shows a clear bias towards sellers. However, the market continues to consolidate under this situation, which is consistent with the view that the buyer's demand can roughly offset the seller's pressure. This "equal power" of the two trading parties has led to the current situation that the price of Bitcoin fluctuates only within a very limited range.
Figure 11: Cumulative Bitcoin spot trading volume increment (CVD) across all platforms [Unit: USD]
When we turn to assessing the futures market, we note that open interest continues to rise. The total open interest in the market now exceeds $30 billion, just slightly below the previous historical peak. However, as we have emphasized in our previous article ( Why is the volume of BTC rising but the price is not rising? ), a large part of this open interest is closely related to spontaneous spot trading in the market.
When markets are range-bound, an increase in open interest can mean an increase in volatility-capturing strategies, as traders continue to harvest premiums seen in perpetual swaps, futures, and options markets and convert them into solid profits.
Figure 12: Open interest in Bitcoin futures contracts across all platforms [Unit: USD]
The sharp increase in open interest in bitcoin at the Chicago Mercantile Exchange highlights the growing presence of institutional investors. Currently, CME has more than $10 billion in open interest assets, accounting for nearly one-third of the global market share.
Figure 13: CME Bitcoin open interest [Unit: USD]
In contrast to the continuous increase in open interest, futures trading volume and spot market and on-chain asset trading volume have declined to a certain extent. This shows that investors are relatively less interested in market speculation, while once-and-for-all basic transactions and arbitrage positions dominate the market today.
Figure 14: Total Bitcoin Contract Volume [Unit: USD] (7-day moving average)
Despite the current sideways market fluctuations, Bitcoin investors still maintain a large average profit. However, we should note that from the perspective of spot, derivatives market and on-chain settlement trading volume, investors are less decisive in making their new investment decisions.
Demand and sellers seem to have established a new balance, which has led to a relative stabilization of Bitcoin prices and a significant reduction in market volatility. Under such circumstances, compared with the previous enthusiasm and aggressiveness, investors will be slightly more tired, indifferent and hesitant. From a historical perspective, whether it goes up or down, only a large and decisive price change can stimulate the market to enter the next round of active period.
