Data reveals how Bitcoin holders behave after reaching new highs

Original Title: "Navigating Post-ATH Trends"

Author: glassnode

Compiled by: Felix, PANews

Highlights:

• BTC has been consolidating between $54,000 and $74,000 for some time before reaching a new high of $99,400 (PANews note: it has now surpassed $100,000, reaching a new high of $104,000).
• Several monitored risk indicators have entered the extreme risk zone, reflecting an increase in unrealized profits and heightened investor sensitivity to corrections.
• The Realized Profit/Loss Ratio shows large-scale profit-taking, suggesting the possibility of demand exhaustion in the near term.
• Realized profits have declined 76% from the historical peak, and perpetual contract funding rates are also declining, indicating the market is cooling rapidly.
• Early supply redistribution patterns suggest key demand clusters are between $87,000 and $98,000, with little supply changing hands during the rise from $74,000 to $87,000.

Higher Price Range

After reaching the first major peak in early March, BTC traded between $54,000 and $74,000 for about 8 months until early November. This prolonged consolidation within a narrow range has allowed much of the circulating supply to be redistributed and concentrated at relatively higher cost bases.

This supply concentration could exacerbate the potential for investor panic when the downward move occurs. To track these dynamics, the Realized Supply Density metric has been introduced, which quantifies the supply concentration within a ±15% price range of the current spot price.

High supply concentration indicates that price volatility can significantly impact investor profitability, potentially amplifying market volatility.

Reviewing the major market trends over the past five years, a common pattern emerges:

• During periods of market indecision, typically over 20% of the supply is concentrated within ±15% of the mid-price.
• This often leads to violent price swings in either direction, causing that supply to profit or lose.

This volatility typically drives the Realized Supply Density metric below 10%, indicating that a large number of tokens now hold significantly different unrealized profits or losses.

The recent breakout above $74,000 triggered one of these redistribution cycles, driving BTC to new highs and pushing the Realized Supply Density (±15%) below 10%, where many investors have realized substantial unrealized gains.

Data source: glassnode

Price Discovery Range After New Highs

To explore the dynamics of supply turnover during the price discovery period, a new concept called the Bitcoin Cost Basis Distribution (CBD) can be utilized. This metric tracks the supply concentration at different price points via a heatmap. The Bitcoin CBD provides insights into how supply is being redistributed over time across different price levels, helping to identify key demand and investor interest zones.

As the market enters the early stages of price discovery, the upper and lower bound ranges have not yet fully formed. The most significant supply clusters are hovering between $87,000 and $98,000, with little turnover during the rally to $87,000.

This suggests that the current trading range is still seeking a balance between buyers and sellers, but risks remain.

Data source: glassnode

Assessing Market Risks

The following will reference a set of metrics aimed at classifying different risk thresholds using on-chain data.

1. Measuring Supply Profitability

The Percent of Supply in Profit (PSIP) metric utilizes the proportion of supply holding unrealized gains to describe the market cycle. This can provide insights into the potential risk of selling pressure, as investors holding unrealized profits are often incentivized to lock in gains.

The PSIP metric is divided into four risk levels:

• Extreme Risk: PSIP > 90%, more than one standard deviation above the historical average
• High Risk: 75%
• Low Risk: 58%
• Extreme Low Risk: PSIP

Periods where PSIP trades above the upper bound are typically associated with the euphoric stages of a bull market. The recent price breakout has pushed the PSIP metric into the euphoric stage, which historically has been associated with increased vulnerability to downward corrections, as investors have the motivation to realize profits, creating indirect selling pressure.

This suggests that market participants should exercise caution, as the likelihood of increased selling pressure is also rising.

Data source: glassnode

2. Measuring Fear and Greed

The Net Unrealized Profit/Loss (NUPL) metric quantifies the market's total unrealized profits or losses as a percentage of market capitalization. Considering the magnitude of unrealized profits or losses can provide deeper insights into the market's psychological state, from optimism to euphoria and fear.

Based on the Percent of Supply in Profit metric, NUPL can further elucidate the magnitude of profitability, driving investor sentiment - from optimism to euphoria and fear.

NUPL is divided into four risk levels:

• Extreme Risk: NUPL exceeds 0.59, more than one standard deviation above the 4-year average. This stage is characterized by extreme unrealized profits, reflecting market frenzy and heightened adjustment risk.
• High Risk: NUPL between 0.35 and 0.59, indicating the market is in a state of profitability but has not yet reached euphoric levels.
• Low Risk: NUPL between 0.12 and 0.35, suggesting moderate profitability, typically in a stable or early recovery stage.
• Extreme Low Risk: NUPL falls below 0.12, aligning with the market capitulation and bottom-finding stages of a bear market.

With the price breaking above $88,000, NUPL has also entered the extreme risk zone, indicating the market now holds extremely high unrealized profits. This elevated level suggests increased risks of investors exerting selling pressure, leveraging higher prices, and strong new demand.

Data source: glassnode

3. Measuring Investor Spending Patterns

Given the high levels of unrealized profits in the system, the Realized Profit/Loss Ratio (RPLR) can be used to gauge how investors are adjusting their spending patterns as BTC approaches the $100,000 level.

RPLR tracks the ratio of realized gains to realized losses occurring on-chain, providing insights into changes in investor behavior. Applying a 14-day moving average (14D-MA) can filter out other factors, providing a clearer view of the macro trend.

The RPLR framework divides market risk into four levels:

• Extremely high risk: RPLR exceeds 9, indicating that more than 90% of the tokens in circulation are used for profit-taking - a common sign of demand exhaustion
• High risk: RPLR is between 3 and 9, with 75%-90% of tokens used for profit-taking, typically observed during market peaks
• Low risk: RPLR falls below 3, indicating a transitional phase between profit and loss spending (1
• Extremely low risk: RPLR falls below 1, dominated by loss-making tokens, typically observed during market capitulation

The RPLR indicator has also entered the extremely high-risk zone, highlighting the intensity of profit-taking activity during this price discovery rebound, which may indirectly create supply for the market.

Data source: glassnode

Cooling down

Although these three indicators are in the extremely high-risk zone, it is worth noting that these conditions are typical characteristics of the explosive rebound during the price discovery period.

This assessment can be supported by looking at the speed of cooling down of these indicators over the past week. Specifically, focusing on realized profits and perpetual contract funding rates as key metrics to measure selling pressure and over-leveraged demand.

Realized profits track the dollar gains of moving tokens, reaching a peak of $10.5 billion in daily profits as BTC marched towards $100,000. It has since declined to around $2.5 billion per day, a 76% drop. This sharp decline suggests a clear cooling down, indicating that profit-taking may be more impulsive than sustained.

Data source: glassnode

The perpetual contract market also corroborates this view, as funding rates begin to stabilize as speculative demand starts to stabilize.

Funding rates measure the interest cost of holding open perpetual futures contracts, where in this case, long traders must pay interest to short traders. Funding costs spiked during the rebound, but not to the extent seen in March this year.

If funding rates start to decline, it suggests that a large amount of long leverage is starting to exit the market, while a renewed increase may indicate that long risk is increasing.

Data source: glassnode

Conclusion

Bitcoin recently reached a new all-time high of $99,400, marking a critical moment in the current cycle, pushing the market into a price discovery phase. It has broken out of the long-standing $54,000 to $74,000 price range, triggering a large supply of unrealized profits and triggering several high indicators used to track short-term overheating risks.

At the same time, some indicators are starting to cool down, such as the decline in realized profits and perpetual contract funding rates. This suggests that excessive speculative interest is waning, and net spot selling activity is decreasing. The Bitcoin market is trying to find a new balance, with the bottom of the current supply density cluster at $88,000.