Bitcoin Net Realised Profit/Loss Back-test Complete?
The major bitcoin deleveraging event is over and will be one for the history books. But do key on-chain metrics buttress the idea that the worst is probably behind us?
Accounting for profitable coins that were spent during the sell-off, the capitulation is the largest net realised loss by a significant margin (in Dollar terms). Specifically, the drop (which has since begun recovering) was 185% larger than the 2020 COVID crash. Considering the bitcoin market cap was ten times larger (pre-crash), the sharp decline makes total sense.
When measured in terms of the realised profit and loss ratio (i.e. the ratio between all coins moved at a profit and at a loss) using a 7-day exponential moving average, the ratio bounced off 0.7. This is not atypical of bull market retests and, more often than not, signals a relative bottom in a broader uptrend. If prices drop below $30,000, it’s likely that this ratio will traverse into bear-market territory as bitcoin holders sell coins at a loss.
This was the first time the bull/bear ratio was back-tested since the start of the run-up from $10,000.
Created by Charles Edwards, the Hash Ribbon is a market indicator which assumes that Bitcoin tends to reach a bottom when miners capitulate, i.e. when Bitcoin becomes too expensive to mine relative to the cost of mining. It indicates that the brunt of miner selling is over when the 30-day moving average of the hash rate crosses above the 60-day moving average (from light red to dark red).
Signalling negative-to-positive flows, this mid-term indicator tends to present good buying opportunities as price momentum turns bullish again. When seen within the context of the previous newsletter, bitcoin appears to be in a re-accumulation phase, which typically precludes any more major moves outside of the range until another volatility cycle to either direction plays out.
All in all, it’s worth keeping an eye on BTC/USD moving forward. BTC.D (dominance) has bounced off the 40th percentile after 4 months of downside. Altseason is likely over for the time being and the situation is only worth revisiting once BTC.D hits 50% or 40%. The reaction off these levels will provide a baseline to intuit what comes next for bitcoin and altcoins.
Catch you next time.
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