An upsurge in Bitcoin (BTC) on-chain activity suggests a return of interest and engagement while the breakeven point test of profitability of spending indicates decisive momentum is building. to take place. On-chain analysis of the situation.
Signs of seller burnout are piling up
Following a period of historically low volatility, the price of Bitcoin (BTC) broke out of the $20,000 level from abovemoving above the 20 and 50 period moving averages until today’s low.
The recent resistance to lower prices, coupled with observations of caution of speculatorsof the’accumulation of short-term investorsof long-term maturation and HODLingreinforces the thesis suggesting that the current bear cycle is inexorably approaching its end.
Figure 1: Daily price of BTC
This week we will study:
- I’entity activity on the chain ;
- them pending transactions in the memory pool;
- I’profit/loss balance realized.
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Resumption of on-chain activity
During our last on-chain activity analysiswe highlighted a significant lack of bitcoin network user engagementsynonymous with disinterest and abandonment of the market by the least convinced participants (in blue, then in orange).
Nevertheless, the account of active entities has shown encouraging signs of recovery since October. Moving from 230,000 to 250,000 in almost 30 days, this indicator indicates a slight recovery in the solicitation of the network, accompanying the rise in price from $18,000 towards $20,000.
Figure 2: Number of active entities
This signal, still young, deserves to be considered but will need some confirmation time to constitute a significant argument in favor of the bullish bias.
This recovery is particularly visible through the measurement of the number of transactions carried out on the network. Evolving below a ceiling of around 230k transactions per day for almost a year, this indicator is sending signs of recovery similar to March and April 2021.
Figure 3: Number of transactions
The fact that a rise in price is followed by a growth in the number of transactions is an indicator of the interest of some of the participants who are regaining confidence as the bear cycle is losing momentum.
A break of this measure above 230,000 transactions per day would be a very promising signal of commitment from on-chain entities..
The latter, gradually regaining confidence, and attracted by the current low prices, would resume their activity in a progressive and tangible way as the exhaustion of the sellers dissipated their pessimism.
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Concrete signs of commitment
Another angle of observation to assess the level of demand and activity on the Bitcoin chain is the study of the mempoolstorage pool for transactions waiting to be validated.
Typically, an increase in the number of transactions, BTC, and fees waiting in the mempool is synonymous with network congestion and a desire to include a transaction in the next block.
This phenomenon manifested itself most visibly on May 13, 2021, when the price of BTC broke through the $30,000 level following the collapse of the Terra/LUNA ecosystem, reflecting a sense of urgency and panic ambient.
Figure 4: Number of transactions in the mempool
Since early October, a sustained increase in the number of transactions stored in the mempool indicates a return of interest and the participants’ desire to carry out their operations as quickly as possible.
Confirming this, the number of fees associated with pending transactions is also on the rise, indicating that theParticipants are ready to deploy the necessary capital to see their transaction validated.
Figure 5: Volume of charges in the mempool
From 0.11 BTC on September 30 to 0.51 BTC last Sunday, this account has multiplied by 5 in one montha significant increase.
This signal of interest and return of demand for the chain will be followed during our next analyzes in order to monitor this dynamic closely and identify a potential influx of new demand.
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New Profitability Pivot Point Test
Once is not custom, the pivot point of cost efficiency mentioned in August is currently being tested as resistance.
The following chart shows the ratio between net realized profits and losses. Positive profitable periods (green) are typical of bull markets while negative profitable periods (red) take place during bearish cycles.
The pivot point between these two phases is concentrated around the neutral zone (realized profit/loss ratio.e = 1) and symbolizes the point of balance between the two dynamics.
Figure 6: Realized Profit/Loss Ratio
A break through the top of this level would indicate a return to the positive profitability of overall expenses and would favor the return of a constructive bullish bias for long-term price action.
This level is clearly discernible via the measure of the expense profitability ratio (aSOPR), an analogous metric calculating the average profitability of transactions settled over a given period.
Here too, we see that the neutral zone currently serves as resistance on the upside (red arrow), signifying that participants favor selling when the price approaches their cost basis.
Figure 7: Expenditure profitability ratio
A healthy momentum would be to see aSOPR break above this pivot point, showing the confidence of investors who prefer to hold their position, or even double the stake close to their cost base, rather than limit their exposure. .
The current profitability environment is reminiscent of that of August 2022which had ended in a dead cat bounce scenario, with mistrust pushing investors to leave the market while limiting pot-breaking.
That said, taking into account the dynamics mentioned in the introduction, it is plausible that the outcome of this test is different.
Selecting the profitability of coins less than 155 days old, associated with short-term holders (STH), we can notice that the STH-SOPR has already crossed the neutral zone.
Figure 8: Short-term expense ratio (STH)
The short-term profitability of expenses having started a dynamic favorable to a bullish reversal, it will now be necessary to see if this ratio will manage to stay in positive waters, above 1, in order to confirm that short-term expenses remain profitable.
In the opposite case, we could see another failure of the test of this pivot point, causing a further decline in profitability and plunging STHs into a state of latent loss that would place noticeable selling pressure on their shoulders.
The outcome of this test will therefore be determined by the reaction of participants to the fluctuations in the price of BTC over the next few days.
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Summary of this on-chain analysis
Finally, this week’s data indicates thatan upsurge in on-chain activity has accompanied the recent rise in the price of BTC. Entities active on the network carry out more transactions and grow the transfer volume settled daily on the chain.
This constructive observation is confirmed by the study of the mempool, which indicates thata new influx of demand is underway, although its scale is still limited. It seems that some participants are coming out of their torpor and are beginning to anticipate a potential movement in the weeks to come.
Finally, the break-even point test of the profitability of expenditure indicates that a decisive momentum is taking place. The fall in loss taking is beginning to be felt and could give way to a profit-making phase conducive to the advent of a new bull cycle.
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Sources – Figures 2 to 8: Glassnode
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On-chain analyst, fervent fighter of informational asymmetry.
My goal is to inform everyone about the state of Bitcoin (as an asset and a distributed network) through the prism of on-chain analysis.
