Despite Strong On-Chain Metrics, Macro Headwinds Remain

Bitcoin Magazine ProBitcoin’s capitulation has been severe from all-time highs. On-chain indicators indicate that the worst is behind us but significant macro challenges remain. The below is an excerpt of a recent issue of Bitcoin Magazine Pro, Bitcoin Magazine Magazine’s premium markets newsletter. Subscribe now to get these insights and other on the-chain analysis. November was a difficult month. On-chain realized profit loss and profit data shows that this was true for many bitcoin forced-sellers. You want to look for extended periods of forced selling, capitulation, and rises in realized losses before bitcoin prices bottom. This can be viewed by looking at the monthly realized profit and loss relative to bitcoin’s total market capital. These bottom signals were seen in November 2022, July 2022 Terra/LUNA crashes, March 2020 COVID fear, and December 2018 cycle bottom capsitulation events. Net realized profit/loss versus market cap. In 2018, the 2018 cycle ended with excess realized losses. However, this was different from the forced liquidations and cascades private balance sheet leverage and paper Bitcoin unwinding that were witnessed this year. 30-day cumulative net realized loss/profit Another way to view cyclical drawdowns in bitcoin is to look at its realized market capitalization. This is the average cost basis for the network that tracks the price at which each UTXO has moved the most recently. Realized price, which is more volatile than price, provides a more stable view on bitcoin’s growth as well as capital inflows. The realized market capitalization has fallen 17.33%, which is significantly lower than the 14.13% and 16.51% cycles of 2015 and 2018. Bitcoin realized cap drawdownWe are now 176 days into the price falling below bitcoin’s realized value. These are not consecutive days, as prices can temporarily rise above realized price. However, price trends below realized price during bear market periods are not. Trends in 2018 lasted only 134 days, while those in 2014-15 lasted 384. One, bitcoin’s realized market capitalization took a significant hit during the previous capitulation. This is a promising sign of a bottom-like trend. However, it is possible to argue that the price being below realized could easily last another six-months from historical cycles. The lack of capitulation on equity markets is still a major concern and headwind. Net unrealized profit/lossAs per the net-unrealized-profit/loss (NUPL) ratio, we are firmly in the capitulation phase. Calculating NUPL is as easy as subtracting market cap from realized cap and then dividing it by market cap. This process can be found in this article by Tam?s Blummer, By Tuur Demeester and Michiel Lecrauwaet. It is clear that we are in the capitulation phase for bitcoin-native cycles. Only 56% of the circulating supply was moved on-chain in profit at this time. The current exchange rate is currently at 56%. This is a 2 week moving average. As the hash rate ticks higher, and as the ledger provides an immutable settlement layer for global values, the Bitcoin network continues to produce blocks approximately every 10 minutes. Bitcoin is now objectively cheaper than its adoption and history. The denominator is the real question about the future. We’ve discussed in detail the current global liquidity cycle. Despite being historically inexpensive, bitcoin is not immune from a sudden strengthening of the dollar. Exchange rates are relative. If the dollar is squeezed higher, then all other currencies will fall, at least temporarily. Position sizing and preference for time are key factors. As for the catalyst for a surge higher in the dollar denominator of the bitcoin exchange rate (BTC/USD), there are 80 trillion possible catalysts…Relevant Past Articles:The Fuel For Next Bull RunFive Key Charts To Watch Right NowWhat To Expect When You’re Expecting VolatilityVolatility Is Back: Where Will Bitcoin Bottom?Key Bitcoin And Equity Dynamics To Watch Right NowTagsterms:On-chain DataRealized Bitcoin Pricebitcoin priceOn-chain Analysis


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