On-chain data flashes multiple bear market bottom signals
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Crypto markets have historically been cyclical based on Bitcoin halving events. Bitcoin halving happens every time 210,000 blocks are mined – roughly every four years. The last halvings took place in 2012, 2016 and 2020.
Between each halving, the bull market has been followed by a bear. Given the transparent nature of most blockchain networks, it is possible to look at the chain’s data to identify patterns and similarities in previous cycles.
CryptoSlate the research team has looked at Glassnode’s data and identified several potential market bottom signals.
Provide P/L lanes
Supply P/L bands depict the total amount of Bitcoin supply, either in the form of a profit or a loss. The blue line shows the total amount of Bitcoin in profit; the green line currently shows a loss figure.
Values represent unrealized profit and loss, as the data tracks value from the price acquired through trading or mining the coins.
The blue and green lines have recently converged for the fifth time in Bitcoin history. The previous events were during a bear market, near the bottom of the cycle.
The exception was in May 2020 during the global COVID market crash. In addition to the COVID black swan, convergence occurred in 2012, 2014 and 2019. Although the overlaps lasted from six months to a year, Bitcoin price recovered each time to find a new all-time high within three years.
Supply P/L Bands are not a guaranteed indicator of a bear market bottom, but while history doesn’t always repeat itself, it often does.
Long and short term MVRV
MVRV is a term related to the relationship between realized and market value of Bitcoin. MVRV only considers UTXOs with a lifetime of at least 155 days and serves as an indicator for evaluating the behavior of long-term investors.
Like the Supply P/L Bands, the MVRV of long holders has fallen only five times the MVRV of short holders. The periods are almost identical to each of the previous bear markets and supply charts during the COVID crash.
Short-term holder supply
The total supply of Bitcoin held by short-term holders has exceeded three million coins at the bottom of the cycle. Short-term holders are often the most sensitive to price fluctuations, and the amount of coins they hold is historically at the bottom of the cycle.
Zooming out presents other times when the supply of short-term holders reached the same level. However, unlike the other metrics, this phenomenon has occurred six times since 2011. Four match other data, while short holders bottomed in 2016 and 2021.
One off-chain signal of a bear market bottom has also shown its face in recent weeks. When Bitcoin has fallen from its all-time highs in the past, the point at which major publications declare “crypto is dead” has famously marked the bottom of the market.
In 2018, major publications declared Bitcoin dead 90 times and in 2017 125 times, according to 99 Bitcoin. Currently, the crypto has only received 22 reminder announcements in 2022, so we are some distance away from this signal, adding weight to the market bottom theory.
Just two weeks ago, Sam Bankman-Fried was in the stratosphere. But FTX’s rapid collapse has dealt a catastrophic blow to an industry plagued by failures and scandals. Is this the end of crypto? https://t.co/bwynnCeCZ3 pic.twitter.com/NWyqHCZzXm
— The Economist (@TheEconomist) November 17, 2022