Saturday, December 4

90% of bitcoins are in profit again

After reaching 85% of the bitcoin (BTC) supply in profit last week, the recent price improvement has contributed to the increase in that percentage, to exceed 90%.

In the report The Week Onchain, published on Monday, November 22, Glassnode states that, during the past week, the fall in the price from USD 65,000 to USD 57,000 had caused a 15% decrease in the supply of bitcoin in profit. That is, of all bitcoin in circulation, the percentage of BTC with a price higher than the purchase price, decreased. This percentage ranged last week, between 85% and 90%, while the improvement in the price in recent days has allowed this last value to be exceeded.

The graph below shows three zones, including the most recent, in which the percentage of bitcoins in profit ranged between 85% and 90%. The report indicates that this zone is usually a transition between a bear market and a bullish one.

Gains or losses on BTCs sold by short-term holders. Source: Glassnode.

After the all-time high on April 14, the percentage of bitcoin supply moved within the aforementioned limits, for much of May, coinciding with the fall in the price of bitcoin. It then fluctuated again between 85% and 90% in August and September, this time in the middle of a bull phase of the cycle.

The influence of short-term bitcoin holders

Over the past week, short-term holders (STHs) were key in bitcoin’s price action, the study notes. To study the profitability of this segment, the SOPR metric or profit rate of bitcoin spent is used. This indicator is calculated by dividing the current price of a given amount of BTC by the price at which it was acquired.

The SOPR for these holders rose to a high of 1.1 on the week and subsequently dropped below 1 on the final days of the week. That implies a 10% profit on the sale made. If SOPR is worth 1, there are no gains or losses and if it is less than 1, it is sold at a loss.

Percentage of bitcoin supply in profit reaches 50% again.  Source: Glassnode.
Percentage of bitcoin supply in profit reaches 50% again. Source: Glassnode.

When the loss situation for holders is prolonged, the possibility of an extended fall grows. This can be seen in the graph above in the period from mid-August to the end of July. Sustained losses cause sell-offs, which in turn put downward pressure on the price.

It can also be seen in the graph that the SOPR values ​​are more moderate than those that occurred in the upward phase from October 2020 to May 2021. In this region where profit rates remain limited, it is not feasible for the market to saturate with profit taking.

Bitcoin capitalization and profitability

In another perspective of the performance of STHs, their performance can be evaluated with the MVRV metric, which measures the relationship between the market value of bitcoin and the effective capitalization. The latter corresponds to the value of the BTC the last time they changed hands.

When this metric is equal to 1, it indicates that the price has reached the value at which the funds were acquired. Typically, the report says, STHs will try to defend that level in bull markets.

Gains or losses on BTCs sold by short-term holders.  Source: Glassnode.
Gains or losses on BTCs sold by short-term holders. Source: Glassnode.

As seen in the chart, bullish rallies are sustained while STHs are in gain (blue shaded areas, MVRV greater than 1). Below that value, the MVRV corresponds to a weak market. As seen in the graph, when the realized price of bitcoin is below the current price, the MVRV is greater than 1. And in the opposite case, if the effective price (blue) is above, the STH become at lost.

Last Sunday the 21st, the realized price was at USD 53,000, close to coinciding with the price of BTC in the market. However, at the time of this writing, bitcoin has climbed to $ 59,093, according to the CriptoNoticias price index, raising the percentage of bitcoins in profit.

While there is not a total match between short-term holders and those with less than 1 BTC, the latter played an important role since last week, when it was detected that they had had a noticeable bitcoin purchase activity.

A report by analyst Willy Woo, commented on by CriptoNoticias, stated that these retail holders were in an intensive purchasing phase last week. This, according to the analyst, it is a guarantee that the current correction does not correspond to the beginning of a bear market, but to a consolidation of prices.

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