Metric loss

Data Indicates Bitcoin Bottom, But Metric Warns of Final Drop to $14,000

“When will this end?” is the question on the minds of investors who have endured the current crypto winter and witnessed the demise of multiple investment protocols and funds over the past few months.

This week, Bitcoin (BTC) once again finds itself testing resistance at its 200-week moving average and the real challenge is whether it can push higher in the face of multiple headwinds or if the price will fall back into the fork it has been. trapped since early June.

According to the most recent newsletter From on-chain market intelligence firm Glassnode, “duration” is the key difference between the current bear market and previous cycles and many on-chain metrics are now comparable to these historic declines.

One metric that has proven to be a reliable indicator of bear market lows is the realized price, which is the value of all Bitcoins at the price at which they were purchased divided by the number of BTCs in circulation.

Number of days the Bitcoin price traded below the realized price. Source: Glassnode

As the chart above shows, with the exception of the March 2020 flash crash, Bitcoin has been trading below its realized price for an extended period during bear markets.

Glassnode said,

“The average time spent below realized price is 197 days, compared to the current market with only 35 days on the clock.”

This would suggest that the current calls for the end of crypto winter are premature, as historical data suggests that the market still has several months of sideways price action ahead of the next major uptrend.

Will the bottom be closer to $14,000?

As for what traders should be looking for this would mean the end of winter, Glassnode pointed to Delta price and Libra price as “on-chain pricing patterns that tend to pull spot prices during the last bear”.

Realized bitcoin, balances and delta price. Source: Glassnode

As shown in the chart above, the previous major bear market lows were established after a “short-term wick to Delta price”, which is highlighted in green. A similar move in the current market would suggest a BTC low near $14,215.

These bearish periods have also seen the BTC price trade in an accumulation range “between the balanced price (low range) and the realized price (high range)”, where the price currently stands.

One of the classic signs that a bear market is coming to an end has been a major capitulation event that has exhausted the last remaining sellers.

While some are still debating whether or not this happened, Glassnode pointed to the on-chain activity during the June drop to $17,600 as a possible sign that the capitulation has indeed taken place.

Total supply of Bitcoin in loss. Source: Glassnode

At the time BTC fell to $17,600, there was a total volume of 9.216 million BTC holding an unrealized loss. After the June 18 sellout event, a month of consolidation, and a price rally to $21,200, that volume has now fallen to 7.68 million BTC.

Glassnode said,

“What this suggests is that 1.539 million BTC was last traded (has a cost basis) between $17.6k and $21.2k. This indicates that approximately 8% of the circulating supply has changed hands in this price range.

Further evidence of the capitulation having already taken place was the “staggering volume of BTC” that blocked a loss made between May and July.

Sum of realized losses over 30 days Bitcoin. Source: Glassnode

Terra’s collapse triggered a total realized loss of $27.77 billion, while the June 18 drop below the 2017 cycle high resulted in a total realized loss of $35.5 billion.

Related: Bitcoin Below $22,000 Looks Juicy Against Gold Market Cap

Is this the end of the bear market?

A final metric that suggests capitulation has already occurred is the adjusted profit from spent production (aSPOR) ratio, which compares the value of products at the time they are spent to the time they were created.

SPOR adjusted Bitcoin. Source: Glassnode

According to Glassnode, when profitability declines (as depicted by the blue arrows), investors must realize large losses, which ultimately leads to “one last moment of cascading capitulation”, which is highlighted in red.

Glassnode said,

“The market is eventually reaching seller exhaustion, prices are starting to rally, and investor pain is starting to ease.”

In order to verify that the capitulation has indeed taken place and that the accumulation is in progress, Glassnode indicated that the aSOPR value should ideally rise above 1.0.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Every investment and trading move involves risk, you should conduct your own research when making a decision.