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Bitcoin (BTC) On-chain Analysis: The End Of The Bear Market?

Bitcoin (BTC) On-chain Analysis: The End Of The Bear Market?

Hello everyone, and welcome to a new on-chain analysis of Bitcoin by Bitget Academy. Here we will observe the behavior of Bitcoin market participants through data directly from the blockchain. Today, we will study the medium-term context of the Bitcoin market, the dynamics of investor spending and saving through the lifetime of coins circulating on the network, and finally, the dynamics of forming bottoms in down cycles.

Overall analysis

First, let's look at the big picture. We note that our current bear market floor of the moment is still between US$18,000 and US$20,000. This corresponds to the level of the former all-time high (ATH) of one of the previous cycles, in this case, the late 2017 bull run.

Bitcoin (BTC) On-chain Analysis: The End Of The Bear Market? image 0

Source: glassnode

Historically, the lows of bear markets have created price corrections ranging from about 92% to 70% relative to ATHs.

Bitcoin (BTC) On-chain Analysis: The End Of The Bear Market? image 1

Source: glassnode

Today, we are at more or less 72%.

To locate the large volumes of BTC that are interesting to observe, we can refer to the following graph, named "BTC - UTXO Realized Price Distribution (URPD)," which corresponds to the graphical distribution of the last acquisition prices of coins circulating on the network:

Bitcoin (BTC) On-chain Analysis: The End Of The Bear Market? image 2

Source: glassnode

We can visually observe that the range between US$18,000 and US$24,000 is clearly visible.

We also notice that in the last few months, there has been a shift in the volume of chips from around US$22,000 down to US$18,000. Thus, BTC has been redistributed to the bottom of the current range. This means that some investors have seen their coins bought back by opportunists.

What is also interesting to observe is that we notice a shallow volume of coins traded below the US$18,000 level. This gives us potential support of around US$16,000 and US$13,000.

So despite the fact that the price is still currently moving in this range and the US$18,000 low bound is holding and serving as strong support for the current trend, if it were to be invalidated and broken from below, we could have a very rapid decline that would take us towards US$16,000 or US$13,000.

Then, we can observe through the lifetime of the coins circulating on the network, the behavior either of conservation (also called HODLing) or of spending of the participants:

Bitcoin (BTC) On-chain Analysis: The End Of The Bear Market? image 3

Source: glassnode

The above chart is called "BTC - Coin Years Destroyed," which measures the holding time for UTXO. Every time a bitcoin is held for a day on the network, we add one day to it. Once it's spent, it will be destroyed. This provides us with an excellent indicator of whether mature parts were spent at any given time and behavior.

We can see in particular that in June/July, we had a noticeable increase in the number of Coins Days Destroyed which may indicate a loss of conviction of some HODLers and spending of old coins. This can be explained by the fact that we had reached a symbolic low point at the time, US$20,000.

We also notice a trend of coin spending during bull markets as investors who hold mature coins also tend to take profits at these times.

Overall, we can still observe a structural drop, which is particularly notable as it indicates HODLing and conservation behavior despite deteriorating prices. The coins currently spent are particularly young.

Next, let's analyze liveliness, a measure derived from the previous calculations:

Bitcoin (BTC) On-chain Analysis: The End Of The Bear Market? image 4

Source: glassnode

Liveliness is the division of the sum of all days of parts created and recorded by the network since the birth of the network by the number of days of parts destroyed at any given time.

Thanks to this graph, globally, we observe a structural fall of the vivacity, which confirms the previous statements and can add that a large part of the UTXO is dormant. Spent coins are generally less than five months old.

Bearish floor formation dynamics

The next indicator is called "Accumulation Trend Score (0d SMA)" and measures the variation of BTC address balances on the network. To simplify, we estimate all the balances of the BTC addresses on the network, and we observe if these balances tend to accumulate or, on the contrary, to get rid of them:

Bitcoin (BTC) On-chain Analysis: The End Of The Bear Market? image 5

Source: glassnode

A score close to 0 and a light color indicate a distribution, while a score close to 1 and a dark color indicate an accumulation.

What is particularly interesting to study here is the presence of similar behaviors on the part of investors, thus psychological behaviors during bear markets. For example, we see strong accumulations during periods of price capitulation, at the US$200 level over the 2014-2015 period. These phases are often followed by a phase of distribution, thus distrust, and then by a renewal of the confidence and, thus, a new accumulation.

The psychological dynamic is, therefore, as follows: during phases of price capitulation, strong opportunism pushes investors to go and buy bitcoins at a very low price even if the price falls even lower simply because the buying opportunity is rare and deserves to be realized. Then, when the market stabilizes a little but still experiences some shocks, some investors tend to be wary and anticipate a drop, so they leave the market either close to their base price or with a slight gain or loss. In any case, they are no longer confident. Finally, once the price has really stabilized, the bearish plancher has been tested, and the price starts to show some exciting signs, then a renewed confidence from most players will push the market to regain confidence and re-accumulate bitcoins.

Note, however, that history does not always repeat itself.

The penultimate indicator in this analysis is the "BTC - Long-Term Holder SOPR (168h SMA):

Bitcoin (BTC) On-chain Analysis: The End Of The Bear Market? image 6

Source: glassnode

It represents the profitability ratio of long-term holders.

It allows us to conclude that the psychological profile of long-term investors is the following: able to hold coins for more than 155 days and who have an extreme insensitivity to price. Thus, these investors can accumulate for a very long time even if they suffer a very high latent loss.

Note also that exceeding the 155-day threshold means that coins are statistically much less likely to be spent afterward. This rate, therefore, calculates the rate of profit/loss realized by coins older than 155 days spent.

This is an indicator that, at the moment, is close to the historical lows of previous bear markets. We can see this in 2012 as this indicator was around 0.52, in 2015 around 0.54, 0.55 for the 2018 bear market, and currently around 0.61. This means an average loss of 40% for long-term holders.

What is also very interesting is that there are historically very few periods in which long-term investors spend with such large losses. This tells us that we are very close to the deepest and most painful areas of bear markets. This has not happened often, and when it has, it usually only lasts a handful of months but never more than a year.

Then last but not least, here is the "BTC Transition Bear > Bull":

Bitcoin (BTC) On-chain Analysis: The End Of The Bear Market? image 7

Source: glassnode

This model is based on Short-Term Holders' (STH) realized prices VS Long-Term Holders (LTH) realized prices.

It is a model that indicates the transition between the final phases of bear markets and the beginning of bull markets. Simply put, when the STH cost basis (<155 days) is lower than the LTH cost basis (>155 days), it indicates an accumulation of participants and that we are approaching a market bottom. This was reported during a 600+ day period during the 2012 - 2013 bear market. We can also observe this just before the price capitulated during the 2015 and 2018 bear markets.

What we notice and note is that during the bearish crossover, this indicates that we have a short-term accumulation of participants near the bear market bottom as short-term investors (the pink curve) are getting a lower cost basis than long-term investors. Once the pink line crosses over the blue line, i.e., a bullish crossover, it indicates that short-term investors finally have a cost basis that is becoming higher than that of long-term investors. Therefore, a substantial accumulation of coins has taken place at the bear market floor, which continues as the price rises again. Although not necessarily visually obvious, the current period has confirmed an active signal. However, like any model, it can be questioned for various reasons. One reason is that the macro-economic context is particularly tense.


Of course, we are not Nostradamus, we are here to help you understand what is going on behind the curtain. The financial markets are nothing without the confidence we give them. In view of the current phase of mistrust, it is quite likely that many on-chain indicators and many technical models will be reconsidered. We live in special times. We cannot rely solely on the past to anticipate the future. The sole objective of this article is to describe the present, to observe the behavior of the participants on the channel, and to understand their psychology. It also allows us to understand the impact of on-chain movements on prices.

The current range is between US$18,000 and US$20,000, with fairly robust support and medium-term resistance that will need to be breached to at least get a healthy medium-term trend. Healthy organic demand and a calm derivatives market would allow us to have an upward trend for the coming months. Note also that there is little downside resistance if the US$18,000 is invalidated, so we could go for lower levels very quickly.

Just because the models indicate that the final phase of a bear market underway does not mean that today or tomorrow, there will be a rise and a candle with +20 or 30%. The bear market may very well last longer. The bottom of the bear market can be tested and approved many more times before we actually have a bullish trend.

We were able to observe through the measurements of the life of bitcoins a behavior of HODLing; therefore, conservation is very important. The majority of the coins currently spent are young and under five months old. Investors maintain a strong long-term conviction and are waiting for the storm to pass.

We could also observe the beginning of a new accumulation phase. The fact that the return on long-term investor spending is on one of its historical lows gives a signal that the bear market was moving forward. Constructive signals of transition towards the end of the bear market, but that does not mean that tomorrow will be the bull market.

Disclaimer: This article is for educational purposes only and is not intended as investment advice. Qualified professionals should be consulted prior to making financial decisions.

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