Is the Bitcoin Rally Sustainable? Current On-Chain Metrics!

• Bitcoin has been on an upward trend since reaching a local low below $25,000 on September 11th. The rally that reached $27,435 yesterday indicated a 10% increase from the recent low.
• Glassnode’s Accumulation Trend Score elaborates on this trend in more detail. It shows that the current recovery rally in 2023 has been significantly influenced by investor FOMO (Fear of Missing Out).
• The market was shaken by a sharp drop from $29,000 to $26,000 in August 2023, and overwhelmingly negative sentiment was observed.

Despite the recent rally in Bitcoin price, what do the metrics say? Investors should remain cautious!

What Do Critical Metrics in Bitcoin Indicate?

Bitcoin has been on an upward trend since reaching a local low below $25,000 on September 11th. The rally that reached $27,435 yesterday indicated a 10% increase from the recent low. As reported by COINOTAG, the rally was largely driven by a significant increase of over $1 billion in the futures market and open positions; more than half of this disappeared when BTC dropped below $27,000. Nevertheless, BTC showed an increase of around 7.5% from the lowest point of last week.

Glassnode’s Realized HODL Ratio (RHODL) serves as a critical market sentiment indicator. It measures the balance between recently moved coin investments (held for less than a week) and longer-term HODLers (held for 1-2 years). The RHODL Ratio for 2023 seems to be playing around the 2-year average level. This indicates a modest entry of new investors, and the momentum behind this change appears relatively weak.

Glassnode’s Accumulation Trend Score elaborates on this trend in more detail. It shows that the current recovery rally in 2023 has been significantly influenced by investor FOMO (Fear of Missing Out). A clear accumulation pattern is observed around local price peaks, pushing it above $30,000. This behavior is sharply different from the second half of 2022 when new market participants demonstrated resistance by accumulating Bitcoin at lower price levels.

Moreover, the Realized Profit and Loss indicators paint a complex picture. These metrics measure the change in the value of spent coins by comparing the acquisition price to the disposal price. In 2023, periods of intense coin accumulation have often come with high-level profit realization. Glassnode describes this pattern as “openness,” similar to market behavior seen during the peak periods of 2021.

An assessment of Short-Term Holders (STH) underscores a risky situation. More than 97.5% of the collateral of these new participants is currently in the red, reaching levels unseen since the FTX crash. Glassnode explains the extreme financial pressures experienced by investors lately using STH-MVRV and STH-SOPR metrics, which measure the magnitude of unrealized and realized profit or loss.

Low Market Confidence

The report also touches on market confidence research. A close examination, as an indicator of the difference between the cost base of two investor subgroups, demonstrates dominant market sensitivity. Overwhelmingly negative sensitivity was observed as the market was shaken by a drop from $29,000 to $26,000 in August 2023. It manifested itself as the cost base of spending fell significantly below the cost base of holders, which is considered a widespread market panic signal.

To provide a clearer visualization, Glassnode normalized this metric against the spot price. An important observation is that the negative sensitivity trend during bear market recovery periods is periodic, often lasting between 1.5 and 3.5 months. The market has entered its first negative sensitivity period since the end of 2022.

Currently, the trend has been ongoing for 20 days, which may mean that the recent rally has not ended yet if history repeats itself. However, if it consistently returns to a positive zone, this could be a sign of renewed capital inflow and a more positive situation for Bitcoin holders.

In conclusion, Glassnode’s on-chain data shows a Bitcoin market that is currently in flux. While 2023 has been a year for new capital to enter the market, this entry seems to lack strong momentum. Market sensitivity is decidedly bearish, especially among short-term holders. These findings suggest that the sustainability of the current Bitcoin rally requires careful consideration, as it sends complex signals.