Bitcoin (BTC) Chain Analysis – Demand Recovery?

Analyse on-chain du Bitcoin (BTC) – Une reprise de la demande ?

An uptick in activity on the Bitcoin (BTC) chain suggests interest and engagement are returning and the break-even point test on the profitability of spending shows that decisive momentum is building. Chain analysis of the case.

The seller’s signs are coming apart

After a period of historically low volatility, Bitcoin (BTC) price broke out from the $20,000 level abovemoving above the 20 period and 50 moving average to today’s low.

The recent resistance to lower prices, together with the views of warning speculatorsof the’accumulation of short-term investorsof long-term ripening and HODLingreinforces the thesis that suggests that the current bear cycle is coming to a harmless end.

Figure 1: Daily price of BTC

This week we will study:

  • I amentity activity on the chain;
  • with them pending transactions in the memory pool;
  • I amprofit/loss balance understand.

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Resume activity on chain

During our last chain activity analysiswe emphasized a significant lack of bitcoin network user participationsynonymous with indifference and market abandonment by the least certain participants (in blue, then in orange).

However, the account of active entities has shown positive signs of recovery since October. Moving from 230,000 to 250,000 in almost 30 days, this indicator shows a slight recovery in the search of the network, accompanying the rise in price from $18,000 towards $20,000.

Figure 2: Number of active entities

This signal, which is still young, must be taken into account but some confirmation time will be required to make a significant argument in favor of the supported bias.

This recovery is particularly visible by measuring the number of transactions carried out on the network. Emerging under a cap of around 230k transactions per day for nearly a year, this indicator is sending signs of recovery like March and April 2021.

Figure 3: Number of transactions

The subsequent growth in the number of transactions after a price increase is an indicator of the interest of some of the participants who are regaining confidence as the cycle is about to lose momentum.

A breach of this measure above 230,000 transactions per day would be a very promising sign of commitment from on-chain entities..

The latter would gradually restore confidence, and attract the current low prices, in a progressive and tangible way as the exhaustion of the sellers disappeared from their pessimism.

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Concrete signs of commitment

Another observation angle is to evaluate the level of demand and activity on the Bitcoin chain the study of the mempoolstorage pool for transactions awaiting validation.

Usually, an increase in the number of transactions, BTC, and fees waiting in the mempool is synonymous with network congestion and a desire to include a transaction in the next block.

This phenomenon was clearly seen on May 13, 2021, when the price of BTC broke through the $30,000 level after the collapse of the Terra/LUNA ecosystem, indicating its a sense of urgency and panic surrounding.

Figure 4: Number of transactions in the mempool

From the beginning of October, a continuous increase in the number of transactions stored in the mempool shows an interest result and the desire of the participants to perform their operations as quickly as possible.

Confirming this, the number of fees associated with pending transactions is also increasing, indicating that theThe participants are ready to deploy the necessary capital to validate their transaction.

Figure 5: Amount of charges in the mempool

From 0.11 BTC on September 30th to 0.51 BTC last Sunday, this account has increased by 5 in one montha significant increase.

This sign of interest and demand will be followed back up the chain during our next analysis to closely monitor this dynamic and identify a potential influx of new demand.

To better understand and capture chain analysis, discover our podcast on this topic:

New Pivot Point Profitability Test

When not customised, the pivot point of cost effectiveness mentioned in August is currently being tested for resistance.

The following chart shows the ratio of net profits to net realized losses. Positive profitable periods (green) are typical in bull markets and negative profitable periods (red) occur during bearish cycles.

The pivot point between these two phases is concentrated around the neutral zone (realized profit/loss ratio.e = 1) and symbolizes the balance point between the two dynamics.

Figure 6: Realized Profit/Loss Ratio

A break through the top of this level would indicate a return to positive profitability of total costs and it would favor the return of a constructive bullish trend for long term price action.

This level is clearly demonstrated by measuring the cost profitability ratio (aSOPR), an analog metric that calculates the average profitability of transactions settled over a given period.

Here too, we see that the neutral zone currently acts as a resistance on the bottom side (red arrow), suggesting that participants favor selling when the price approaches their cost base.

Figure 7: Expenditure profitability ratio

It would be healthy momentum to see aSOPR break above this pivot point, reflecting the confidence of investors who prefer to hold their position, or even double the bet close to their cost base, rather than limit their exposure.

The current profitability environment is recalled from August 2022which culminated in a dead cat bounce, with poor confidence forcing investors to exit the market and limit pot-breaking.

That said, taking into account the dynamics mentioned in the introduction, it is plausible that the result of this test is different.

Choosing the profitability of coins less than 155 days old, related to short-term holders (STH), we can note that the STH-SOPR has already crossed in the neutral zone.

Figure 8: Short term expense ratio (STH)

Due to the short-term profitability of expenses having started a favorable momentum for a bullish reversal, it will now be necessary to see if this ratio will manage to stay in positive waters, above 1, to confirm that short-term expenses are still profitable.

otherwise, we could see another failure in this pivot point test, leading to further decline in profitability and putting STHs into a latent loss situation which would put significant selling pressure on their shoulders.

The outcome of this test will therefore be determined by the reaction of the participants to the fluctuations in the price of BTC over the next few days.

👉 Get an explanation of the terms used in the analysis of this chain

Summary of the analysis of this chain

Finally, this week’s data shows that it isactivity on chain increased with the recent rise in BTC price. Entities active on the network make more transactions and grow the amount of transfers settled daily on the chain.

This helpful observation is confirmed by studying the mempool, which shows thata new influx of demand is underway, although its scale is still limited. It seems that some participants are coming out of their torpor and starting to look forward to possible movement in the coming weeks.

At the end, the break-even test of expenditure profitability shows that decisive momentum is underway. The fall in loss-taking is starting to be felt and it may give way to a profit-taking phase that would help usher in a new bull cycle.

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Sources – Figure 2 to 8: Glassnode

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