Data insight: Trillions of market capitalization has become an important support for BTC?

Bitcoin market overview

The Bitcoin market traded within a relatively narrow 5.4% range this week, with a minimum of 57168 USD and a maximum of 60265 USD. Bitcoin has now reached the milestone of $1 trillion in market value for a full week. To maintain this position, all Bitcoins will exceed $53,566. This is strong confidence in Bitcoin and the entire cryptocurrency asset class.

On-chain activities continue to reinforce this position, with transaction volumes equivalent to more than 10% of the circulating supply above the $1 trillion threshold. At the same time, miners have returned to the mode of hoarding coins, and the indicators on the chain have almost reset. Interestingly, open futures contracts have reached a new all-time high, while trading volume and short liquidation volume are declining.

Trillions of market capitalization has become an important support level

Now that Bitcoin has entered the trillion-dollar market capitalization field, the immediate question is whether the market can maintain these levels and how much price support is below us.

The URPD indicator shows the distribution of on-chain transaction volume in the price group, forming a transaction volume curve indicator that is often used in technical analysis: on-chain transaction volume. When there is a large amount of currency trading volume in a certain price band, it is likely to form a strong support (or resistance) level.

Above the threshold of 1 trillion dollars in market value, more than 1.98 million BTC have been traded, which is equivalent to 10.6% of the circulating supply. What is impressive is that this on-chain transaction volume has formed one of the strongest on-chain support levels since the price of 11,000 to 12,000 US dollars.

The peak volume of this range reached 2.97 million BTC, and the transaction price was between US$58,500 and US$59,100. The average trading volume in this range is 1.52 million BTC, which is also higher than most ranges. This trading volume range is likely to form a very strong support level, which seems to prove Bitcoin’s trillion market value status.

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To support this view, we reviewed the total transaction volume denominated in U.S. dollars over a period of time.

From 2019 to mid-2020, the daily EA settlement volume of the Bitcoin network is usually around $1.7 billion. Since then, the transaction volume on the chain has risen together with the price by more than 720%. The value of the EA that is settled every day is now typically USD 12.25 billion. This means that although the currency price has risen sharply, the transaction volume has also increased correspondingly to support and prove the performance of the bull market.

Situation on the chain

Last week we showed how long-term holders have slowed their selling behavior in the past three months, and this trend has continued into this week. In addition, miners have now joined in, and the miner net position change indicator flashes green, indicating that the miners are holding newly mined coins.

Although the influence of mining as a seller entity is getting smaller and smaller (compared to the daily transaction volume), their consumption patterns can provide insight into the sentiment in the Bitcoin market.

The adjusted SOPR indicator can give us an in-depth understanding of how much profit is realized by the coins sold every day (while ignoring coins less than 1 hour). If profits are taken away by old coins, aSOPR (Adjusted SOPR) will show an upward trend, on the contrary, when profitable coins remain dormant, aSOPR will show a downward trend.

The higher the aSOPR indicator, the more currencies are profitable.

When aSOPR is lower than 1.0, it means that the coin is in a state of total loss.

In a bull market, we usually see a “reset” of aSOPR, that is, during a price correction, aSOPR returns to a level close to or below 1.0. This indicates that profitable coins are staying dormant, and the confidence in holding assets is recovering.

aSOPR was almost reset to 1.0 this week, indicating a reduction in profitability and that market confidence still exists.

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The consecutive peaks of aSOPR have decreased in the past three months. This shows that as the bull market progresses, profits are decreasing, again showing the long-term trend of market confidence.

Finally, we reviewed the wealth distribution between long-term holders (LTH) and short-term holders (STH), which is usually a cyclical indicator of wealth transfer events.

This analysis pointed out some key observations.

The BTC accumulated by STH in the past 6 months is about 440,000 more than the cost of LTH, which shows that the new demand entering the market has exceeded the sales volume of LTH.

As shown in pink, the relative wealth transfer is slowing down. This is because long-term holders have slowed down selling.

A similar wealth transfer occurred near the peak in 2017, so this is an indicator worth paying attention to. This may be both a supply constraint (bullish), but it also indicates a cyclical change in holding behavior.

A key difference from 2017 is that LTHs currently hold 66% of the circulating supply, which is much higher than the 58% at the peak of 2017. This shows that compared with the historical cycle, the holding demand in this cycle has increased. On the contrary, there are more currencies in profit, which may become an overhead supply in the future.

In general, in the past few weeks, the strength and demand of holding coins in the bull market have been very significant. This trend has largely continued this week. Both miners and long-term holders have shown positive signs. At the same time, transaction volumes have also supported the new trillion-dollar valuation.

The above analysis considers the spot market and on-chain traffic. Since this is the first widely used derivatives market in the Bitcoin bull market, we will also study the futures market to evaluate the overall performance of the derivatives market.

Futures trading

Open futures contracts hit a record high this week, exceeding $231 billion, of which Binance and OKex together accounted for 32% of all contracts.

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Interestingly, the futures trading volume has been declining throughout March, and this week has been particularly calm compared to the previous few months.

Perpetual futures funding rates are also almost reset to a neutral level, indicating a reduction in excessive long speculation and an increase in short interest, which balances long traders.

In the past few months, although the liquidation volume of short sellers has reached a record high, their liquidation volume has gradually declined. This shows that short sellers either have excellent risk management in a bull market, or, more likely, many short sellers have deployed risk-neutral strategies in their trading.

The combination of high open interest, reduced futures trading volume, small short-term liquidation volume, and lower capital interest rates proves that “cash and carry” trading is the preferred strategy under current market conditions.

Hold and carry trading allows traders to combine spot longs and short futures to lock in the current funding rate/premium while remaining risk-neutral to price fluctuations. As more and more traders take advantage of this arbitrage, short interest in open positions will increase, but since traders keep their net worth neutral by holding spot, there is no corresponding liquidation.

Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.