Following 2022, a year that was more lows than highs in crypto, the digital asset, as well as investors, are enjoying 2023 so far. Bitcoin has woken up from its slumber to register a 37% gain since the beginning of the year. The OG cryptocurrency just saw the biggest 24-hour short liquidation since August 2021. Short trades are bets against Bitcoin’s price rising, and short liquidation is the liquidation on these bets.
Twitter user Game of Trades identified six on-chain metrics suggesting this is only the beginning of the uptrend.
On-Chain Metrics = Blockchain Data
1. Accumulation trend score
The first on-chain metric is an accumulation trend score. This highlights the zones where heavy accumulation has taken place based on the size of the buying entity and the number of coins bought by them. The metric shows that large entities have been in deep accumulation mode since FTX imploded. This accumulation trend was also seen during the bottoms of 2018 and 2020.
2. Entity-adjusted dormancy flow
The second metric, entity-adjusted dormancy flow, is the ratio of Bitcoin’s current market cap to the annualized dollar value of coin dormancy. Average dormancy describes spent or realized destruction relative to transactions, where destruction refers to long-term holders selling or sending their BTC. The lower this value, the longer the coins are held by investors. And Bitcoin’s entity-adjusted dormancy flow was at its lowest ever towards the end of 2022! This strongly points to the fact that speculative investors have been flushed out of the system now and only the HODLers remain.
3. Reserve risk
Bitcoin’s reserve risk indicates the confidence of long-term BTC HODLers relative to the price of Bitcoin. Low values mean high confidence and low BTC prices. And guess what? According to data published by Glassnode, Bitcoin reserve risk also fell to its lowest point in history at the beginning of the year and continues to hover around the same region. Long-term investors’ confidence in the digital asset has never been higher.
4. Realized price
Bitcoin’s realized price (RP) is the average price at which all BTC was purchased, essentially showing what the entire market paid on average. Data shows that Bitcoin’s current price was hovering below the realized price since the FTX crash, and it has recently gone just above the RP, indicating an excellent buying opportunity.
5. MVRV Z-score
Bitcoin’s MVRV Z-score indicates if the asset is being overpriced or undervalued according to its RP. When this value exits the green belt on the chart, it is usually considered the end of the bear market. And the value is currently attempting to exit the green zone again. But it’s advisable to take this metric with a grain of salt since it has ended up giving false indications in the past.
6. Puell multiple
The Puell multiple looks at market cycles through the lens of mining profitability. The lower this metric, the higher the stress miners face in terms of making a profit. Low periods flush out the overleveraged miners from the system. And the Puell multiple is currently just moving out of the unhealthy zone. Historically, this has indicated the end of miner stress and has been an indicator of healthy future gains.
Our Takeaway
These metrics are at points similar to the market cycle bottoms of 2015, 2018, and 2020. They point to a healthy risk-reward ratio in Bitcoin right now. This is not to say that Bitcoin will not see short-term downtrends. But these metrics indicate a long-term profit potential in the digital asset. Of course, none of this qualifies as financial advice, so do your own research before investing your money in any asset. May the profits be with you.
