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Coin Metrics: The bull market hasn't peaked yet?

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Coin Metrics uses the data to tell you why the market still has room to rise.

The original title: "Coinmetrics | to bull market yet?"

Original source: Crypto Valley Live

Disclaimer: Market analysis using on-chain metrics is a relatively new field, and metrics are still being developed and refined. It is important to note that past success does not guarantee future success; While these indicators are historically valuable, this does not necessarily mean that they will remain so forever. The green and red indicator areas on each chart are based on past performance, but are not an exact science. This article does not constitute investment advice -- do your own research and consider these indicators as part of the bigger picture.

In December 2020, we released "Bitcoin On-Chain Metrics Primetime," an in-depth look at how on-chain data can be used to help measure crypto market cycles. A lot has happened since then, including several new all-time highs for Bitcoin (BTC) and Ethereum (ETH). In this week's State of the Net, we update some of the charts in the report and look at how things have changed since the start of 2021.

Ratio of market value to realized value

The market cap to realized value ratio (MVRV) has historically been one of the most reliable on-chain measures of the top and bottom of the Bitcoin market.

MVRV is calculated by dividing the market value of a bitcoin by its realized value. Realized value can also be thought of as a total approximation of the total cost base of Bitcoin. In our calculation of MVRV, we use the free-floating market value, which is calculated in terms of liquidity supply rather than aggregate supply.

Historically, a high ratio of market value to realized value has signaled that the price of Bitcoin is close to a local maximum, while a low ratio has indicated that the price is close to a local minimum. The few times MVRV has fallen below 1 have historically been the best times to buy bitcoin. An increasing MVRV indicates a rapid increase in current sentiment relative to the estimated total cost base, while a decreasing MVRV indicates the opposite.

On January 8, 2021, with BTC reaching $40,000 for the first time, the free-floating MVRV reached 2.96. This is similar to the level at which the MVRV peaked at 3.05 in June 2017. The next day BTC prices began to fall, falling below $34K by January 12.

The MVRV broke above 3.0 on February 20 for the first time since December 2017 and peaked at 3.09 on February 21. This marked another local peak, with BTC prices reaching around $57.5K on February 21 and then falling below $47K on February 28. An MVRV of 3.0 has been a signal of partial peaks in this market cycle (at least so far), as shown in the red area of the chart below.

On March 13, MVRV approached 3.0 again, increasing to 2.96 as BTC briefly exceeded $61,000. Since then, as of March 31, it has fallen to 2.65. It is still below the levels seen at the tops of the past two bull runs.

Source: Coin Metrics Network Data Pro

Return on Cost and Output (SOPR)

Return on cost and output (SOPR) provides another advantage to enter the Bitcoin market cycle. Launched in 2019 by Renato Shirakashi, SOPR can be used as a measure of whether the holder is selling at a profit or loss.

SOPR is the ratio of the price of a bitcoin at UTXO when it was spent to the price when it was created. In other words, it's the selling price divided by the paying price. Each time a transaction occurs, we can compare the Bitcoin price in that transaction when UTXOs were created with the price when they were spent. Creating the ratio provides a simple way to estimate whether bitcoins in UTXO are being sold at a profit or loss.

SOPR can be calculated for a single UTXO, but it can also be calculated for a group of UTXOs. The figure below shows the combined SOPR ratio for all UTXOs, aggregated by day. Because SOPR tends to be relatively volatile, it is also processed using a seven-day moving average.

Historically, high SOPRs indicate that the price of Bitcoin is reaching a local maximum. On the contrary, a low SOPR theoretically indicates that the holder is selling at a loss, which historically has been a good time to buy. A SOPR of 1 is also of particular concern because it signals the tipping point from selling at a profit to selling at a loss.

On January 8, as BTC broke through $40,000, the BTC SOPR (7-day average) hit 1.048, the highest level since December 2017. The next day, BTC prices began to fall, and on January 26, SOPR fell as low as 1.004, with BTC prices at $32,600. It has since rebounded to around 1.015.

Source: Coin Metrics Network Data Pro

Hold the waves

The bitcoin (BTC) age band, also known as the "holding wave," shows the BTC supply grouped by the time since it was last moved on the chain. Launched in 2018 by Unchained Capital, HoldWave offers a macro look at how BTC supply has changed over the past few years. Changes in the supply of bitcoin can serve as an indicator of market cycles.

Reading from the bottom of the chart up, the red colored bands show the percentage of relatively active supply recently, ranging from less than one day to 90-180 days. Where the "1-7 days "band refers to the percentage of supplies held for at least 1 day but less than 7 days as a percentage of the total supply, the "7-30 days" band refers to the percentage of supplies held for at least 7 days but less than 30 days, and so on.

Historically, short-term supply movements peak at the top of market cycles. For example, in December 2017, as the price of Bitcoin approached $20,000, more than 32% of the BTC supply had moved up the chain in the previous 90 days. By August 2018, the percentage of supply moving within 90 days had dropped to around 15%.

Instead, looking down on the graph shows a supply that has not moved over a relatively long period of time. These long - term bands tend to widen as prices reach cycle lows and contract at cycle tops as long - term holders start to sell. The dark green band at the top represents currencies that have never moved on the chain beyond the transactions at issue, accounting for about 12% of the total supply.

During the bull markets of 2013 and 2017, the percentage of short-term holdings of supply -- those held for 180 days or less -- reached around 50%, consistent with market tops. Long-term holding periods of more than 60 per cent supply are usually good times to buy.

Short-term supply activity spiked on January 8, with about 5% of supply active in the past 1-7 days. As of March 31, only about 36 per cent of supply had been active in the past 180 days, still well below the peak of about 50 per cent in January 2018.

Source: Coin Metrics Network Data Pro

Network data analysis

Summary indicators

Source: Coin Metrics Network Data Pro

In the past week, there has been a surge of activity on the ETH chain, with ETH hitting an all-time high. Last week, the daily average of ETH active addresses was 611.K, exceeding 600,000 for the first time since February. Transaction fees continue to climb, averaging $26 million a day. Ethereum's hash rate rose 5.2% month-on-week, hitting an all-time high again, driven by price and fee growth.

Bitcoin (BTC) also had a mostly good week, with market cap and realized value up 7.6% and 3.0%, respectively. Fees increased 22.8% week-on-week to an average of $5.1 million per day. The hash rate dropped slightly this week, but remains near historic highs.

Source: Coin Metrics Network Data Charts

Median transfer value for ETH denominated Ethereum networks has soared since the summer of 2020, possibly due to the rise of Decentralized Finance (DEFI). The value of the median BTC-denominated bitcoin transfer fell in 2021 as prices had risen.

Source: Coin Metrics Network Data Charts

Since the summer of 2020, the ETH has narrowed the gap with BTC in the number of transfers per day. But BTC's average daily transfers are still about 926,000, while ETH's are about 854,000.

Source: Coin Metrics Network Data Charts

The amount of ETH transferred by smart contracts has also increased significantly since July 2020, again likely due to DEFI. On average, 3-5M of ETH is transferred by smart contracts every day, accounting for most of the surge in the value of transfers on the ETH chain.