The liquidity of digital assets continues to decline as on-chain transfers decline to cyclical lows, changes in exchange balance sheets and capital flows. They write about this in Glassnode.
With liquidity across the Digital Asset landscape coninuing to rescind, we assess the activity of both the On and Off-Chain environment, and produce a new framework to help identify peak Altseason regimes.
Discover more in the latest Week On-Chain👇https://t.co/CDvm0PugY7 pic.twitter.com/wssftzRm03
— glassnode (@glassnode) October 10, 2023
On-chain analysis explains the current market apathy, where hodling remains dominant.
The “Realized cap” metric remains at the level of “relative indecision” – only a small number of coins moving on the blockchain have a significant discrepancy between the current value and the price of their acquisition.
As a result, the number of Bitcoins held by long-term investors set a new record of 14.859 million – 76.1% of the available supply.
The indicator of the net change in the position of hodlers confirms the stability of the “sleeping” coin mode. The monthly rate of inflow to the wallets of long-term investors is 50,000 BTC. This speaks to both a reduction in available supply and a widespread reluctance to transact.
The previous observation is supported by an estimate of the average volume of transfers per active market participant. The metric dropped to ~$12,200 (~0.44 BTC). The indicator has returned to the levels observed at the end of 2017 (the end of the bull cycle) and at the end of 2020 (before the last rising trend).
The increase in the “illiquid supply” of bitcoins occurs in the context of falling exchange balances to a five-year low (2.3 million BTC). The discrepancy between the two indicators indicates that investors are withdrawing coins from CEX to non-custodial wallets, where they subsequently move into the “adult” category.
Analysts also analyzed the dynamics of incoming and outgoing flows associated with exchanges as a marker of investor activity. thirty DMA and 365 DMA of the aggregate indicator dropped to $1.5 billion. From a peak of $6.1 billion in May 2021, the indicator collapsed by 75.5%.
Experts have proposed a new methodology for assessing risk appetite, as well as for detecting extreme periods of the altcoin season as part of capital rotation.
According to Glassnode, historically the performance of digital gold has been a leading indicator, with improvement followed by an increase in confidence first in Ethereum and further along the risk curve.
To visualize the rotation of capital, analysts suggested using 30 DMA Realized Cap in relation to Bitcoin, the second cryptocurrency by capitalization and stablecoins. Next, experts normalized the indicators to Realized Cap (for the first and second cryptocurrencies) and total capitalization (in the case of “stable coins”).
The model presented below allows us to determine:
- “risk appetite” mode (all three of these major assets exhibit net capital inflows)
- or “risk aversion” (any of the three major assets begins to experience net capital outflows).
To clarify the picture, analysts also added a filter in the form of events in which capital moves towards Ethereum and stablecoins. To confirm the correctness, experts added the Bitcoin dominance index to the chart and made sure that the decrease in the metric coincided with the peaks of growth in interest in altcoins.
“Despite significant fluctuations in altcoin valuations, the model says that the risk appetite mode is not currently observed. This confirms the previous conclusion about the lack of liquidity available in the market,” – the experts concluded.
Let us remind you that the dominance index of the first cryptocurrency reached 51.1%, approaching the indicators of April 2021.
Earlier, a CryptoQuant analyst under the nickname Maartunn said that the Bitcoin rate would expect a “significant rise” if it consolidates above $27,900. The level coincides with the MVRV indicator in relation to short-term market participants.
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