The market is ripe with signs of capitulation, but Bitcoin is holding its ground

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Bitcoin’s price has been glued to the low $20,000 lev­els for a while now, show­ing lit­tle or no sign of any major upward move­ment in the near future. The mar­ket has been spo­rad­i­cal­ly show­ing signs of capit­u­la­tion with a lack of opti­mism for a bull rever­sal in the com­ing weeks.

On the sur­face, mul­ti­ple on-chain and macro signs point to a com­plete loss of con­fi­dence in the mar­ket. How­ev­er, div­ing deep­er into these fun­da­men­tals shows that not every­thing is so bleak.

In the past five weeks, the S&P 500 saw one of its most volatile peri­ods, sur­passed only by the stock cri­sis we’ve seen in the late 1920s and mid-1970s. Since the begin­ning of the year, the index post­ed a 13% loss.

s&p 500 volatility period
Graph show­ing the num­ber of 5% week­ly changes in five-week peri­ods for the S&P 500 (Source: S&P 500)

Oth­er index­es have per­formed equal­ly as bad­ly. So far, 2022 has been one of the worse years for index returns, with the Dow Indus­tri­al Aver­age, the Nas­daq 100, and the NYSE Com­pos­ite post­ing loss­es of 10%, 19%, and 11%, respectively.

6 month total return among basket of assets
Best 6‑month total return among bas­kets of assets 1980 – 2022 (Source: Bloomberg)

The increased volatil­i­ty of the tra­di­tion­al mar­ket, com­bined with the wors­en­ing glob­al socioe­co­nom­ic out­look, has also pushed con­sumer sen­ti­ment to an all-time low. The only oth­er time in the past 40 years that con­sumer sen­ti­ment dropped as low was at the begin­ning of the 1980 reces­sion in the U.S.

consumer sentiment
Con­sumer sen­ti­ment 1980 – 2022 (Source: Uni­ver­si­ty of Michigan)

While Bit­coin has been match­ing the tra­di­tion­al mar­ket regard­ing per­for­mance, sev­er­al on-chain indi­ca­tors show that it could be near­ing the end of its capit­u­la­tion period.

One of the best mea­sure­ments of Bitcoin’s strength has always been min­er con­fi­dence. Seen as the most resilient play­ers in the cryp­to ecosys­tem, min­ers capit­u­lat­ing has almost always sig­naled Bitcoin’s bot­tom. It has also often been a sol­id buy sig­nal, as every peri­od of min­er capit­u­la­tion was fol­lowed by a trend rever­sal and an onset of a bull run.

Deter­min­ing whether min­ers have capit­u­lat­ed requires look­ing fur­ther than the cur­rent hash rate. Hash rib­bons are an indi­ca­tor con­tain­ing two mov­ing aver­ages of Bitcoin’s hash rate — the 30-day and the 60-day sim­ple mov­ing aver­ages (SMAs). Dur­ing bull mar­kets, the 30-day SMA ris­es faster than the 60-day one, while bear mar­kets push the 30-day SMA below the 60-day SMA.

The 30-day SMA drop­ping below the long-term SMA marks the begin­ning of a min­er capit­u­la­tion peri­od, which ends once the trend reverses.

btc hash ribbons
Length of the cur­rent mar­ket capit­u­la­tion accord­ing to Bit­coin hash rib­bons (Source: Glassnode)

Accord­ing to data from Glassnode, the cur­rent capit­u­la­tion peri­od is about to break two months, cur­rent­ly stand­ing at 61 days. This is the fourth-longest capit­u­la­tion peri­od in the his­to­ry of Bit­coin, sur­passed by the ones in 2012, 2019, and 2021.

btc a
Bitcoin’s hash rib­bon indi­ca­tor from 2012 to 2022 (Source: Glassnode)

The lengthy min­er capit­u­la­tion peri­od hasn’t shak­en the recov­er­ing mar­ket con­fi­dence in Bit­coin. Accord­ing to Bitcoin’s net unre­al­ized profit/loss, the net­work has exit­ed capit­u­la­tion and is enter­ing a much more hope­ful period.

The state of the net­work is seen through Bitcoin’s net unre­al­ized profit/loss (NUPL), which deter­mines whether the net­work as a whole is cur­rent­ly in a state of prof­it or a state of loss. A high NUPL val­ue indi­cates an over­all state of net prof­it and is usu­al­ly a good time to exit the mar­ket and take prof­its. A NUPL val­ue deep in the red usu­al­ly shows a good time to enter the market.

Data has shown that Bit­coin has just come out of a capit­u­la­tion peri­od as its enti­ty-adjust­ed NUPL has risen above zero.

Bitcoin’s enti­ty-adjust­ed NUPL (Source: Glassnode)

Ana­lyz­ing Bitcoin’s reserve risk shows a sim­i­lar resilience.

Used to track the risk-reward bal­ance rel­a­tive to the con­fi­dence of long-term hold­ers, Bitcoin’s risk reserve is also used to show incen­tives to sell or hold. When its risk reserve is low, long-term hold­ers’ con­vic­tion is high, sig­nal­ing rel­a­tive under­val­u­a­tion. Risk reserve bot­toms are often seen at the final phas­es of bear mar­kets and can some­times con­tin­ue in ear­ly bull markets.

Bitcoin’s reserve risk (Source: Glassnode)

 

Post­ed In: Bit­coin, Research

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