While the Bitcoin market has been maintaining stability, capital is subtly continuing to flow into digital assets at a steady and modest rate. Simultaneously, investors are enjoying a larger share of profits in the increasing price trail.
In its weekly report titled “Choppy and Sideways,” Glassnode, an on-chain analytics firm has analysed the metric realized cap, which provides a powerful tool for assessing the true capital flows into Bitcoin. Analysts say that the metric reflects the cumulative sum of all realized profit and loss events through history.
Data suggests that currently the realized cap sits around $400 billion and indicates that a steady stream of capital is entering the asset throughout 2023. As the realized cap climbs, it suggests that coins are trading at higher prices on net, indicating a modest surge in new demand inflow this year.
Simultaneously, Glassnode assesses the Net Realized Profit / Loss (NRPL) metric, a derivative of the realized cap to measure the changes in demand liquidity. Notably, the metric has recorded a profit dominated regime for the majority of 2023, seeing around $270 million per day in net inflows (profits minus losses).
As reflected in the graph below, the first sustained profit regime since April 2022. This is similar to the first half of 2019, and late 2020. Notably, this is significantly smaller compared to the 2021 bull market which reached extraordinary peaks of over $3.68 billion per day.
Now, upon taking a ratio between total realized profit and loss, analysts highlight that 2023 has been an explosive and positive year so far, breaking firmly above the breakeven level of 1.0 in early January.
However, analysts highlight that a lower high in this ratio was established this week. If sustained, it may stick to similar choppy market conditions seen in both 2019-20, and again in the second half of 2021. Analysts say that lower peaks in this metric generally suggest a marginal softening of capital inflows, which in the past has preceded a longer period of time to digest the recovery.
Simultaneously, SOPR, which is useful for tracking the magnitude of profit and loss taking events across the market. Glassnode suggests the results of the metric can be analysed into loss and profit dominant regimes.
The loss dominant regime where successive prints below 1.0 are indicative of investors locking in losses, and returns to the breakeven level are often utilized as exit point (forming resistance). On the other hand, Profit Dominant Regime is where SOPR prints above 1.0 indicates a return of profit taking, and returns to the breakeven level are often considered a near term point of value (forming support).
SOPR currently resides within a profit dominant regime, recording a value of 1.06, indicating the average coin changing hands is locking in a 6% profit. This again has similar characteristics to the 2016 and 2019 periods.
Amidst such high profit driven regime, Glassnode’s breakdown of exchange inflow volumes suggest that Short-Term Holders (STH) are the primary entities that are active in the market. Out of the total 39,600 Bitcoins in daily exchange inflows, 78% of this is associated with the short term holders, being those investors that have been active since early February.
The recent figures mark a follow up on the regimes experienced by the asset in the past weeks. As reported by Todayq News, the Bitcoin market has experienced high profits and increasing accumulation by the investors signaling positive outlook for the asset.
Simultaneously, as the asset continues to hover in a tight $30,000 trading range, the graphs have recorded cyclical lows in realized profit and loss being locked in by the market. Additionally, the short-term holder cohort dominates the inflows into exchanges at present, incentivised by over 88% of supply now being in profit.
However, as per Glassnode, investors appear significantly unwilling to let go of their supply. Hence, in many ways, the current cycles and trends resembles periods like 2016 and 2019-20, which the report classifies as choppy market conditions.