Bitfinex Alpha Report: Bitcoin (BTC) On-Chain Indicators Are Bullish

This week’s on-chain data report noted that BTC’s technical indicators are trending upwards in the long term.

According to the weekly analysis from Bitfinex Alpha Report, it reviews a number of on-chain indicators for Bitcoin (BTC) that appear bullish, including short-term and long-term HoDLers selling, which reflects profitability over the past three months and actively absorbs the market in the face of any selling pressure.

Likewise, the study shows that the world’s largest cryptocurrency by market cap has been strengthening in the spot market, which only happens in late bear markets and early bull markets, even if that doesn’t mean the market has returned to “upload-only” terrain.

In addition, Bitfinex Alpha also mentioned other technical indicators that are favorable to the market in its report. According to the analysis above by Bitfinex, the adjusted net expenditure output income ratio is now above 1, which indicates that net sales are favorable. On the contrary, the RPLR (realized profit and loss ratio) is now above zero, which is another indicator of "profitability".

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In addition to this, BTC’s three-month EMA has risen over the past 90 days, increasing by approximately 20%, and it should be noted that the last time this indicator moved was when prices were lower.

Multiple RHODL

According to the firm’s analysis, over the past three months, the bullish indicator Bitcoin Realized Holding Multiple (RHODL) has mirrored the market’s gains, maintaining a bullish slope over a 90-day period, equal to, meaning that during this period, sales by HODLers “led to consistent gains.”

It also shows a slight uptick in demand from small and/or new Bitcoin investors, and highlights that long-term holders are also taking profits, not just short-term holders. Instead, the market has tried to “absorb selling pressure,” with long-term investors showing more confidence in spending digital assets.

As Bitfinex explained in its previous issue, long-term investors began to “return profits”, even if they were smaller and later than short-term investors. BTC was not affected by this and its price remained relatively stable, although this situation may look like a bearish position.

“This does not mean the market has moved back into bullish territory, but it does show that strength in the spot market only occurs at the end of a bear market and the beginning of a bull market,” they highlighted on the platform.

They explain that one of Glassnode’s indicators on its “Recovering from Bearish Bitcoin” dashboard is whether the Bitcoin supply in the 30-day EMA of earnings has been in an uptrend over the past 90 days, or if it has been in an uptrend over the past 90 days. This indicator is also flashing green, so the supply of BTC is increasing as profits increase.

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It should be remembered that the “yield supply” is the amount of BTC that was last moved when the price in USD was lower than it is now, which caused them to be bought at a lower price and the wallet will hold a “paper” profit.

Bullish On-Chain Indicators

On the other hand, the profit-taking indicator is up 20% since the beginning of the year, meaning that the largest and longest-term investors are currently holding profitable cash positions on paper. This is good for the second half of the bear market, as this uptrend that continues for 90 days after a downtrend has "historically" provided a positive buy signal for the next two years.

It also refers to the expanded profit rate (SOPR) of various investor profiles. As mentioned in the previous analysis, the adjusted net SOPR has risen above 1, which means that BTC on-chain is currently profitable.

“After a long period below 1 (BTC net loss), a move like this has historically been an excellent buy signal. It also suggests that Bitcoin is heading towards profitability while the price remains stable. We have to look at the net realized profit/loss ratio to understand why this remains a bullish signal,” the Bitfinex Alpha report detailed in its weekly analysis.

The SMA, a 90-day simple moving average of Bitcoin’s realized profit and loss ratio (ROLR) indicator, crossed above zero for the first time in history last April, meaning that gains denominated in USD are more significant than losses in the BTC market.

“This generally means that sellers with unrealized losses have dried up and there is a healthier influx of demand to absorb profit-taking,” according to the indicator’s records. Therefore, this is a bullish sign for long-term investors.

Bitfinex further elaborated that when RPLR bottomed out at around 0.2 in 2019, the BTC price had already fallen to around $3,600, but then the digital currency rebounded by around 19 times, setting a new all-time high in a short period of time. Less than three years later, at the end of 2021. RPLR recently bottomed out again at around 0.18 (the lowest level since 2011), and the digital currency Bitcoin was trading at around $16,000 in November 2022.

Bulls hope that history will repeat itself and BTC could stage another exponential rally from its lows within the next three years. “A 10x rebound from recent lows would take Bitcoin to $160,000,” they argue.

HODLer Conviction Nears All-Time High

Finally, Bitfinex Alpha mentioned in its report that BTC’s “reserve risk” has recently fallen to an all-time low (even lower than the 2019 or 2020 lows).

The Reserve Risk is a long-term cyclical oscillator that models the relationship between current prices and investors' long-term beliefs. The current price is the motivation to sell, while the belief ratio is a series of sub-indicators, which means they take into account the opportunity cost of not selling. Therefore, the lower the ratio, the greater the investor's confidence.

In terms of BTC’s market value realized rate (MVRV), there have also been signs of recovery since the beginning of the year.

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Based on data reflected in a bitcoin.com MVRV Z Score chart, Bitfinex Alpha Report explains that a Z-score entering the green box means the market is trading below market value. Digital assets recovering after a prolonged period in the green box have historically provided superior returns. While this is another indicator that flashes bullish, it is important to note that sharp moves outside the box are usually followed by a period of consolidation and sometimes a prolonged pullback. Extended for BTC.

Adding, “This behavior of the MVRV Z-score indicator has a 100% success rate in price appreciation over a 12-18 month investment horizon,” they concluded.

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