Analysis of Bitcoin Supply Indicators in 2022

2022 has passed, the crypto market has experienced a year of ups and downs, and Bitcoin has also undergone profound changes. This article first reviews some significant changes in the crypto market in 2022, then focuses on analyzing the qualitative changes of Bitcoin in this round of bull and bear cycles, explores the main factors behind the changes in Bitcoin, and finally predicts the trend development in 2023.

1. Crypto futures market trading is sluggish

According to Glassnode, crypto futures trading volume is slowly declining, with average daily volume between $9.5 billion and $10.5 billion, similar to the volume of Bitcoin and Ethereum markets, showing the huge impact of tight liquidity, widespread deleveraging, and damage to many lending and trading sectors in the field. Short-term BTC volatility also fell to multi-year lows of 22% (1 week) and 28% (2 weeks) in 2022, the lowest volatility since October 2020.

2. Profitable Bitcoin Circulating Supply

The realized profit circulating supply is an important indicator that represents the number of Bitcoins whose price was lower than the current price when it last moved. Of course, its historical low data is highly correlated with the lows of BTC prices. It should be added that as the supply of Bitcoin itself increases due to the process of mining new coins, the realized profit supply in circulation will become higher and higher in successive market cycles.

During bull markets, almost all of the circulating supply is profitable. In contrast, during bear markets, the profitable supply steadily decreases and then bottoms out at the end of each downtrend. If we combine all of the historical lows of this indicator, we get a clearly visible rising support line (red), showing that the indicator has bottomed out.

3. Bitcoin Circulating Supply in a Loss

The circulating supply of Bitcoin in a loss state is also an important indicator, representing the number of Bitcoins whose price was higher than the current price when they last moved. Of course, its historical peak marks the lowest level of Bitcoin price. It can also be expected that as the total supply of BTC grows, the supply in a loss state will increase over time.

In fact, on the chart of BTC price and the number of Bitcoins in circulation that have lost money, we can see that consecutive bear markets have led to new peaks for this indicator. On November 18, 2011, the peak was 4.344 million BTC, which was at the bottom of the BTC price of $2.05. Four years later, on August 24, 2015, the peak was already 9.28 million BTC, when the bottom price of Bitcoin was $211. The last peak occurred on February 7, 2019, at 10.691 million BTC, and the price of Bitcoin was $3,400. It is worth noting that during the epidemic in March 2020, the level of circulating supply in a loss state was very high. At that time, the indicator once reached 10.399 million BTC, and the price of Bitcoin fell to $4,860.

Interestingly, today’s indicator is still lower than in 2019 and even lower than during the March 2020 crash. The last supply loss peak was reached on November 21, 2022 at 10,272,000 BTC, with a Bitcoin price of $15,797. Therefore, if the long-term uptrend continues, BTC prices may face lower levels.

IV. Comprehensive indicators

The profitable and losing supply indicators can be viewed side by side with each other. On the chart of its 14-day moving average (14D MA), we can see how the profitable supply (orange) exceeds the losing supply (blue) in the vast majority of periods. However, in rare cases, the two lines intersect and the losing supply briefly exceeds the profitable supply. Obviously, such moments occur near the bottom cycle of BTC price and the subsequent consolidation accumulation (green area).

So far, the curve has intersected four times. These time points correspond to the bear market lows in 2011, 2014-15, 2018-19, and 2022 (green areas). A brief touch of the curve was also recorded during the pandemic crash in March 2020 (blue circles). It is worth noting that in all previous bear markets, the final bottom of BTC price did not occur in their first intersection (red line), but a few days/weeks later. Currently, the profitable supply has fallen below the loss-making supply for the first time, and the price bottom is likely to come in 2023.

5. Changes in external factors affecting the circulating supply of Bitcoin in this cycle

Since its birth in 2008, Bitcoin has been growing and developing continuously. This round of bull-bear cycle is also the most important turning point in the history of Bitcoin development. In this round of bull-bear cycle, Bitcoin has undergone qualitative changes:

1. Bitcoin is becoming more and more popular in Western countries as it is de-Sinicized. The Chinese government’s crackdown on Bitcoin mining has caused the Bitcoin industry to shift from China to the United States and other countries. The United States and other countries have begun to launch Bitcoin futures ETFs, allowing Bitcoin to enter the traditional financial market and attract more attention from overseas investors.

2. In this round of bull-bear cycle, Bitcoin has transformed from a market dominated by retail investors to a market dominated by institutions. Tesla's support for Bitcoin payments has encouraged institutions to participate in the Bitcoin market, and the launch of a variety of investment trust products has boosted the enthusiasm of institutions to participate in the crypto market.

3. Due to the massive money printing by the Federal Reserve, investment institutions expanded blindly, leveraged too much, funds began to flow out, and institutional deleveraging caused a sharp drop in Bitcoin prices.

4. The collapse of centralized institutions has enabled the development of the decentralized crypto market, and funds have further moved to BTC and ETH for risk aversion, causing the market share of BTC and ETH to continue to rise.

Summarize

In the short term, many institutions are exiting the crypto market, and institutional deleveraging is also ongoing. Although the on-chain data shows a bottoming signal in the short term, the possibility of further decline cannot be ruled out. Bitcoin has a very strong support around $16,000, which is exactly the price at which most mainstream mining machines are shut down. Even if a very dark situation occurs, Bitcoin will recover in a short time, and there will be stronger bottom support in the $10,000-13,000 range.

In the long term, the Goldman Sachs analysis team expects the Fed to raise interest rates once in 2023 and maintain interest rates in the range of 4.25% to 4.50% until 2024, and then cut interest rates once in 2024. If this forecast is close to the Fed's actual policy, then a big bull market can be expected when Bitcoin halves in 2024. According to Plan B's data model, the next Bitcoin halving is expected to occur on April 20, 2024, and before that, Bitcoin will rise to $36,000, and then to $149,000. In 2023, Bitcoin's key support level is $10,000 and its resistance level is $40,000.