Interpreting the trend of the crypto market from nine indicators: 8.35 million BTC are in a loss and many indicators have fallen to historical lows

Since the beginning of this year, affected by the tightening of monetary policies in many countries and the repeated global epidemics, the crypto market has entered a violent downward trend. According to Coingecko statistics, the total market value of the crypto market fell below the $1 trillion mark on June 14, the first time since February 2021. So far, the total market value of the crypto market has "evaporated" about $1.32 trillion this year, a drop of more than 57%. Faced with the decline, market sentiment is very "panic", and the Fear & Greed Index calculated by Alternative has been below 10 recently, at an extremely low level since 2018.

There is no doubt that the market has entered a downturn. The new question is, how far has the market fallen now? Will it continue to fall? The bear market data of previous years may provide some reference for thinking. PAData compared and analyzed the performance of 9 market indicators of the representative asset BTC during three market downturns since January 1, 2017. Among them, the three market downturns were selected as August 1, 2018 to March 31, 2019, March 1, 2020 to June 30, 2020, and April 1, 2022 to June 13, 2022, because the highest value of BTC's price in this time domain does not exceed the previous high on the left and contains at least one minimum value. The analysis found that:

1) The current BTC price "bubble" has been squeezed out to a large extent, but compared with the previous two market downturns in history, the current price still has room for continued pressure compared to the fair value provided by transactions and the actual value provided by mining. However, the current price has deviated more from the circulation value brought by supply scarcity. The degree of deviation between price and value in the future actually depends to a large extent on the extent to which scarcity is recognized by the market, or under what circumstances the value brought by scarcity will surpass other values.

2) The current market is similar to the previous two downturns in history, with a rapid increase in loss chips, a further reduction in the profit-loss ratio, higher short-term investment returns, and low market reserve risk. This indicates that market competition may intensify, but the investment returns are attractive at this time. It is worth noting that at the end of the previous two downturns, the three indicators of profit-loss ratio, SOPR Ratio and reserve risk all showed an upward trend, or at least remained relatively stable, but this is not seen in the current period.

3) Compared with the previous two historical downturns, on-chain users are more active during the current period. In addition, funds are also more active during the current period, with not only a higher turnover frequency, but also a higher turnover rate. This usually indicates that the market is still in a highly changing state.

01

Current market prices are further de-bubbled, but still above fair value

The basis of price is value, and it fluctuates around value. The evaluation of BTC value usually comes from three aspects. The first aspect is the fair value of actual transactions. The MVRV Z-Score indicator is usually used to evaluate the degree of deviation of BTC's price from fair value, that is, the degree of deviation of the current price from the trading price when the asset last moved. The lower the value, the lower the price is below fair value. This situation usually occurs at the bottom of the market, and vice versa. According to statistics, the average historical MVRV Z-Score (MA7, omitted below) of BTC since 2017 is 2.07, the average from April 2022 to the present is 0.876, and the minimum value is as low as 0.358. That is, the current MVRV Z-Score is already at an extremely low historical value, which indicates that the current price deviates very little from the fair value of the transaction, and the price is "de-bubbled", but still higher than the fair value.

Moreover, the average MVRV Z-Score in the two periods from August 2018 to March 2019 and from March 2020 to June 2020 was 0.127 and 0.775 respectively, and the minimum was -0.471 and -0.121 respectively, both lower than the average and minimum in the current period. This means that compared with the previous two market downturns in history, the current price de-bubble is less, and there is no negative MVRV Z-Score, that is, the price has not fallen below the fair value of the transaction.

The second aspect of measuring the value of BTC is the circulation value brought about by the scarcity of supply. The S/F model is the mainstream model for evaluating the circulation value in the current market. The S/F Deflection indicator based on this can understand the degree of deviation of BTC's price from the circulation value. This indicator uses 1 as the dividing line. If the value is less than 1 and the smaller it is, it means that the current price of BTC is lower than the circulation value, and the current price is more underestimated. This situation usually occurs at the bottom of the market, and vice versa. According to statistics, the historical S/F Deflection (MA7) average of BTC since 2017 is 0.848, that is, overall, even if BTC is currently "diving", its price is still higher than the circulation value. Secondly, let's look at the performance of this indicator during the three market downturns. The average value from April 2022 to the present is 0.3307, which is significantly less than 1, and a historical low value has appeared, that is, the current price of BTC is significantly negatively deviated from the circulation value, and the possibility of being underestimated is high.

In comparison, the average S/F Deflection in the two periods from August 2018 to March 2019 and from March 2020 to June 2020 was 0.7769 and 0.9092, respectively, both less than 1. It can be seen that during market downturns, the price of BTC is usually underestimated relative to its circulation value. Moreover, the average S/F Deflection in the current period is lower than that in the previous two downturns, which means that the current price is more likely to be underestimated.

Mining is the underlying supporting industry of the crypto industry and the actual source of value of crypto assets. Among them, the total cost of miners to maintain network security provides the third source of BTC value assessment. Market Cap/Thermocap Ratio is an indicator currently used in the market to measure whether the current price is at a premium relative to miners' security expenditures. The lower the value, the closer the current value is to miners' security expenditures, and the greater the pressure miners face to "shut down", which usually occurs at the bottom of the market, and vice versa. According to statistics, the historical Market Cap/Thermocap Ratio (MA7) average of BTC since 2017 is 0.000001049, and the average from April 2022 to date is 0.0000008999, which is significantly lower than the historical average and at an extremely low level in history, which means that the current price has fallen to a range close to the actual value, and the degree of deviation from the actual value has been greatly reduced.

However, compared with the average Market Cap/Thermocap Ratio in the two periods from August 2018 to March 2019 and from March 2020 to June 2020, which were as low as 0.0000005342 and 0.0000004857 respectively, the value in the current period is higher, which means that the deviation of the current price from the actual value is still higher than the previous two downturns.

In general, the current BTC price "bubble" has been squeezed out to a large extent, but compared with the previous two market downturns in history, the current price still has room for continued pressure compared to the fair value provided by transactions and the actual value provided by mining. However, the current price has deviated more from the circulation value brought by supply scarcity. The degree of deviation between price and value in the future actually depends to a large extent on the extent to which scarcity is recognized by the market, or under what circumstances the value brought by scarcity will surpass other values.

02

The current loss of chips is significantly higher than the historical average, but the investment return is more attractive

The distribution of profit and loss chips, long-term and short-term investment returns, and investment confidence are also three important dimensions for observing the market. From the distribution of profit and loss chips, that is, the number of assets whose prices at the last move were higher than the current price, as of June 13, a total of about 8.35 million BTC were in a loss state. It should be noted that since 2017, the average number of BTC loss chips has been only about 3.95 million BTC, which means that the current number of loss chips is significantly higher than the historical average and is at a historically high level.

In addition, the average number of losing chips in the current period is about 6.83 million BTC, which is higher than the average of about 5.61 million BTC in the period from March to June 2020, but still lower than the average of about 8.03 million BTC in the period from August 2018 to March 2019. In general, the number of losing chips is higher during the market downturn. It is worth noting that the number of losing chips in the current period is on an upward trend. If this trend continues, the average number of losing chips in the current period will likely continue to grow, even exceeding the period from August 2018 to March 2019.

The data performance of the profit-loss ratio is consistent with that of the loss-making chips. Since 2017, the average profit-loss ratio of BTC has been 31, which means that overall, there are still more profitable chips than loss-making chips, and in extreme cases, most chips are profitable. However, as of June 13, the profit-loss ratio has fallen to 1.252, which is at an extremely low level in history. That is, the gap between the current profitable chips and the loss-making chips has further narrowed, and market competition may intensify.

The average profit-loss ratio in the two periods from August 2018 to March 2019 and from March 2020 to June 2020 was approximately 1.233 and 2.878, respectively. In comparison, the average in the current period is also at a relatively low level in the horizontal comparison during the market downturn.

Under different market trends, the holding time of investors is also very different. Generally speaking, if the market is rising to the top, the volatility is small, and the long-term (≥155 days) returns of investors may be higher. On the contrary, if the market is falling to the bottom, the volatility is large, and the short-term (>1 hour and less than 155 days) returns of investors may be higher. The ratio of the two is the SOPR Ratio, which is bounded by 1. The greater the value is, the higher the long-term return is, and the more likely the market is at the top. The smaller the value is, the higher the short-term return is, and the more likely the market is at the bottom. According to statistics, the historical SOPR Ratio average of BTC since 2017 is 2.88, which means that so far, long-term investors still have higher returns. But as of June 13, the value has fallen to 0.76, which means that short-term investors currently have higher returns, and the returns of short-term investors are at a historically high level, which means that the market is closer to the low point.

From the average point of view, the average of SOPR Ratio in the current period is 1.0948, which is close to the average of 1.0692 from March to June 2020, which is slightly higher than 1, which means that in these two downturns, the returns of long-term investors are still slightly higher. However, the average from August 2018 to March 2019 was only 0.772, which is significantly lower than 1, which means that the returns of short-term investors were higher at that time. But what is worth continuing to pay attention to here is that from the trend point of view, the downward trend of this value in the current period is still very obvious.

However, the current investment return of assets is attractive. Reserve risk is a common indicator for measuring market confidence. The lower the value, the higher the confidence and lower the price, and the more attractive the investment return. Conversely, it indicates that the confidence is low and the price is high, and the investment return is not attractive. According to statistics, the historical reserve risk average of BTC since 2017 is 0.0044, and the average of the current interval is 0.0019, which is lower than the historical average and close to the historical low. This shows that current investors still have confidence in BTC and the investment return is attractive. The average of this value in the previous two historical downturns was 0.0025 and 0.0017, respectively, which are also at extremely low levels in history. It can be seen that the commonality of market downturns is low reserve risk.

Overall, the current market is similar to the previous two downturns in history, with a rapid increase in loss chips, a further reduction in the profit-loss ratio, higher short-term investment returns, and low market reserve risk. This indicates that market competition may intensify, but the investment returns are attractive at this time. It is worth noting that at the end of the previous two downturns, the three indicators of profit-loss ratio, SOPR Ratio and reserve risk all showed an upward trend, or at least remained relatively stable, but this is not seen in the current period.

03

There are more active addresses and the capital turnover rate is improved

During the market downturn, users and funds also have different active characteristics. First, from the perspective of user activity, as of June 13, the number of active addresses on the Bitcoin chain was 893,900, slightly higher than the historical average of 815,400 since 2017, which shows that the current users on the chain are in a relatively active state. Moreover, compared with the previous two downturns in history, user activity in the current period is also higher. The number of active addresses in the two periods from August 2018 to March 2019 and from March 2020 to June 2020 was 628,500 and 825,600 respectively, both lower than the average of 930,400 in the current period.

Secondly, from the perspective of fund activity, the dormancy index refers to the average number of days that tokens are held in each transaction. The higher the value, the more long-term held tokens are put into circulation (usually sold), and vice versa. More short-term held tokens are put into circulation (usually sold). According to statistics, the historical dormancy index average of BTC since 2017 is 13.72 days, while the average in the current period is 6.87 days, which is significantly lower than the historical average. This means that the tokens currently being traded are changing hands frequently. The average dormancy index values ​​for the two periods from August 2018 to March 2019 and from March 2020 to June 2020 were 13.53 days and 11.19 days, respectively, which are closer to the historical average and higher than the average for the current period. This also shows that during the current period, even in the same market downturn, the turnover frequency of its trading tokens is high, in other words, the fund activity is high.

Turnover rate is another indicator to measure the activity of funds. The higher the value, the faster the funds flow, and vice versa. According to statistics, the historical average turnover rate of BTC since 2017 is about 5.29%, and the average in the current period is 9.14%, which is significantly higher than the historical average. This means that the on-chain transaction volume of BTC in the current period is larger and the flow of funds is faster. Moreover, like the turnover frequency, the average turnover rate in the current cycle is also significantly higher than the average of 3.81% and 3.01% in the two periods from August 2018 to March 2019 and from March 2020 to June 2020. That is, even in the same market downturn, the funds in the current period are flowing faster and more active.

In general, although some individual indexes are still far from the bottom of the previous cycle, for medium- to long-term coin holders who intend to hold for about three years, now may be a good window period for gradual buying and regular investment.