Bitcoin (BTC) On-Chain Analysis – Failed Bullish Recovery

Bitcoin aborts its reversal attempt

Bitcoin (BTC) price invalidates the 24k$ resistance and return to visit demand area identified last week, causing the price to fall by around 10% over the last seven days.

In response to this decline, the market finds itself again in a state of undervaluationwhile participants’ onchain activity indicates renewed interest.

Figure 1: Daily price of BTC

This week we will assess:

• I’participants’ on-chain activity on the Bitcoin chain;
• I’profitability of the market and expenses investors;
• the maturing of parts accumulated over the last three months.

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A slight increase in activity

A month ago, we identified a significant lack of on-chain activity on the bitcoin chain. Indicating a noticeable lack of participant interest and engagement in response to the price drop, this trend has reversed since July to send a mixed but constructive signal.

Indeed, since July 15, the number of active entities on the Bitcoin network has started a slight increase, reaching today 254,843 active entitiesan increase of 8% over the last 38 days.

Testifying to a slight but notable renewed interest, this indicator highlights the fact that participants identified the recent price recovery as a potential investment opportunity.

That said, the short-term trend seems to favor further decline, it remains to be seen if this activity will hold despite a return of the price down from the demand zone between $18k and $24k.

Figure 2: Active Entities

Another indicator allowing us to support this observation is the number of transactions carried out daily on the network. Adopting a behavior similar to the number of active entities, the graph below tells us that participants have started a more sustained activity regimen since the end of June.

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From 203,415 to 216,282 transactions (Tx) per day, the measure of the number of daily Tx is up 6.3% over the last 58 days, while the price of BTC has fallen – 1.7%.

This upward trend in on-chain activity metrics signals a noticeable upturn in confidence over the past two monthswhich is very constructive in terms of the core value and use of the channel.

That said, these indicators are still in bear market territory and will need time to form new bullish momentum showing a serious return of user and investor engagement.

Figure 3: New Entities

These findings are corroborated by an increase in transfer volume on the chain since the end of April.

Although the two volume peaks in May and June were caused by sharp declines in the price, causing a significant transfer of coins from losing holders to new buyersthis trend maintained its momentum during the months of July and August.

Recording an increase of more than 122% in almost three months, nearly 280K BTC are circulating today on the Bitcoin network.

Nevertheless, this increase in volume is partly fueled by coin transfers into profit whose purpose was to make small gains during the month of August in order to exit the market in anticipation of recent price weakness.

Figure 4: Transfer Volume

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Rejection of pivot point

Indeed, the test of pivot point identified two weeks ago with regard to the profitability of spending on the channel has for the moment ended in failure, auguring a resumption of loss realization for the coming days/weeks.

The following graph shows us that the aSOPR finally invalidated on test of the neutral zone (aSOPR = 1) as a resistanceindicating that the expenses are maintained in a state of negative profitability.

This rejection is one of the most deleterious elements in the short term, which leads me to favor caution regarding price fluctuations for August and potentially September.

This invalidation of the neutral zone confirms the thesis put forward during our previous analysis according to which young coins, less than three months old, have been spent throughout the recent riseshowing negative profitability although close to their basic costs.

Figure 5: Expenditure Return Ratio

This observation is reinforced by the study of the net profits/losses realized on the chain and supports the fact that some participants took advantage of the rise in July – August to close positions by limiting pot-breaking.

Reinforcing the possibility that the $24k test was actually leading us to a scenario of dead cat bouncethe profits made since August have resulted in minimal losses and even some profits, however, not exceeding the level of one million dollars per day.

This figure is very low compared to the similar pattern, which occurred at the end of March, where nearly $35 million in profit was made before the market came to visit the current price zone.

Although a realization of losses similar to that of early June (in red) is unlikely in terms of scale, we can expect to see some participants (notably short-term holders) give in to selling pressure over the next few days.

Figure 6: Net Profit/Loss

In response to the recent price drop, the spot price of BTC once again crossed lower than the realized market price. As explained during last week’s on-chain analysis, the failure of realized price to provide support in BTC increases the likelihood of strong downside pressure occurring because the overall cost base for investors is again higher than the spot price.

A potential redistribution of BTC in circulation between participants bowing to selling pressure and opportunists seeing in these price levels a buying opportunity is therefore to be expected if the price continues to fall.

Although buying BTC below this level of psychological support is a bullish bet with asymmetric gain expectations, no one knows how long the price of BTC may still move below the realized price.

Furthermore, the realized price of long-term holders (LTH) has also been crossed downwardsinducing strong selling pressure on this cohort which has so far released very few sales compared to its unrealized losses.

Picture 7 : Actual Price

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Summary of this onchain analysis

In sum, this week’s data indicates that, although constructive dynamics are forming in terms of participant engagement, the downward trend prevailsnow that the price has invalidated the test of an important pivot point.

A modest but noticeable increase in on-chain activity reflects the fact that the commitment of the participants is gradually returningwhile chain use is showing encouraging signs of recovery.

However, the failure of the aSOPR test as resistance and the return of the spot price below the realized price augurs a new wave of loss taking and negative profitability in the short termwhich could allow the price to test the strength of the demand zone between $18k and $24k.

Sources – Figures 2 to 7: Glassnode

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