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Bitcoin has yet to bottom, according to on-chain analysis



 On-chain analysis is fascinating to me. They only exist on the blockchain and not outside of cryptocurrencies. But when we dive on-chain, we often get amazing insights into market sentiment, and certain indicators have even been shown to predict future price action.


Of course, given Bitcoin's short history of just over a decade, it's not yet clear which indicators are mere coincidences and which have actual value. But that's part of the fun, right?


Offer Percentage of Profit

I came across an exciting indicator on Twitter this week, compiled by @OnChainCollege, that is a must-follow for anyone interested in on-chain analytics. He looks at Bitcoin supply percentage in profit to gauge how overheated (or cooled) the market is. Historically, this has signaled the start and end of bear markets for Bitcoin quite well.


And these borders are almost crossing at the moment.


To explain the metric, for those who don't know, supply percentage in profit refers to the percentage of existing bitcoins where the current price is higher than the price at which those bitcoins were bought. If the percentage of the offer in the profit rises above 50%, this is a top signal. If the percentage falls below 50%, this is a ground signal. At least that's the theory.


The chart below showing this dates back to 2011. Note that @OnChainCollege has graphed this by also plotting the supply percentage in loss (red) as well as the supply percentage in profit (green) on the chart. These two crossing lines would be the indicator.


Historical Accuracy

As you can see, this one has only crossed four times so far. The last was March 2020 when the outbreak of COVID rocked the markets. From my point of view, this was the scariest time in crypto history – a truly existential event (to be honest, it felt like an existential crisis for the world at large).


To play devil's advocate, you could probably write this case off as a Black Swan event and overlook the impressive upswing that followed the crossover here - alright. But if you look at the other cases, the predictive ability applies to all three cases: 2019, 2014, and 2011.


That's all well and good. But what is the market saying now? In any case, the percentage of the supply loss has not yet exceeded the percentage of the profit. If the pattern persists, it means there may be more losses before it is reached.


On-chain analytics caveats

Of course, any on-chain analysis comes with the caveat that not only is the sample space small, but the data may not be structural and show significant changes in the environment. Today we see runaway inflation, a more aggressive Fed and a scary geopolitical climate. This has triggered the worst start to the year for stocks since 1939.


These macro headwinds mean that Bitcoin is swimming against a serious and consistent bear market for the first time in its history - April was the worst month for stocks since October 2008. Also, today Bitcoin has almost nothing to do with the niche internet money of 2011 or even 2014 mean. Today it takes its place among the real asset classes, with institutional money pouring in and a seat at the macro table.


All of this means that should these bands cross again, there's no guarantee at all that history will repeat itself here. Nonetheless, this is an intriguing trend to keep an eye on, and a fine use of on-chain analysis by an analyst that's one of my personal favourites. It will be fun to follow this development further.

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