Bitcoin price enters ‘transition phase’ according to BTC on-chain analysis

Bitcoin (BTC) traders’ hopeful optimism seemed to fade in the first week of March as key on-chain metrics met with resistance.

Now Bitcoin price is threatening a retest from the USD 22,000 level and a wave of short sellers would benefit if that happened. If the short sellers’ strike price were to rise, some analysts think Bitcoin’s price could drop to $19,000.

Bitcoin options at strike price. Source: Coinglass

A handful of analysts are still predicting BTC price to hit $25,000 in the near term, on-chain data highlighting some reasons for price resistance at higher levels.

Realized price metrics emphasize profit taking

Market participants’ concerns about the Federal Reserve’s rate hikes and high inflation are severe macroeconomic headwinds for the Bitcoin price and have prompted investors to weigh up the time value of money from BTC investments. To measure TVM on-chain, Bitcoin holders can be grouped based on the amount of time they held BTC and the average cost of acquisition.

Investors who bought BTC in the last 6 months took advantage of the early bear market conditions and have an average realized price of $21,000, giving them a profit. The average price realized in the market for all BTC holders is $19,800, also currently in profit.

Conversely, BTC held for more than 6 months has a higher realized price than the rest of the market groups at $23,500. When Bitcoin reaches above $23,500, those holders who have seen little TVM for more than 6 months may be able to push a breakout as they become nervous about locking in profits.

Bitcoin delivery charges based on time held. Source: Glassnode

Liquidity inflows are increasing, but pale in comparison to 2022

Bitcoin price reacts strongly to interest rates and the US Dollar Index (DXY), which puts pressure on risky assets. The negative impact of these factors is great for short sellers but bad for Bitcoin’s price. The best way for Bitcoin price to resist pressure from short sellers is to bring new long liquidity and spot buyers to the market.

Analyzing net currency flows is a good way to measure new liquidity and currently this measure reflects a 34% increase since the beginning of 2023, but it lags behind the annual daily average of $1.6 billion.

Bitcoin exchange volume. Source: Glassnode

At the moment, the general consensus among analysts is that the ability to get new liquidity into the crypto market is hampered by a crackdown on banks that support crypto-oriented businesses.

The rise in unrealized Bitcoin gains reflects past cycles

While some Bitcoin investors realized profits, positive on-chain signals appear when looking at the Net Unrealized Profit/Loss metric (NUPL). The NUPL metric shows the difference between unrealized Bitcoin profit and unrealized loss within the BTC supply.

According to Glassnode, NUPL stats on March 6 show:

“Since mid-January, the weekly average of NUPL has shifted from a state of net unrealized loss to a positive state. This indicates that the average Bitcoin holder now has a net unrealized profit of about 15% of the market cap. This pattern resembles a market structure similar to transition phases in previous bear markets.”

Bitcoin NUPL. Source: Glassnode

While Bitcoin’s momentum has paused in mid-February in 2023 and there are still plenty of headwinds, there are positive signs that the transition out of the deepest stage of the bear market is near.