Bitcoin surges: a wave of profit sweeps the market

summary

• The current Bitcoin price has exceeded the psychological expectation of $40,000, with a return rate of 140% since the beginning of the year. What is particularly eye-catching is that its price trend has far outperformed gold as a hard currency.

• Compared to previous up and down cycles, Bitcoin’s returns are eerily similar to those of the 2015-17 and 2018-22 cycles in terms of the time it took for prices to recover from bear markets and the retracement from all-time highs.

• Bitcoin’s gains over the past year have been remarkable, with the vast majority of Bitcoin investors now in the black and some indicators entering a range that indicates prices are “eagerly rising.”

Bitcoin broke through the $40,000 mark at the beginning of December, which reminded investors how exciting 2023 will be for Bitcoin. In this article, we will compare the relative performance of Bitcoin and other digital assets in 2023 and past cycles, as well as investors' reactions and decisions to the market's strong performance this week.

It is worth noting that this week, the gold exchange rate against the US dollar also rose to a record high of more than $2,110 per ounce, and the exchange rate against all fiat currencies also hit a record high. Even so, Bitcoin still has a better performance when facing gold and the US dollar:

• Bitcoin price against the U.S. dollar: 141.6%

• Bitcoin vs. Gold: 106.6%

Figure 1: Bitcoin’s indexed performance against USD/Gold

In the digital asset ecosystem this year, Bitcoin has performed the strongest, while the relative prices of Ethereum and other digital assets have only seen a prosperous rise in recent months. But in general, the upward trend of these digital assets this year is gratifying.

• Bitcoin market value growth (orange line): 141.6%

• Ethereum market value growth (blue line): 79.4%

• Market capitalization growth of other digital assets (excluding Ethereum and stablecoins) (red line): 62.3%

Figure 2: Market value performance of different digital assets so far in 2023

Since the cycle peak, BTC's market performance has also been strikingly similar to that of the 2013-17 and 2017-21 cycles. It should be noted that when analyzing the 2017-21 cycle, we chose the market top data in April 2021 as the cycle peak. We believe that starting from this point in time, we can more concisely and clearly compare the duration of each cycle and its performance. This choice is prudent - we use a large number of indicators that together indicate that market sentiment, adoption, and investor confidence peaked at this point in time.

• 2013-17 (red line): 42% retracement from the historical high

• 2017-21 (blue line): 39% retracement from the historical high

• 2021-23 (black line): 37% retracement from the historical high

Figure 3: Bitcoin price performance since historical highs per cycle

If we evaluate cycle performance from the other extreme of the price cycle (cycle lows), we again see similarities with the 2015-18 and 2018-22 cycles. Since the FTX low in November 2022, Bitcoin's price has risen by 146%, which essentially created the best annual return in the past two cycles. Over roughly equal periods of time recovering from bear markets, Bitcoin's overall price performance is very consistent with past cycles.

• 2015-18 (blue line): 119% growth

• 2018-22 (green line): 128% growth

• 2022-23 (black line): 146% growth

Figure 4: Price performance since Bitcoin cycle low

Another way we assess the relative strength of this uptrend is by measuring the depth of the pullback from the most recent local high. The deepest pullback in 2023 was very small: just 20.1%, which was the smallest price pullback in the historical macro uptrend.

During the 2016-17 bull cycle, we still saw regular corrective retracements of more than 25% from the highs. In 2019, prices even retreated more than 62% from the July high of that year. This suggests that the potential support level for the market in 2023 is exactly the same as the increasingly tight supply market scenario we analyzed earlier.

Figure 5: Bitcoin: Bullish Corrective Pullback Magnitude

Increased trading activity

While the current Bitcoin movement is exciting, we must still carefully consider transactions closely tied to exchanges to identify noteworthy deviations in market activity and capital flows. Despite Bitcoin’s strong performance so far this year, the number of deposits to exchanges continues to plummet to multi-year lows, which is counterintuitive.

Figure 6: All transactions related to all trading platforms

However, the transaction logic of Bitcoin in the current cycle is different from that in previous cycles: when analyzing the transaction logic in this cycle, we must consider the transaction status involving "inscriptions". In other words, we must calculate the number of transactions under the premise that there are inscription-related buyers in the block space. Since the block space of each Bitcoin is limited, the high price generated during the period when the inscription payment fee is generally high can even make the trading platform deposits during the period when the inscription payment fee is low insufficient to match the inscription fee generated by the former.

If we look at exchange deposits as a percentage of all trades (orange), we see that they have fallen from around 26% in May to 10% today. However, if we exclude the impact of inscribed trades and only compare deposits to non-inscribed trades (blue), we see that the percentage has fallen more gradually than in early May, to around 20%.

This suggests that investors are more willing to spend their Bitcoin assets in inscription-related transactions rather than placing them on trading platforms.

Figure 7: Deposit volume on Bitcoin trading platforms

(Use the transaction fees related to inscriptions as parameters for modification)

Looking at the on-chain transaction volume, we can easily see that the funds flowing into and out of trading platforms have grown significantly since the beginning of the year, from $930 million to more than $3 billion (an increase of about 220%). This highlights the established fact that investors are increasingly seeking profits through trading, accumulation, speculation, and the use of other services.

Figure 8: Momentum changes in the total amount of deposits on trading platforms

As trading volume has grown significantly, when we analyzed the average deposit of trading platforms, we found a noteworthy result: this indicator has experienced a big rebound recently, and its current high point is close to the previous peak of $30,000 per transaction.

It seems that the factor currently dominating the changes in deposits on trading platforms is that investors are transferring more and more funds through trading platforms. At the same time, as the key date of the ETF in January 2024 approaches, more and more institutions are also turning their interest to the digital asset market.

Figure 9: Average deposit on trading platforms

While the number of transactions in and out of the exchange is relatively low, inflow/outflow volume already accounts for 72.2% of all on-chain transactions, on par with the previous all-time high. Given the recent increase in the size and volume of investor deposits and withdrawals, this further illustrates that a large portion of on-chain throughput is tied to trading activity.

Figure 10: Bitcoin volume on trading platforms

Market profitability trend strengthens

As it stands, the 2023 price rally has pushed Bitcoin’s price above two key on-chain levels:

1. The realized price in January has ensured that Bitcoin in the market is already in an average profitable state.

2. The real market average price in October has made Bitcoin investors profitable per capita.

As of now, the market trading price of Bitcoin is significantly higher than the real market average price ($31,000 per coin), and most Bitcoin holders will see that their portfolios are recovering from the bear market in 2022. From a historical perspective, this marks the beginning of a shift in the entire market to a more prosperous bull market.

Figure 11: The real average market price of Bitcoin

From the perspective of long-term investors, the year-to-date rise has seen the proportion of profitable Bitcoin in total holdings rise from 56% to 84% and surpass the historical average of 81.6%.

Historically, every time this indicator breaks through the historical average, it indicates that the market is transitioning to a strong bull market, and this time the indicator also indicates the same fact.

Figure 12: Percentage of Bitcoin Supply Profitable to Long-Term Investors

In contrast, the short-term investor group is almost completely profitable, with more than 95% of the Bitcoin they hold having a base cost lower than the current spot price. Furthermore, the current value of this ratio is higher than the long-term +1 standard deviation level of the indicator. Similarly, this indicator also confirms that the current Bitcoin market is in a vigorous upward trend.

Figure 13: Percentage of total Bitcoin supply that is profitable to short holders

Realized profit margin

In the above, we have pointed out that at the current Bitcoin market price, a part of investors have definitely made a profit, so the next logical step is to evaluate whether the profit and expenditure of these groups will change significantly. To this end, we introduce the SOPR indicator as a quantitative standard, which is to provide a view of the average profit and loss ratio of those locked Bitcoins so that we can better analyze this issue.

At present, the SOPR parameters of multiple groups are all above 1.0, which means that on average every bitcoin sold is definitely profitable for each group, among which:

• Broad market (orange): SOPR = 1.09 (average profit 9%)

• Short-term investors (red): STH-SOPR=1.01 (average profit 1%)

• Long-term investors (blue): LTH-SOPR=1.46 (average profit 46%)

Figure 14: Bitcoin’s Global Market SOPR

We can further our research by tracking the number of consecutive days that all three SOPR parameters are above 1.0. At present, Bitcoin's price rebound has kept this situation going for 44 days, which is much longer than the average duration of 17 days for this indicator and the longest streak since Bitcoin's price reached its all-time high in November 2021.

Overall, this suggests that the vast majority of Bitcoin holders are profitable and that there is enough demand in the market to absorb the supply.

Figure 15: Consecutive days with positive SPOR values

The realized net profit in U.S. dollars locked in the current market has reached $324 million/day, but is still an order of magnitude lower than the peak experienced by the market in the late bull run of 2021 (over $3 billion/day).

This suggests that although the market has performed strongly and investors have made considerable profits, the market is still in the early stages of a bull market rather than the late stages of a surging bull market.

Figure 16: Net realized profit and loss

Summarize

In 2023, Bitcoin is still one of the best performing assets in the global asset market. To date, the price of Bitcoin has risen by more than 140% compared to the beginning of this year, which is more than double that of gold. And in the entire digital asset industry, compared with other assets, Bitcoin still occupies a dominant position in the entire digital asset industry.

With such a strong performance, the vast majority of Bitcoin holders have now turned a profit, with a small number of them choosing to sell their holdings to cash in on these gains. Some on-chain indicators suggest that the recent rally has pushed the market out of the “transitional recovery zone” and continues to push it towards an “eager bull run.”