Is Bitcoin Back? On-Chain Data and Market Trends Point to a Strong Revival

Remember the crypto winter of 2022? Bitcoin, the king of cryptocurrencies, weathered a tumultuous year. But hold on, because the latest on-chain, spot exchange, and futures data are painting a very different picture. Is Bitcoin showing signs of a robust revival? Let’s dive into the data and explore what’s fueling this potential comeback.

Bitcoin’s Resilience: From Downturn to Potential Upturn

Throughout 2022, Bitcoin faced significant headwinds. Market volatility, economic uncertainties, and a series of industry events created a challenging environment for the leading cryptocurrency. However, recent data suggests a shift in momentum. Could this be the start of a new chapter for Bitcoin?

Decoding the Bullish Signals: What’s Driving Bitcoin’s Potential Comeback?

Several key indicators are pointing towards a healthier Bitcoin ecosystem. Let’s break down the crucial data points:

1. Futures Market Equilibrium: The End of Short Squeeze?

The futures market provides valuable insights into market sentiment. Recently, we’ve witnessed a significant event: the clearing out of excessive short positions. According to data from Glassnode, a wave of short liquidations has brought the futures market back to a more balanced state. What does this mean?

• Short Liquidations Explained: When traders bet against Bitcoin (take short positions) and the price rises unexpectedly, they can be ‘liquidated,’ meaning their positions are automatically closed. This forces them to buy Bitcoin to cover their losses, further driving up the price.
• January’s Short Squeeze: Mid-January saw a massive short squeeze, with short liquidations reaching an all-time high of 85%. This indicates that many investors were caught off guard by the price rally.
• Impact on Price: These liquidations acted as fuel for Bitcoin’s recent price increase. Over $495 million in short futures contracts were liquidated in January alone! One day even saw a staggering $165 million in liquidations.
• Market Balance Restored: The good news? This ‘cleaning out’ process appears to have brought the futures market back to a healthier equilibrium. As of January 30th, long positions slightly outnumbered short positions (51.46%), indicating a shift towards bullish sentiment.

2. Spot Exchange Activity: Investors Returning to the Market?

Spot exchanges are where cryptocurrencies are directly bought and sold. Analyzing data from these exchanges can reveal investor behavior. What are we seeing?

• Bitcoin Leaving Exchanges: Interestingly, the amount of Bitcoin held on centralized exchanges (CEX) has been decreasing since hitting an all-time high in March 2020. We are now at a multi-year low, with approximately 2.25 million BTC held across major exchanges. This is the lowest percentage of total Bitcoin supply on exchanges (around 11.7%) since February 2018.
• Massive Outflows in November: November witnessed unprecedented net Bitcoin withdrawals from exchanges, reaching $200 to $300 million *daily*. Over 200,000 BTC left exchanges that month, a significant outflow.
• Neutralizing Flows: Since January, as Bitcoin gained bullish momentum, exchange inflows and outflows have normalized. Net flows are now approaching neutral, suggesting the intense outflow trend has subsided. This could indicate a stabilization of market sentiment and potentially renewed buying interest.

3. Investor Profitability: Are Bitcoin Holders Back in the Green?

Analyzing on-chain data helps us understand the profitability of different investor groups. Who is currently holding profitable Bitcoin positions?

• 2017 and Earlier Cohorts Weathered the Storm: Throughout the 2022 downturn, only investors who acquired Bitcoin before 2017 managed to avoid net unrealized losses.
• 2018+ Investors Under Pressure: Investors who entered the Bitcoin market from 2018 onwards saw their cost basis fall below the market price, particularly after events like the FTX collapse.
• The Tide is Turning: The recent price rally has pushed the 2019 investor cohort (average acquisition price around $21,800) and earlier back into unrealized profit. This is a positive sign, indicating a broader return to profitability for Bitcoin holders.
• Average Acquisition Price to Watch: For major platforms like Coinbase and Binance, the average BTC acquisition price is around $21,000. As Bitcoin aims for higher levels like $24,000, any price corrections could impact the unrealized profits of these large investor groups.

Key Takeaways: Is This a Sustainable Revival?

The data certainly points towards a potential Bitcoin revival. Let’s recap the key positive signals:

• Futures Market Reset: The futures market has achieved a healthier balance after significant short liquidations, suggesting reduced speculative pressure and a potential shift towards bullish sentiment.
• Improved Exchange Flows: While massive Bitcoin outflows from exchanges have subsided, the normalization of exchange flows could indicate a stabilization and potential renewed interest in accumulating Bitcoin.
• Investor Profitability Returning: A growing number of investor cohorts are moving back into profitable positions, suggesting improved market health and investor confidence.

Positive Futures Basis: Adding to the bullish signals, the cash and carry basis for both perpetual swaps and calendar futures has turned positive, yielding 7.3% and 3.3% annualized respectively, according to Glassnode. This positive basis, contrasting with the backwardation seen in late 2022, further reinforces the return of positive market sentiment and potentially renewed speculative interest.

Looking Ahead

While these are encouraging signs, the cryptocurrency market remains dynamic and influenced by various factors, including macroeconomic conditions. However, the on-chain data, spot market activity, and futures market trends offer compelling evidence that Bitcoin is showing resilience and potentially entering a phase of revival. Keep a close eye on these indicators as they unfold, as they may provide further clues about the future trajectory of Bitcoin and the broader crypto market.