Bitcoin Market Consolidates as On-Chain Volumes Remain Light

According to the latest Glassnode report, the Bitcoin market has seen limited price movement this week, with on-chain volumes reaching cyclical lows. Investors have been holding onto their coins, resulting in significant amounts of dormant supply.

The Bitcoin market has traded within an extremely tight price range this week, whilst on-chain volumes have been extremely light, hovering around cyclical lows.

Meanwhile, large swathes of the coin supply remain dormant in investor wallets with supply in several key age bands… pic.twitter.com/t2h5v5YnCT

— glassnode (@glassnode) May 22, 2023

Dormant Bitcoin Supply

With only a 3.4% change in the price of Bitcoin, from $26.6k to $27.5k, the market has remained mostly stable. This tight trading range is one of the narrowest in recent years. On-chain volume has been extremely light, indicating low activity and transactions. Additionally, many investors have chosen to hold onto their coins, leading to high levels of dormant supply.

Transaction counts have reached historic highs in terms of on-chain activity. This surge is primarily due to smaller transactions involving ordinals, inscriptions, and BRC-20 tokens. However, the overall economic throughput has declined significantly since early 2021, dropping by 85.5% to a cycle low of $1.9B. Although transfer volumes have seen a slight increase in 2023, they remain near their lowest levels.

Bitcoin exchanges play a vital role in trading, offering insights into trade volume, awareness, speculation demand, and investor confidence. Notably, deposit volumes on exchanges have sharply declined, dropping by 91.8% from the peak of $4.2B in May 2021 to $343.4M presently.

Adjusted Realized Price Analysis

Another important indicator of network utilization is the Realized Profit and Loss events. The combined Realized Profit and Loss levels are among the lowest seen in the past three years, indicating that most holders are reluctant to spend their profits or losses.

The low network throughput can be attributed to market participants having a cost basis that closely aligns with the current price. This lack of incentive to spend suggests that greater volatility in either direction is needed to stimulate spending behavior.

The Adjusted Realized Price considers coins that have been dormant for over seven years and provide a better estimation of the market-wide cost basis. Currently, spot prices are trading slightly above the Adjusted Realized Price at $25.2k, indicating that there is minimal profit or loss available to active participants in the market.

The recent rally in Bitcoin above $30k resulted in a modest unrealized profit level of 21%. However, the current unrealized profit level stands at just 9%, which is historically low. This suggests that many holders are unwilling to spend their coins at current prices.

Furthermore, the supply of Bitcoin held for over a year continues to reach new highs. The majority of coins remain inactive, leading to low on-chain volume throughput. The supply of long-term users has also dramatically expanded, hitting a record-breaking level of 14.46 million bitcoins (BTC).

Nevertheless, Bitcoin holders continue to display strong convictions despite the extreme volatility in the market. On-chain analysis reveals low volume throughput and a growing base of price-insensitive holders. The aging of coins into multi-year age bands indicates that holders who survived the previous year’s market turbulence may require higher prices to be enticed to spend their holdings.