3 - 5 minute read
The beginning of 2023 has been a positive one for Bitcoin, with the cryptocurrency reaching a year-to-date high of $21,647. This bullish performance has many traders hopeful that the worst of the bear market has come to an end. The rally is also having a positive effect on other cryptocurrencies like Ether and Bitcoin mining stocks.
One of the primary forces behind BTC’s newfound strength appears to be an increase in trading volume and positive on-chain data. Over the last week, BTC volume has more than doubled, reaching $10.8 billion, a 114% increase over seven days. This increase in volume typically correlates to an increase in volatility, and while the current 2.4% seven-day volatility levels are still below the 2022 seven-day average of 3.1%, Bitcoin has remained consistent during the 2023 rally.
Centralized exchanges (CEX) have been struggling with low trading volume, which has led to lower fees for the business and layoffs. The increase in volume for all exchanges is likely welcomed news.
In addition to the increase in trading volume, Bitcoin on-chain realized profits are retesting the adjusted spent output profit ratio (aSOPR) value of 1.0, which some analysts believe to be a key resistance level. According to Glassnode, an aSOPR break above, and ideally a successful retest of 1.0 has often signaled a meaningful regime shift, as profits are realized, and sufficient demand flows in to absorb them. The on-chain realized profit and loss ratio for BTC is currently up over the 1.0 level, hitting 1.56 profits over losses on January 16th. This signals market strength and suggests that the market can absorb sell pressure without price capitulation, indicating a reduced overall market fear and possible macro shift.
Another positive sign for Bitcoin’s recovery is its softening correlation to equities. Bitcoin’s price action has typically been closely correlated to U.S. equities, but recent data shows that the 30-day correlation between Bitcoin and the Nasdaq reached 0.29 on January 17th, the highest BTC divergence from equities since December 2021. This softening of correlation is a positive development in the market, as it suggests that institutional investors and growth companies are holding less Bitcoin, which may lead to a decrease in correlation to markets in the future.
The data suggests that Bitcoin’s bull run is being driven by an increase in trading volume and positive on-chain data, which is leading to a reduction in the Bitcoin Fear and Greed index and a potential market bottom. While not all analysts believe that the market bottom is in, the data is certainly pointing in that direction.