Bitcoin: Detailed on-chain analysis for BTC holders to minimize losses

The largest cryptocurrency in the world, Bitcoin [BTC], has had a rough patch in the past few weeks.

With a near-term weakness spotted across some of the coin’s significant on-chain metrics, the price of BTC continues to plummet even with minimal additional sell-side pressure on-chain, Glassnode found in a new report. 

According to Glassnode, all asset markets, including Bitcoin, equities, forex, and bond markets, logged declines in the last week.

Impacted by a drawdown in the general financial markets, the continued decline in the price of BTC, despite very little sell pressure, indicated a drop in demand for the crypto asset and an investor base looking to exit the market at any cost. 

BTC needs help

The first fundamental metric Glassnode considered was the coin’s Average Spent Output Lifespan (ASOL). According to Glassnode Academy, this metric provides insight into the lifespan of coins on a per transaction output basis that is spent daily.

When this metric posts a high value, it means that a large number of old coins are seeing some action. They could be realizing profits, capitalizing on the strength of a bull market, or have reduced the conviction to hold the coin.

On the other hand, when ASOL logs a low value, it means that newer coins dominate day-to-day network activity, leading older transaction outputs to remain dormant, and the conviction to continue holding the particular coin is high.

According to its new report, Glassnode found that BTC’s ASOL has been on a gradual decline since the beginning of last year. Although it rallied in recent weeks as a group of older coins was spent, this was merely ephemeral, Glassnode found. 

With a sustained decline in price action without a high value in ASOL, Glassnode concluded that “the available demand can barely hold up the day-to-day sell-side pressure, let alone additional spending by profit takers and/or capitulation events was to take place.”

Source: Glassnode

Glassnode also considered BTC’s supply-adjusted coin years destroyed metric.

A coin’s day destroyed (CDD) at any point in time refers to the number of coins spent multiplied by the number of days the coins remained unspent.

As for the coin-years destroyed metric, it aggregates the coin’s CDD over the last 365 days. 

When this metric posts a high value and is in an uptrend, it may mean that coins that have been held unspent for an extended period are finally getting some action. This may lead to an increase in liquid coin supply.

When this metric declines, it means that long-term holders are spending fewer coins. And, interest in the asset is in decline. This will lead to a deterioration in on-chain transaction activity.

According to Glassnode, BTC’s coin-years destroyed continue to fall, indicating that the bear market is nowhere near its end.

Source: Glassnode

Furthermore, on weakening fundamentals, Glassnode found that the active entities metric of BTC is currently positioned at the lower end of the long-standing Bear Market Channel. This, according to the report means,

“There is little growth in the active user-base, and the network is currently trafficked by the bare minimum user base we would consider to be within ‘historical bounds.’ Should Active entities decline much further, it would suggest an unfortunate deterioration of the user base and enter a zone of aggregate weakness which has not been seen for many years.”

Source: Glassnode