Bitcoin’s capital inflow echoes memories of a tight trading season

• Since hitting $31,700, Bitcoin has been silently preparing for a historical repeat.
• Short-term holders could soon be less profitable than their long-term counterparts.

For the past few days, the crypto market, led by Bitcoin [BTC], has been relatively quiet. And based on Glassnode’s on-chain newsletter, the constraint experienced depicts that of slow and steady liquidity, similar to the 2016 and 2019/2020 periods.

Read Bitcoin’s [BTC] Price Prediction 2023-2024

One area the on-chain analytic platform considered in explaining the above was the realized cap. For context, the realized cap measures the estimated cost of acquiring Bitcoin compared to the last price traded.

Capital returns, bring compression

The Glassnode data went ahead to compare the realized cap in 2020 into 2022 to the current one. Prior to the aforementioned period, Bitcoin had initially experienced massive capital outflows. 

But the recovery began in March 2020. And later in 2021, there was a bull market where the realized cap increased by 348%. 

Source: Glassnode

Like the incident in 2020, Bitcoin was experiencing a capital inflow recovery after a massive drawdown in 2022. So, there could be a chance that another bull market was not far away, But Glassnode was quick to mention that,

Recovery of the realized cap ATH in prior cycles have taken between 95 and 239-days, with the recovery so far occurring at a similar rate.

Another aspect that revealed BTC’ tight trading condition was the Bollinger Bands (BB) range. This range uses the default period and standard deviations to determine whether prices are high or low on a relative basis.

With a 4.2% difference between the upper and lower band, Glassnode opined that BTC was experiencing an extreme squeeze. Additionally, this signifies the quietest market the coin has had since January.

Source: Glassnode

It’s probably the preamble

Like the realized cap, Bitcoin’s seven-day net realized profit/loss was in a similar state as of the first half (H1) of 2019 and 2020. The on-chain indicator shows if the market is in profit or loss.

When the net realized profit/loss is less than zero, then it means the market is at a loss. Whereas values over zero denote a profitable market. 

From Glassnode’s analysis, the metric placed the market in profit. But the major similarity was how it also looked like what preceded the bull market between 2020 and 2021. Therefore, there is a chance that BTC could be looking to replicate the form as of then.

Source: Glassnode

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On looking at the short-to-long-term SOPR ratio, on-chain data showed that the spending by each cohort was close. However, the Short Term Holders (STH) still dominated slightly. 

This was a similar trend to the metric in March 2020. And as such, STH could be less profitable than their long-term counterparts soon.

Source: Glassnode