​Glassnode finds signs of “full detox” in the crypto market

What’s new? According to a report by analytics firm Glassnode, after a month of high volatility, the price of bitcoin has begun to stabilize. This means that the average BTC investor is currently holding unrealized profits, and it also signals a potential turnaround in macroeconomic market trends. “Usually these periods [phases of transition from a bear market to a bull market] are punctuated by a sharp change in aggregate profit and loss dominance, which appears to be taking place,” Glassnode noted.

Glassnode’s report

What else does the report say? Focusing on past transitional cycles from a bear market to a bull market, the path ahead remains difficult, experts said, with 2015 and 2019 being key examples. These periods were characterized by a prolonged macroeconomic sideways trend that was accompanied by localized volatility, usually in both directions.

An explosive increase in profit-taking was seen after October 2020 in response to extraordinary monetary policy. After peaking in January 2021, the index declined sharply and returned to 2020 levels in the next two years. The current spike in the index is related to recent price movements, but it remains small compared to what happened during the 2021-22 cycle.

Losses incurred by the market over the same time period began to rise after January 2021, reaching an initial peak during the May 2021 sell-off. The current level of realized losses has declined relative to the cycle baseline (~$200 million per day).

If we take the ratio between realized profits and losses (P/L), we can detect structural changes in the dominance of the two metrics. After assets reached their all-time highs in November 2021 and the subsequent price collapse, losses began to dominate. As a result, the P/L dropped below 1, decreasing with each successive capitulation. However, there is now the first sustained period of profitability since April 2022.

Net Unrealized Profit/Loss Ratio (NUPL) shows that the recent rally has launched the spot price of bitcoin above the average purchase price in the market. This puts the market back in unrealized profit mode, where the average holder is back in the green, analysts note.

Comparing the duration of negative NUPL in all past bear markets, Glassnode experts noted historical similarities between the current cycle (166 days) and the bear markets of 2011-12 (157 days) and 2018-19 (134 days).

The ratio between the total unrealized profit in the market and its yearly average can serve as an indicator of a recovering market. The recent price spike has greatly improved the market’s financial position. The momentum has similarities to the recovery from the bear market of 2015 and 2018.

Spent Output Profit Ratio (SOPR) for short-term investors has locked in an area above the key mark 1. This is the first surge in profit-taking since March 2022 on a large volume of cryptocurrencies bought at lower prices.

Glassnode previously reported that January was the most profitable month for bitcoin since October 2021.