Bitcoin’s on-chain environment points to upside potential, according to Glassnode

Blockchain analysis firm Glassnode says that Bitcoin’s on-chain fundamental indicators are showing bullish signs, suggesting the recent market correction may be coming to an end.

In its most recent report, Glassnode commented that while most derivatives traders are betting that Bitcoin is more bearish, on-chain patterns signal an ongoing uptrend.

According to the company, the illiquid supply of Bitcoin, or BTC, located at addresses where there has been almost no historical selling is increasing while the price is falling. This is reminiscent of other times in recent history that resulted in bull runs.

“Interestingly, in the current market, the price is falling while the illiquid supply is rising significantly (bullish). This week alone, over 0.27% of supply (~51,000 BTC) has moved from liquid to illiquid. In a bearish macro environment, the question is whether a bullish supply divergence similar to that seen in May-July 2021 is in effect.”

Offer is illiquid | The source: glass node

Glassnode also takes into account Bitcoin’s NVT (Network Value to Transaction Value), which describes the relationship between transfer volume and market capitalization.

The blockchain tracking company says NVT is now at a point where BTC is trading at a premium while mirroring past bear market bottoms.

“Calculating the 90-day NVT price-to-price ratio yields ‘NVT Premium’ (NVT Spread) which is currently trading at lows that were once considered undervalued. Previous instances of this high execution volume relative to market cap have provided strong bullish momentum during bear markets or macro market bottoms such as December 2018 and March 2020.”

NVT Pricing Model (Company Adjusted) | The source: glass node

Analyst Willy Woo examines Bitcoin’s on-chain indicators to determine the current market state of the leading cryptocurrency.

courting to speak in the What Bitcoin Did podcast that Bitcoin does not exhibit a “bear market setup” based on on-chain analysis.

“In terms of on-chain structure, it’s not a bear market setup. Although it can be said that we are at the height of fear. There’s no doubt that people are really scared.”

According to the analyst, high levels of fear in the market often represent an opportunity as there is a chance for prices to rally.

“It was a buying opportunity. Pullbacks of this type don’t usually occur without the resilience of relief. It’s not the kind of slide and then give up.

BTC has fallen from $69,000 to $33,000. Going from $33,000 to $20,000 will be difficult. Because it’s like repeating the 2018 bear market in 2.5 months instead of a year.”

Woo also said demand for Bitcoin is returning as more investors continue to buy.

“Structurally, bitcoin is very strong and demand is gradually coming back. Long-term bitcoin hodlers are slowly picking up steam as bearish futures traders have stopped selling. They are currently recovering and aiming for accumulation.

Whales (those with more than 1,000 bitcoins) as potential institutional investors began to turn to buying. They sell peak in December, so you could say institutions sell in December. This is part of their normal cycle – selling at a discount and reintroducing in January. Looks like it’s started…

CME futures and futures ETFs are doing a lot right now. The demand appeared a few days ago.”

Bitcoin is trading at $38,467 at press time, down about 44% from its all-time high.

BTC price 4 hour chart | Source: Trade View