Authors: CryptoVizArt, UkuriaOC, Glassnode; Compilation: Wuzhu, Golden Finance

Summary

• After the US Federal Reserve cut interest rates by 0.50%, Bitcoin has regained the short-term holders' cost basis ($0.0619 million) and 200DMA ($0.0639 million).

• After experiencing a period of net capital outflow, as the price rises above the cost basis, the pressure on short-term holders has slightly eased.

• New investors have shown a certain degree of resilience, with relatively small actual losses, indicating their confidence in the overall upward trend.

• The perpetual futures market is showing a cautious sentiment recovery, with demand gradually increasing, but still below the levels seen during a strong bull market.

Market Gradient Shift

After the market reached its ATH in March, the capital inflow into the Bitcoin network slowed down, leading to a weakening momentum. This can be confirmed by comparing the smooth 155-day gradient of the price (black) with the actual price gradient (red).

In recent weeks, the market gradient has dropped to a negative value, while the actual price gradient is positive, but the trend is lower. This indicates that the decline in spot prices is greater than the intensity of capital outflows.

The z-scores of these two gradients are measured in the chart below. Negative values can be explained as periods of relatively weak demand, leading to continuous price contraction.

Using this indicator, we can see that the current structure is very similar to the period of 2019-20, with the market going through a relatively long consolidation phase after a strong rebound in the second quarter of 2019.

New capital inflows

Since late June 2024, the current consolidation phase has pushed spot prices below the cost basis of several short-term holder subgroups (MVRV ratio <1). This highlights how recent investors are under financial pressure, enduring increasing unrealized losses.

However, although many new investors are holding positions in negative territory, the magnitude of their unrealized losses is significantly lower compared to the mid-2021 sell-off and the COVID crash in March 2020.

When the market enters a long-term contraction phase, decreasing returns will prompt investors to cash out at lower prices to minimize losses. Therefore, the relatively young supply cost base will be lower than the spot price. Short-term holders repricing supply at lower prices can be described as a net capital outflow in the bitcoin ecosystem.

To measure the direction and intensity of capital flow from the perspective of new investors, we have constructed an indicator comparing cost bases of two subgroups (1w-1m as a fast track, 1m-3m as a slow track).

• Capital outflow (blue) in a market downtrend, the cost basis of the youngest tokens (1w-1m in red) decreases faster compared to the older coin-age group (1m-3m in red). This structure indicates an overall negative direction of capital flow, with the intensity of this outflow proportional to the deviation between these tracks.

• Capital inflow (blue) in a market uptrend, the cost basis of younger tokens expands faster compared to the cost basis of older coin-age groups. This suggests that the speed of capital inflow is proportional to the divergence between these tracks.

The cost base of newer tokens is currently lower than that of older tokens, indicating the market is undergoing a net outflow mechanism. By utilizing this indicator, sustainable market reversals may be in the early stages of forming a positive momentum.

Confidence of new investors

As new investors' unrealized losses increase during the market adjustment period, their tendency to surrender when losing also increases. Statistics show that short-term holders are more sensitive to volatility, which helps track market turning points.

When checked with MVRV divided by coin age, the SOPR indicator divided by coin age shows almost the same behavior. This confirms that new investors not only hold assets in a loss position but also have experienced enough pressure to materialize these losses.

We can also evaluate the intensity of short-term holders' reaction to changes in market sentiment.

The difference between the cost basis of consuming (red) new investors and all new investors (blue) reflects their overall confidence. When standardized by spot prices, this deviation allows us to highlight periods when new investors react excessively to extreme unrealized profits or losses.

In recent months, new investors who purchased tokens in the past 155 days have shown higher market confidence than the previous 'put trend'. Compared to their cost basis, this group of people still has relatively low locked-in loss levels.

Long perpetual contract premium

We can use the perpetual futures contract market to add another dimension to our survey of new capital confidence in the upward trend. First, we use the futures perpetual contract financing rate (7D-MA) to show that speculators are willing to pay higher rates to take leverage long positions.

Considering that a financing rate value of 0.01% is the equilibrium value for many exchanges, we consider deviations above this level as the threshold for bullish sentiment. The recent price rebound is accompanied by a relatively warmer trend towards leverage for long positions in the perpetual futures market. This has pushed the weekly average financing rate up to 0.05%.

Although this is above the equilibrium level, it does not currently indicate a strong or excessive demand for a bullish bias in the perpetual futures market.

If we calculate the cumulative monthly premium paid by long contracts to shorts in the past 30 days, we can see that the total cost of leverage near the March ATH is approximately $0.12 billion per month.

By mid-September, this indicator had plummeted to $1.7 million per month, and has now only slightly increased to $10.8 million per month. Therefore, there has been an increase in demand for long leverage in the past two weeks, but it remains well below the level seen in January 2023. This indicates that the market has significantly cooled off during this adjustment period.

Summary

The bitcoin market has been in a long consolidation phase, reminiscent of the period from the end of 2019 to the beginning of 2020. Since hitting a historical new high in March, the capital inflow into the bitcoin network has slowed down, challenging the profitability of short-term holders.

However, despite a period of localized net capital outflows, new investors' confidence in the market remains very strong. In recent weeks, there has also been a very mild increase in long preferences in the perpetual futures market.

Overall, this paints a picture of a market cooling down from the excessive volatility in March, without breaking the sentiment of many new bitcoin investors.