This On-Chain Relationship Shows Bitcoin Could Go Down Before Final Capitulation

One of the most used on-chain metrics to determine the performance of Bitcoin is the long-term behavior of its holders. Defined as addresses that have not moved any BTC in six to twelve months, long-term headlines often indicate market highs and lows.

The ratio of short-term and long-term realized value (SLRV) analyzes the differences in behavior between short-term and long-term holders to detect bear markets. The SLRV ratio shows the percentage of the Bitcoin supply that was last moved in 24 hours divided by the percentage that was last moved between six and twelve months ago.

A high SLRV ratio shows that short-term headlines are more active on the network and can often indicate a hype cycle or that a market top is approaching. A low SLRV ratio indicates little short-term holder activity or that the long-term holder base has increased significantly.

The ratio was created by Capriole Investments, a cryptocurrency investment fund, to identify market transitions between risk and risk allocations to Bitcoin.

Based on the SLRV ratio, Bitcoin is currently in the pink zone, where it has been since June of this year, when it hit a local bottom of $17,600. The pink zone shows an SLRV index below 0.04 and has historically coincided with the accumulation zone of previous bear markets.

bitcoin btc slrv ratio
Chart showing Bitcoin’s SLRV ratio from 2011 to 2022 (Source: Glassnode)

In all previous bear markets, Bitcoin bottomed firmly in the pink zone, marking the final price capitulation before a bounce. However, data from Glassnode shows that BTC has not yet reached the bottom of the pink zone. This suggests that it could see a further drop from its $19,600 level before the final capitulation.

Digging deeper into the SLRV relationship reveals that Bitcoin posted a lower high with each bull run. This could mean that Bitcoin may see less severe bull and bear market drawdowns in the future, with less volatility in between. In addition to providing relief to long-term investors, a less volatile market could also increase institutional adoption.

To solve some of the problems with the SLRV relationship, Capriole Investments created SLRV Ribbons. SLRV Ribbons is an investment strategy that applies a short-term and long-term moving average to the SLRV ratio to mark the transition from a risky to a risky market.

The SLRV tapes consist of a 30-day moving average and a 150-day moving average. The 30-day moving average above the 150-day moving average suggests that the market is emerging from a period dominated by long-term holder activity.

The periods when long-term holders show the most activity are often associated with accumulation zones – the floor prices that LTHs use to increase their BTC holdings. Short-term holder activity tends to increase in later stages of these accumulation zones, signaling the start of a new adoption cycle and the beginning of a market rally.

bitcoin btc slrv ribbon ratio
Chart showing Bitcoin’s SLRV ribbons from 2011 to 2022 (Source: Glassnode)

The SLRV tapes show that the market has predominantly been in a risk-off state since China’s Bitcoin mining ban in May 2021. The downward trajectory of the 150-day moving average of SLRV has been briefly interrupted by a rally of the short-lived bear market at the beginning. of 2022, but currently shows no signs of reversal.

The lack of a trend reversal in sight further reinforces the data presented by the SLRV relationship: Bitcoin may have to go lower before bottoming out.

Posted in: Bitcoin, Research

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