By combining this on-chain data with other price and market data, bitcoin holders are more equipped to understand why its markets behave the way that they do, giving them tools to make more informed decisions or the confidence needed to keep sailing.
As explained here, this is related to something called “max pain,” which is essentially the art of making one’s trading counterparty suffer the most to reach optimal personal profitability.
Similarly to the options markets, an increasing number of futures market participants became excited about bitcoin’s prospects and took leveraged bets at an increasing rate, causing open interest on futures to skyrocket .
The amount of pain of those futures traders that massively went long on leverage during this parabolic rise is visualized in the long liquidations chart in figure 5.
The most recent bitcoin dip started with a large, somewhat old whale that took a profit (>400%), who was followed up by a younger that even ended up selling at a loss.
The thread concluded with a chart of the Spent Output Profit Ratio .
Although it is unclear if the unique circumstances of this specific hash rate drop invalidate the signal, its miner capitulation and buy signals have historically been very good opportunities to buy bitcoin.
Perhaps an even more comforting thought is that this latest price rise was not accompanied by a rise in funding rates , which is a sign that it was primarily spot-markets driven and more likely to be sustainable.
To gauge the current market sentiment, I held a Twitter poll last week.
The previous 10 charts showed a clear picture that, during the last few months, bitcoin markets were leveraged after a rapid price rise and simply needed a bit of time to cool off, causing this consolidation with several dips.
Perhaps the exchange balances chart that has been in an incredible downtrend since the March 2020 COVID-19–related market panic is the most famous.
One of these metrics is the Market-Value-to-Realized-Value .
When we shift our attention to the confidence of long-term holders which is captured by the Reserve Risk, the results are less pronounced.
Where the Reserve Risk assesses long-term holder market behavior by looking at the age of the coins that were moved on-chain, the Realized HODL .