On-Chain Weekly April 1st

  • Long-term Outlook - Sentiment: Bullish - BTC outflows spiked in March 2022, as billions in value were moved into self-custody Bitcoin wallets. Long-term holders (LTH) continued to accumulate coins even though they have not been consistent in their behavior for 2022, confirming this year’s uncertain outlook.

  • Mid-term Outlook - Sentiment: Bullish - Short-term holders are finally seeing profits after a long winter of downward price action. A spike of greater than 10% in STH profits has preceded bull cycles in the recent past. Net Unrealized Profit/Loss (NUPL) is showing promise with more than half of all the circulating BTC being held in profit - a bullish sentiment.

  • Short-term Outlook - Sentiment: Neutral - Negative news and recent black swans have long been priced into the current Bitcoin market – with the prices buoyed by somewhat positive news coming from the conflict in Eastern Europe. Futures Open Interest grew by $4bn this month, signaling a return of greater conviction and activity in the market.

Long-term Outlook - Sentiment: Bullish

BTC Consistently Moving into Self-Custody Wallets

Over the past two years, on-chain data shows that BTC is consistently flowing out of exchanges. While this fact does not immediately contribute to either a bullish or bearish sentiment, it can reveal important characteristics about the behavior and knowledge of the investors on the network.

The first question that comes to mind is, “where is the BTC going when it moves away from exchanges?” The simple answer is that the outflowing BTC is moving into self-custody wallets. Self-custody wallets are wallets that are not controlled or maintained by any CEX (centralized exchange). These types of wallets are wholly controlled by their owners and can be hardware wallets, browser-based wallet plugins, or app-based like the Numbrs Bitcoin wallet solution.

Spike in Exchange Outflows for March 2022

This month, a notable spike in BTC flowing out of exchanges has been recorded and can be linked to renewed demand for Bitcoin. The above metric has been moving sideways for well over six months, and large outflows have preceded price action in the past. For the long term, the general theme remains bullish for Bitcoin with the recent spike being a potentially good sign for shorter-term perspectives.

Most “Bitcoiner” or BTC enthusiast investors see outflows from exchanges into self-custody as a bullish indicator, positing that BTC moving away from exchanges means they are being taken out of liquid circulation and thus restricting supply. This is not always the case, and it should be noted that BTC can be moved back onto exchanges just as easily as they are taken off, hollowing out this bullish theory. What is bullish, is that we can assume that as the BTC market matures, its users will become more and more sophisticated and knowledgeable on the topics of storage and the use of Bitcoin.

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Long-Term Holders Accumulate BTC

Over the past quarter, the price of BTC has been in a downward trend, but it has shown signs of a recovery during the last week of March 2022. That downward trend was exacerbated by macro headwinds and regulatory uncertainty–all of which contributed to an extremely tricky market to forecast. Long-term holders (LTH) were observed taking profits and accumulating BTC over the last quarter but did so at relatively low levels. This class of investors, who typically represent the most experienced “smart money” investors in the BTC space, showed greater uncertainty during the recent market cycle.

Notice the behavior of LTH in past markets, such as the start of the bull run in October 2020. As the price climbed, LTH sold into strength, switching to accumulation mid-way through the cycle with greater pricing in mind for later in the year. Long-term holders continued to accumulate up to November 2021, just before the market’s downturn in late 2021. LTH accumulates Bitcoin with the expectation of higher prices in the future. If their current behavior is in line with this notion, the recent acquisition of BTC by long-term holders is indeed a bullish indicator.

Mid-term Outlook - Sentiment: Bullish

NUPL is Primed for a Bull Run

Net Unrealized Profit/Loss (NUPL) is the difference between Relative Unrealized Profit and Relative Unrealized Loss. This metric can be calculated by subtracting realized capitalisation from the market capitalisation, and dividing the result by the market capitalisation. The metric answers the question - if all Bitcoins in circulation are sold today, what percentage of holders would be in profit?

The NUPL is currently in the 0.5 range, which means 50% of the market is in unrealized profit. Comparing this value to previous market cycles, it becomes evident that 0.5 could be a reliable pre-bull market reading. In the past, we have seen two occasions where NUPL was at similar levels and was followed by a peak in price within the following three to six months. If the price of Bitcoin continues to send STH/LTH into profits (as they have in the fall of 2020 and the summer of 2021), a strong bull cycle could be expected. It should be noted that once the NUPL goes above the 0.70 mark, the price of BTC has historically climbed to new all-time highs (ATH) very soon afterward.

Do STH profits signal future Growth?

The recent BTC market has been tricky–with few on-chain indicators providing definitive guidance as to the short and mid-term pricing outlook for the Bitcoin protocol. However, when there have been spikes in short-term holder profits greater than 10%, we can note three instances in the last two years where strong price growth followed.

Most recently, in October 2021, STH profits jumped by 15% as short-term investors held on to their BTC long enough to see the price climb to the most recent ATH of nearly $70,000. Prior to that time, the market had a similar structure in regards to STH profits at the beginning of August in 2021 and earlier that year. With the price of BTC moving upward in recent days, more and more short-term positions will move into profit positions. If investors show conviction and hold out for higher prices later in the cycle, the potential for strong growth becomes more probable, thus setting up a bullish mid-term outlook. However, if short-term holders decide to take profits, then this most recent rally could quickly become another “dead-cat bounce”, similar to earlier this month.

Short-term Outlook, Sentiment: Neutral with Caution

The last quarter of 2021 was marked by a notable decrease in Open Interest (OI) after the market deleveraged nearly $20bn in risky crypto-leveraged positions from mostly retail based exchanges like Binance and Bybit. March 2022 marks the greatest increase in OI since that time, with nearly $4bn being added to OI over the last 30 days.

As noted in the mid-term section, there has been a 10% increase in short-term holder profitability over the past week. This can trigger quick sell-offs as short-term investors move to recoup losses sustained over the most recent bear market. Conversely, if the most recent market rally is being fueled by investors with greater conviction, the Open Interest risk decreases as long as a healthy flow of spot demand continues to absorb any liquid supply that could trickle in from long-term holders.

How much of OI is Leveraged?

Examining the quality of the funding for any particular asset is an important fundamental for any investment. Futures Estimated Leverage Ratio (ELR) is a metric which can be used to explore how much leverage is being employed by users on average at a derivatives exchange. This information measures a trader’s sentiment and whether they are taking a high or low-risk position. ELR can be interpreted either by value or by trend.

  • An increasing trend means more investors are taking high leverage risk in the derivatives trade. If the value itself is high, then it could signal that the market is over-leveraged and investors should expect volatility.
  • A decreasing trend in values indicates more investors are taking off leverage risk in the derivatives trade. Low values signal low leverage in the market.

Current ELR levels are slightly high and have peaked in the 0.2 range, meaning that about 20% of the Open Interest is being funded with leverage. It should be noted that a high leverage ratio has not always corresponded with high risk and could also be interpreted as conviction forming in the market.

The short-term outlook for the Bitcoin Protocol is tentatively bullish. Unfortunately, this could quickly change as the markets have been quite sensitive to the unending flock of black swan events flying out of Eastern Europe and Asia these days. The world has been dealing with an unusual amount of uncertainty and negative news for most of 2022 and much of this has already been priced in by the market.

Loads of “Dry Powder” on Exchanges

Short-term spikes in STH profitability have preceded bullish cycles for the Bitcoin Network. Current STH/LTH profit dynamics show a similar market structure to past “pre-bull” markets. If STH decide to hold on to more of their BTC during this rally; short and mid-term price horizons could be pushed into new ATH ranges. With over $25bn in stablecoin sitting on exchanges waiting to be spent, a recovery could materialize quickly.


This week, the price of BTC jumped by over $10,000 from its January 2022 bottom, when it was just above $35,000. This marks the largest rally that the BTC market has had amid challenging geopolitical situations and macro-financial headwinds.

The long-term fundamentals of the BTC protocol remain strong with consistent demand evidenced by a two-year trend of BTC outflows from exchanges into self-custody wallets. In addition to the constant demand, it is becoming increasingly obvious that users who store their Bitcoin in self-custody or cold storage are smarter, more confident investors.

Nothing in this article constitutes professional and/or financial advice. The content is provided exclusively for informational and/or educational purposes. Nothing is to be construed as an offer or a recommendation to buy or sell any type of asset. Seek independent professional advice in regards to financial, tax, legal and other matters.

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