Bitcoin On-chain Analysis Series: Bitcoin Is Gaining Momentum With More Accumulation And Less Spending

The last two weeks were a stepping stone for Bitcoin as El Salvador now passed a new bill to accept Bitcoin as a legal tender, and the Taproot upgrade got activated onto the Bitcoin Network. Earlier this week, Bitcoin showed some interesting price action with a sharp rebound crossing the $40K range. 

Bitcoin is getting stronger as we are entering into an accumulation phase where the long-term investors are showing their strong hands. The illiquid supply change is increasing, while the volumes are getting back on track. 

Let's dig a little deeper into the on-chain analysis for Bitcoin and see what clues we can gather by understanding the market's behavior. 

The first on-chain metric that we will take a look at first is the Hodler Net Position Change, which indicates changes in long-term investors' (HODLers) monthly positions. If HODLers are cashing out, it's negative (red), and when they are accumulating the net new positions, it's positive (green). 

Here is a piece of good news: the Hodler Net Position Change has flipped green for the first time since October last year, which means that the long-term investors have started to accumulate their net new positions, and the sell-off period is almost over. 

Source: Glassode Studio

We need to couple this with another on-chain indicator called Total Supply Held by Long-Term Holders, which shows the total amount of bitcoins in circulation held by long-term investors. The chart shows a sudden increase in the accumulation numbers and indicates that long-term investors are getting more confident. 

During the past two weeks, long-term holders have been buying at a greater rate than short-term holders have been selling. In the last week alone, long-term investors have added around 137,434 bitcoins to their holdings, as well as a total of 389,968 BTC to their holdings in the past month. 

Source: Glassnode Studio

Another important on-chain metric that we will look at to assess accumulation is Illiquid Supply Change, which shows the monthly net change of supply held by illiquid entities. This metric was also dubbed as "Rick Astley Indicator" by a famous on-chain analyst Willy Woo in the late 2020 bull run. 

This indicator turned red at the end of May and early June this year, explicating a shift from strong accumulation to the distribution when the majority of the long-term investors were selling off their holdings during the prevalent bear market. 

However, the good news is that the illiquid supply indicator has flipped back to green just recently, which shows a strong signal towards more accumulation and less distribution from the long-term investors. This kind of accumulation from the long-term hodlers brings the supply down, and if demand remains the same or goes up, the price goes up.

Source: Glassnode Studio

Let's look at another on-chain indicator called Liveliness, which indicates the shifts in macro holding behavior and identifies long-term holder accumulation or spending trends. The liveliness ratio decreases when long-term investors sell off their coins, and when they start to accumulate more coins, it increases.

However, when the liveliness ratio trends sideways (balanced), it shows that accumulation equals spending. This balanced trend is almost always an indication of an upcoming strong accumulation coming from long-term investors. 

The current liveliness ratio shows a balanced downturn trend which further strengthens the argument that we are going into the accumulation phase and might expect an upward trend in the price action.

Source: Glassnode Studio

Another important on-chain trend called we can take a look at is the UTXO Realized Price Distribution (URPD). Think of UTXOs as locked-up bitcoins, as these are the unspent bitcoins associated with an address. Each bar in the URPD chart shows the volume of existing bitcoins moved within a particular price bucket. 

Looking at the on-chain volume at the current price, if BTC breaks the $41K price bracket, there is a good chance that the price might go from 41K to 47K very quickly since there is little to no volume within this range to put significant resistance to the price action. 

Source: Glassnode Studio

The last indicator that we will discuss is NVT (Network Value to Transaction), which is a ratio that shows a relationship between transfer volume and market capitalization of Bitcoin. NVT ratio was created by Willy Woo, one of the most prominent Bitcoin on-chain analysts.

The current NVT ratio was recently updated with an upward drift due to a large amount of BTC volume moving off the blockchain and only Layer-2 networks. According to this recent update in the NVT ratio, Bitcoin is oversold substantially due to lower on-chain volume and a trend towards more accumulation from long-term investors. 

Source: Willy Woo

Bitcoin is undoubtedly getting its upward momentum back because of the ongoing and upcoming developments in the sector. The accumulation trend is getting stronger, which shows an increasing level of confidence from long-term investors. 

How will the price action perform in the coming weeks? It is too early to predict, but the on-chain analysis shows a greater chance of an upward trend only if we have these consistent market sentiments. 

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