What can be seen from the data on the chain?

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There is a wealth of data on the chain, and behind the data are actually people’s operational behavior patterns.

Original title: “Market Changes and Bitcoin Holders’ Decisions”
Written by: Blue Fox Notes

Sensibility is the more dominant force

In the field of encryption, public chain data is transparent, which brings unprecedented transparency and accuracy to market analysis. However, people are often more willing to believe in the so-called news. The noise of various markets is full of noise. In this case, people are easy to waver and eventually find that various operations are as fierce as a tiger. What is the final result?

It is not surprising that most of people’s decision-making comes from perceptual rather than rationality. Hume once said, “I would rather destroy the world than scratch my fingers. This does not conflict with rationality.” Purely rational judgment does not exist. Sensibility and experience are often the most important factors that determine people’s behavior. From the perspective of the market, this is a fact in itself and a phenomenon worthy of respect.

But in real analysis, we need to remove all kinds of prejudices as much as possible, shield all kinds of noise as much as possible, and observe the real signals of the market from the level of people’s behavior as much as possible, instead of drifting with the flow. This is very helpful for decision making.

Data in the encryption field is a real treasure

After more than ten years of development history, the data on the Bitcoin chain has become more and more abundant. The flower of DeFi is blooming on the soil of Ethereum, and its data growth is even more rapid. These data are the real treasure. There is a lot of value data hidden here to be discovered.

Below we refer to the chart data of Grassnode to briefly explain some indicators. One is about SOPR, and the other is the overall trend of long-term holders’ position changes under different market conditions.

SOPR and changes in the holder’s position

SOPR is used to observe the overall profitability of btc holders. SOPR (Spent Output Profit Ratio) refers to the profit rate of BTC spending.

Bitcoin uses the UTXO model (unspent expenditure) instead of the account model. People can find out when a specific address receives UTXO, so they can find the initial purchase price of each unspent expenditure (UTXO). Because of this design of Bitcoin, people can use it to discover how much profit or loss the participants in the market have achieved.

The most common SOPR calculation method is to input all the current prices/all the initial prices of a given block. The initial price refers to the initial price of each UTXO. If it is greater than 1, it is profitable on average, if it is less than 1, it is at a loss on average, and if it is equal to 1, it is in a breakeven state. The more the value is greater than 1, the higher the profit, on the contrary, the more the value less than 1, the greater the loss. The formula is as follows:

SOPR calculation formula, Glassnode

In order to improve the reference quality of SOPR data, some data statistics service providers will also filter out some of their relay transactions with a life cycle of less than one hour, thus forming a variant of SOPR (adjusted SOPR).

The picture below is from Glassnode. In addition to SOPR and aSOPR, it also uses crowd extraction to compare the SOPR of short-term holders. That is, BTC holders who hold less than 155 days. This is the picture below. Said STH-SOPR.

What can be seen from the data on the chain? Comparison of aSOPR and STH-SOPR, Glassnode

From the above figure, we can see the trend of aSOPR and short-term holder SOPR (STH-SOPR) curve as the price of BTC changes over the past year.

As can be seen:

  • From the perspective of the SOPR of the two, the overall average profitability of the market has performed well this year. Only in the short period of mid-to-late September 2020 and after May 19, 2021, there was a loss. The overall remaining time All in a profitable state.

  • Compared with the average aSOPR, the performance of STH-SOPR is worse, and it continues to do so within a year. Only in terms of average relative terms, the strategy of short-term holders is not a good strategy.

At present, in addition to the above-mentioned distinctions, some analysts also subdivide them according to the population. For example, SOPR for long-term holders, SOPR for Big Whales, etc., as long as you can think of, you can subdivide, and even subdivide SOPR for Eastern users, SOPR for Western users, etc. according to the active time zone.

In addition, this indicator can be combined with the changes in the position of the corresponding population to see the overall decision-making behavior of this part of the holders, so as to formulate better coping strategies.

Market changes and long-term holder position trends

Changes in the positions of long-term BTC holders can be seen in their market operations. According to Glassnode’s definition, its long-term holder refers to an address that has not been moved for at least 155 days. We can look at the picture released by glassnode:

What can be seen from the data on the chain? The performance of long-term BTC holders in different market stages, Glassnode

As can be seen from the figure above:

  • When prices are in a more pronounced acceleration, the positions of long-term holders tend to decline as a whole. This is between May 2017 and January 2018, between May and September 2020, and until the beginning of 2021. A similar phenomenon occurred in May 2021.

This shows that once the market rises by a large margin, some of the holders for a longer period of time begin to sell. One point to consider here is that the long-term holders defined by Glassnode are addresses that have not moved for 155 days. From this perspective, some of them as a whole cannot be fully regarded as long-term holders. It can be considered to increase the holding time of long-term holders from 155 days to 365 days or even more than 730 days, and the results may be different.

Even so, we can also see the operating habit of some long-term holders, which is to gradually sell when the market rises, and gradually buy when the market falls.

  • Since May 19th, as the price of BTC has fallen, long-term holders have seen their positions growing as a whole. That is to say, in their view, the current price is at a low level, which is to accumulate more generations. The stage of the currency. This accumulation behavior is the main theme before 2018 to May 2020.

  • Although the current accumulation looks similar to the accumulation in 2018, it should be noted that the price in the accumulation stage is often higher than the price in the sale stage, and not all sales will eventually lead to better results. Need to have a very high timing grasp of the selling and buying periods. It looks simple in hindsight, but it is not easy to operate.

  • At the bottom of the market in 2018 and 2019, the overall position of long-term holders has declined, which shows that even among long-term holders, not everyone is firm enough. In the most turbulent stage of the market, not only short-term operators may be washed out, but also long-term holders who are not firm enough.

  • From the history of more than ten years, although the price of BTC fluctuates greatly, operators including long-term holders will form a certain equilibrium effect on the market. Decrease holdings when rising and increase holdings when falling. Unless the black swan event, this will form a certain degree of restraint on the rise or fall.

  • On the whole, the price during the sale period is not necessarily much higher than the price during the accumulation period. This means that even if it is sold when it rises and buys when it falls, the real profit is not the majority. Many people may be There are losses in such operations. From a historical point of view alone, the longer the holding time, the greater the probability of profit and the higher the rate of return. This means that, relatively speaking, unless you are a master trader, holding may be a better strategy for ordinary users.

What can be seen from the data on the chain? The changing trend of long-term BTC holders’ positions, Glassnode

From the above picture, we can see the change in the total amount of BTC held by long-term holders from September 2016 to May 2021, and we can also see some things:

  • At the end of 2017 and the beginning of 2018, the historical high of the previous cycle, long-term holders of BTC held a record low of 8.6 million, accounting for 51% of the total circulating supply; since then, it has entered the accumulation phase, and BTC has been held for a long time. The person as a whole continues to be in the accumulation stage.

  • In the slump on May 19, 2021, the total number of long-term holders held was 10.9 million, accounting for 58% of the total circulating supply, which was the lowest point in the past two years. Even so, it was higher than the previous level. The number at the low point of the cycle, and now long-term holders enter the accumulation phase again.

  • Although each decline is large, the high price will also greatly increase the price in the accumulation stage. From a historical point of view, even if it falls, the bottom price of each cycle has also been greatly improved.

  • From the behavior of long-term holders, long-term holders have enough confidence in the future of BTC. One is that some long-term holders almost never move and focus on accumulation; the second is that although some long-term holders gradually sell for profit when the market is high, they gradually buy when the market is low. The purpose is It is to accumulate more, not to leave the market directly.

There are a lot of rich data on the blockchain, which hides a lot of people’s operational behavior patterns, but it has not been fully explored. The data can give us more signals instead of noise.

Finally, it should be noted that any data itself only reflects a certain reality in a specific situation, and cannot reflect the whole picture. Even if it is assumed to reflect the whole picture, there will be the possibility of sudden changes in the short term. Therefore, at any time, it is impossible to carve a boat and seek a sword. In the case of insufficient information, all signals are just references, but probabilities and cannot be regarded as inevitable.

Disclaimer: As a blockchain information platform, the articles published on this site only represent the author’s personal views, and have nothing to do with the position of ChainNews. The information, opinions, etc. in the article are for reference only, and are not intended as or regarded as actual investment advice.

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