BTC halved, These On-Chain metrics reveal the hidden dynamic behind

Assets covered: BTC

Metrics used:

  • Price
  • Supply distribution
  • Network Realized Profit/Loss
  • Mean Dollar Invested Age

Chart layout:

The most recent BTC halving occurred on April 19th, sparking a flurry of predictions about the subsequent price movements of BTC. While the prevailing sentiment suggests an impending price increase, it's crucial to approach widespread opinions with a healthy dose of skepticism.

This isn't to suggest that BTC prices won't rise; rather, our aim is to examine historical and potential future events through a different lens. Instead of merely counting the days post-halving to the next price peak, based on the previous halvings (one of the most frequent kind of analyses) or calculating the potential percentage growth (probably, the most "pleasant" kind of analyses), we seek to raise more nuanced and complex questions: How have "toppish" formations appeared in the past? Do they share common characteristics? By addressing these queries, we hope to enhance our ability to identify future peaks (or maybe we have already made the one a month ago?), even if it means contravening the market majority.

Let's embark on a journey through the fascinating world of data research and patterns recognition. Our focus will be on what we at Santiment term "behavioral analysis" of the market. We'll examine some of the key metrics to understand how previous tops were formed, specifically:

- The composition of key market participant groups

- Their activity levels relative to the price trajectory

- Which groups are buying versus selling

- Overall network activity

Understanding these aspects is crucial because certain patterns, albeit with slight variations, consistently emerge around the formation of market tops. These patterns often involve the behaviors of both wealthy token holders and small hodlers, alongside key network parameters that exhibit remarkably similar trends.

It's important to note that no single metric can provide a complete picture. Instead, we rely on a combination of metrics that, while similar, offer different perspectives on the same phenomena.

For our analysis, we've selected the following three key metrics based on on-chain data:

1. Supply Distribution

2. Network Realized Profit/Loss

3. Mean Dollar Invested Age

These metrics are particularly effective for BTC and reveal broader cycles of market growth and stagnation and their explanations will be given as the article progresses. While we also possess social data and additional on-chain metrics, focusing the article ensures clarity and depth. For those interested in a broader range of data, we've included additional metrics in our chart layout:

Now, let's turn back the clock to 2013, shortly after the November 2012 halving.

Understanding Supply Distribution

Here's what the supply distribution looked like at that time:

2012. Supply distribution. Green is the BTC price, Blue, Yellow and Red are the balances of the different group of hodlers.

Analysis of the chart reveals distinct patterns among different holder groups:

- Wealthy addresses (whales, holding between 1,000 and 10,000 BTC, blue line): These begin selling relatively early in the price rally.

- Small hodlers (holding between 0.01 and 10 BTC, red line): Their holdings remain stable initially and only increase later in the rally. They continue purchasing even after the peak is reached.

- Mid-sized holders (holding between 100 and 1,000 BTC, yellow line): This group is notably active and efficient, buying early, selling early, then reacquiring or increasing holdings before redistributing close to the peak.

These behaviors can be attributed to various factors. Large holders may not need to maximize profits as aggressively, given their substantial holdings. In contrast, smaller hodlers, influenced by rapidly increasing prices, may see an opportunity to significantly improve their financial status, often driven by expectations of even higher future prices. Mid-sized holders typically exhibit more professional and calculated investment behaviors.

By identifying and understanding the behaviors of these three distinct groups—large, small, and mid-sized—we can gain clearer insights into the current market cycle stage. It's also important to note that as the value of BTC evolves with each cycle, adjustments to these group definitions may be necessary, reflecting changes in their USD equivalent value from one cycle to the next.

Continuing our analysis of Bitcoin's historical price movements, we now turn our attention to the "Mean Dollar Invested Age" (MDIA). This metric offers a nuanced view of the financial commitment over time by weighting the average age of all coins or tokens on a blockchain by their purchase price.

Understanding Mean Dollar Invested Age

When the MDIA increases, it suggests that the average age of all the money invested in a particular cryptocurrency is also increasing. This typically indicates that holders are not moving their coins, signifying an accumulation phase. Conversely, a decrease in MDIA points to the movement of previously idle coins, often signaling that holders are beginning to sell.

Analyzing MDIA in Market Cycles

The pivotal moments to watch in the MDIA metric occur when it starts to decline, marking the onset of significant market movements. Below is the chart that illustrates these dynamics:

2013. Mean Dollar Invested Age (red line). Plus MVRV (blue area), we might explain it in the bonus section.

As observed, the decline in MDIA often coincides with the most intense phases of a bull market. It's crucial to note that this is a correlation rather than causation. The decline typically occurs as wealthy and early holders begin redistributing their holdings to newer market participants—a phenomenon previously discussed in our analysis of the supply distribution.

Redistribution and Accumulation Phases

This redistribution, represented by the red line in the chart, is a critical phase in the market cycle. Following the redistribution, the market often enters another accumulation phase, as indicated by a subsequent rise in the MDIA. Key observations from the 2017 and 2021 bull markets include:

- The redistribution phase typically lasts between 8 to 12 months.

- Post-redistribution, there remains a limited window to realize profits before the market fully transitions into the next accumulation phase.

Strategic Implications

For investors and market analysts, monitoring the MDIA provides valuable insights into the timing of market phases. Understanding when the redistribution phase is nearing its end can help in making informed decisions about when to hold or sell assets.

As we continue to explore other metrics and their implications on market behavior, it becomes increasingly clear that a multifaceted approach, combining various on-chain data points, is essential for a comprehensive understanding of crypto market dynamics. This holistic view allows investors to better navigate the complexities of market cycles and optimize their investment strategies accordingly.

The final metric in our selected trio is the "Network Realized Profit/Loss" (NRPL), a favorite yet complex tool that requires a nuanced understanding for optimal use. Unlike simpler metrics, NRPL demands a deeper comprehension not just of what it measures, but how it can be strategically applied.

Introduction to Network Realized Profit/Loss (NRPL)

NRPL calculates the average profit or loss for all coins that change addresses on a daily basis. It operates under the assumption that the last movement price of each coin represents its acquisition price. When a coin changes addresses again, NRPL considers it sold, thereby calculating the profit or loss based on this movement.

Analyzing the NRPL Chart

2013. NRPL (blue spikes)

The NRPL chart provides insights into the market's behavior, particularly in terms of selling pressure and the willingness of holders to move (and presumably sell) their BTC. This metric is particularly valuable for identifying the market sentiment towards BTC's future.

Through our analysis of supply distribution and Mean Dollar Invested Age, we've observed that redistribution is a natural and ongoing process, with profits being realized by those who move their BTC. The critical aspect of NRPL is identifying patterns of selling desire:

- High Selling Pressure: Indicates a market phase where holders are keen to realize profits, suggesting (contrarian to what one would initially think) a rather healthy (rational) behaviour and a continuation of a bull market.

- Low Selling Pressure ("Irrational Divergence"): Occurs when despite rising prices, the volume of realized profits begins to decline. This suggests a growing market consensus about the bright future of BTC, leading to a reluctance among holders to sell.

This "irrational divergence" is a crucial phase for investors to monitor. It often precedes significant market tops and can signal when speculative fervor outweighs rational investment behavior.

Integrating NRPL with Other Metrics

Understanding whether we are approaching a preliminary or final market top involves correlating NRPL data with the other metrics discussed:

- Supply Distribution: Helps confirm whether redistribution is occurring and if typical behaviors of different holder groups align with current market conditions.

- Mean Dollar Invested Age: Provides context on whether the market is in an accumulation or redistribution phase.

Practical Application and Historical Analysis of 2017 and 2021 bull markets

To deepen our understanding, we'll revisit first the 2017 (and then 2021) bull markets, focusing on the interplay between our three key metrics: Network Realized Profit/Loss (NRPL), Supply Distribution, and Mean Dollar Invested Age (MDIA).

Network Realized Profit/Loss (NRPL) Analysis

Overview of the 2017 NRPL Trends:

2017, NRPL (blue spikes), bigger picture

And then let's look closer at the situation around the final top:

2017, NRPL (blue spikes), around the final top

In the year 2017 (we will also see it in 2021, albeit with some twist), we observe a pattern similar to what was noted in 2013. As the BTC price ascends, the realization of profits also increases until reaching a pivotal point where profit realization starts to diverge. Despite the continuing price increase, the eagerness to take profits diminishes. This phase marks a shift in market sentiment to extreme bullishness, where the prevailing strategy shifts towards holding or even accumulating more.

Supply Distribution Insights. Examining Holder Behavior

2017, supply distribution between whales (blue line), small hodlers (red line) and mid size, sharks (yellow line)

The analysis reveals that predominantly small holders (red line) are in accumulation mode, while large holders (yellow and blue lines) have been redistributing for some time. Mid-sized holders (sharks) display a dynamic pattern, oscillating between selling and accumulating phases. Interestingly, the largest whales typically begin accumulating again once the market starts to decline post-peak, as seen in the 2018-2019 period. This cyclical behavior underscores the strategic movements of different investor classes through market cycles.

Mean Dollar Invested Age (MDIA) Trends. Duration of the "redistribution" Market Phase

2017, Mean Dollar Invested Age (red line) + bonus, MVRV (average profit for the hodlers)

In 2017, the redistribution and accumulation cycle was just over a year. This prolonged period is crucial for understanding the duration of market phases and preparing for potential shifts in market dynamics.

Now the same, but for the 2021 bull market

The end of the 2021 bull market exemplifies the intricate dance between complexity and simplicity, particularly highlighted by the occurrence of a double top. This phenomenon, while seemingly straightforward, unraveled layers of complexity when dissected through on-chain data metrics.

Network Realized Profit/Loss (NRPL) Analysis

2021, NRPL (blue spikes), with explanations on the chart and in the text below

The NRPL chart for 2021 starts with a typical increase in profit realization, which persisted until the end of January. This was followed by the emergence of a typical divergence pattern that usually precedes a market top. However, between April 6th and 18th, an unusual spike in activity disrupted this pattern. By the final peak in November, the divergence was less pronounced, making it challenging to pinpoint the market top using NRPL alone. This scenario aptly illustrates the proverb about the blind man and the elephant, where a partial view can lead to incomplete conclusions.

Mean Dollar Invested Age (MDIA) Insights

2021, Mean Dollar Invested Age (red line), BTC price is green filled area

That was the killer metric for the 2021, as the chart reveals.. The redistribution phase largely concluded by April. Following a price drop and subsequent recovery starting in July, the MDIA indicates a shift back to accumulation across all holder groups, which is typical for the early stage of a bear market. This collective move to buy BTC, especially once the fear from the May to July decline subsided, propelled the price toward the second peak in November. However, when market consensus leans overwhelmingly positive (seen through the obvious desire for the majority of the participants to "accumulate"), caution is warranted—as overly bullish sentiment precipitates a market downturn.

Supply Distribution Dynamics

2021, Supply distribution. Whales (blue), sharks (yellow) and small hodlers (red and brown)

The supply distribution chart offers further insights into holder behavior during the two peaks of 2021. In the lead-up to both the April and November tops, large holders (blue line) were selling, while smaller holders (red and orange lines) were particularly active in buying at the peaks. So far, so good - quite a typical picture. Post-June, however, all typical groups reduced their selling activities and shifted towards accumulation. This shift in crowd sentiment, marked by an unanimous bullish outlook, set the stage for the subsequent bear market.

Now, after we analysed the events of the past - what can we see in the future or maybe even in the present?

The present and the future

We have a mix of news to share on this topic (as is often the case). Let's dive into the details.

Let's start with the Network Realized Profit/Loss (NRPL), which reveals patterns similar to those observed during the peak periods of 2013, 2017, and 2021. Specifically, there appears to be a reluctance to realize profits. This trend is evident in our latest charts, which you can view below or access anytime via the link at the top of our research layout. Notably, neither during the recent attempt to breach the $72k mark nor during the support test at $61k did we observe significant demand to cash in profits. While some might see it as a strong signal (aka strong hands), we know from the past that these "strong hands" could become shaky ones (and mark the bottom once panic sets in).

2024. April. NRPL (blue spikes), total amount of hodlers (red line)

On a more positive note, the market has been undergoing an active redistribution process for about 4-5 months, according to the Mean Dollar Invested Age metric. This suggests that the market may be gearing up to resume the bull trend, potentially leading to further redistribution over the typical 12-month cycle observed in past years.

2024. April. Mean Dollar Invested Age (red line)

Who's been buying lately, which can be seen through the supply distribution metric? Here, the news is a mixed bag. Predominantly, it's the smaller hodlers who have been accumulating. This is important to understand in the context of when do they usually do it. What's about the whales? Check the instruction below on how "unlock" this setting and see it for yourself (teaser - it's a positive sign).

Instruction on how to unhide the whales behaviour on the chart

And then this picture (below) will appear:

2024. Supply distribution. Whales (dark and light blue), sharks (yellow) and small hodlers (red line)

As you can see, the only actively buying group is the small holders. The whales are rather stable and the sharks keep declining their BTC balances (maybe in favour of memecoins?)

That's the setup where one would be warned to be cautious at least.

So, what does the future hold for BTC? The answer varies widely depending on your overall investment strategy, portfolio size, and risk tolerance. Rather than focusing solely on predictions, we encourage you to ask the right questions. The data, combined with your observations and analysis, will guide you to the answers best suited to your situation.


As a token of our appreciation for those who have taken the time to read through this analysis (or should we call it a research piece?), we are offering a special discount code. This code will grant you a one-time 50% discount on a Sanbase subscription, whether you choose the monthly or annual option. The code, BTCHALVING (all caps), will be active until the 24th of May this year, giving you the next 30 days to take advantage of this offer.

If you're reading this after the specified date and are interested in a deal, don't worry—we have another special offer that provides a 25% discount. Just reach out to us via Discord, Telegram, Twitter, or your preferred method of contact.

Here is once again the link to the full chart layout:

Thanks for reading!

If you enjoyed this insight please leave a like, join discussion in the comments and share it with your friends!


Conversations (0)

No comments yet
Be the first to comment