On-chain indicators suggest Bitcoin market is now ‘high risk’

On-chain indicators assessing Bitcoin’s (BTC) value have entered a “high-risk” zone and could mean the cryptocurrency is in the initial stages of a bull market, says the crypto analysis platform Glassnode.

In a Feb. 10 X post, Glassnode shared that an indicator to identify Bitcoin’s long-term valuation compared relative to its market value had pushed above the “mid-risk” zone and is firmly in the “high-risk” band.

The high-risk level is typically witnessed during the early stages of a Bitcoin bull market as it shows long-term investors have returned to a “meaningful level” of profitability, Glassnode noted in an earlier Feb. 8 report.

After the challenging recovery since the FTX collapse, this indicator has advanced to 2.06, entering the High Risk🟧regime.

These levels are typically seen during the early stages of bull markets, as long-term investors return to a relatively meaningful level of profitability. pic.twitter.com/XMSjJjUc1z

— glassnode (@glassnode) February 9, 2024

The long-term holder market value to realized value (MVRV) indicator aims to identify when Bitcoin is over or undervalued compared relative to its “fair value.”

It contrasts the “market value” of Bitcoin with its “realized value” — the price when Bitcoin was transferred between long-term holder wallets — it “strips out” short-term market sentiment and provides a metric that shows if the market is overheated.

Glassnode assigned a “high” or “very high” risk rating to seven indicators out of a total of ten, including MVRV, Supply Profitability State, and net unrealized profit-loss, suggesting that there were very low levels of realized profit locked in by investors despite significant increases in crypto asset prices.

*Seven of ten indicators were assigned a “high” or “very high” rating. Source: Glassnode*

Glassnode noted that demand for Bitcoin blockspace and short-term profit-taking by new investors were firmly in the “low risk” categories, adding that the sell-off after spot Bitcoin exchange-traded fund (ETF) approvals in the United States had reduced risk throughout the broader market.

The price of Bitcoin has steadily increased over the past week, climbing from $42,317 on Feb. 4 to $48,582 at the time of publication, per CoinGecko.

*The price of Bitcoin has gained 14% in the last week. Source: CoinGecko*

Bitcoin’s strength over the last week has been attributed to dwindling outflows from the Grayscale Bitcoin Trust (GBTC) — the asset manager’s newly converted ETF — combined with $9.1 billion worth of inflows into nine of the spot Bitcoin ETFs since they went live on Jan. 11.

The new United States Spot Bitcoin ETFs generated a net inflow of $541 million on Feb. 9, marking the largest day of inflows for the products, excluding the first day of trading, according to data from crypto analytics platform SoSoValue.

Meanwhile, Grayscale’s GBTC notched its lowest day of outflows, with just $51.8 million exiting the fund on Feb. 9, marking a 91% decrease from its record daily outflow of $620 million on Jan. 23.