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Bitcoin Volatility: A Declining Trend Amid Shrinking Liquidity
Bitcoin's reputation as a highly volatile asset seems to be waning as it experiences a notable period of stability. Its price has been confined within a modest range of 3.4% weekly oscillation. This dampened volatility is largely due to the unwavering faith of long-term Bitcoin holders and a sluggish influx of new liquidity into the market. Interestingly, Bitcoin's performance has remained stronger than many other assets in 2023, despite these circumstances.
Key On-chain Indicators Provide Insights
A recent report from Glassnode reveals some intriguing on-chain data that may help to interpret this subdued Bitcoin behavior. One such revelation is that liquidity in the Bitcoin market, in terms of realized terms, is at a cyclical low. This could be a consequence of many investors just about breaking even at the current Bitcoin price point.
Unrealized Profits Rise While Volume Declines
Historically, Bitcoin's price appears to be reflecting severely oversold conditions, with a mere 9% of unrealized profit still active in the market. Even with an increase in transactions driven by text-based ordinals, Bitcoin volume has been muted. With Bitcoin on-chain transfer volumes languishing below $4 billion—far from the record high of over $13 billion—this paucity of liquidity amplifies the Bitcoin investors' strategy of accumulation despite unrealized gains. As a result, there's little motivation for Bitcoin holders to sell, given the negligible unrealized profits and limited liquidity.
Seasoned Bitcoin Holders Grow Their Wealth
The steep drop in Bitcoin's price from $56,000 to $29,000 in May 2021 triggered a flurry of Bitcoin accumulation among traders. Despite their investments being currently underperforming from a profitability perspective, these seasoned Bitcoin holders are steadily growing their wealth relative to other groups. Those who bought in during the May 2021 cycle have demonstrated resilience through multiple Bitcoin cycles and are expanding their wealth ratio as weaker hands make their exit.
Bitcoin Outperforms Banks Amid Economic Uncertainty
The looming threat of a potential U.S. debt default has provoked widespread anxiety about its potential impact on Bitcoin's price. However, despite Bitcoin price traditionally echoing the broader macro markets, it has proven more resilient than equities following the run on U.S. regional banks.
