Bitcoin On-Chain Data Shows Weak Baseline For 2023: Report

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Even though Bitcoin (BTC) and the broader crypto market are experiencing a revival in the first days of the new year, on-chain data shows that the market remains in a deep sleep. As Glassnode explains in its latest reportBTC price has shown historically low volatility in recent weeks.

And according to the on-chain data for Bitcoin, there is currently little reason to believe that market boredom will change anytime soon. However, if a move does happen, it’s likely to be an explosive market move, just like in previous volatility cycles extremely low.

To support this statement, Glassnode cites Bitcoin’s realized volatility over the past month, which is at a multi-year low of 24.6%. As the chart below shows, there have been a few times in Bitcoin’s history when it was this low. In most cases, BTC saw a rally after the market woke up; only in one case, in November 2018, did the price drop dramatically (-50%) lower.

Bitcoin 1 month realized volatility
Bitcoin 1 Month Realized Volatility, Source: Glasnode

The usage of the Bitcoin network is low

Also, the weak baseline for Bitcoin is identified by Glassnode in continued limited network usage. While on-chain activity increased after the FTX collapse, the uptick later leveled off. The monthly average of new Bitcoin addresses is approaching the annual average again.

The total transaction value of the network is in free fall. While the daily transfer volume in the third quarter of 2022 was still around $40 billion, it is currently only $5.8 billion/day. The value is therefore back at the level of before the bull year 2020.

According to Glassnode, this indicates a movement of institutional capital. This is reflected in the share of transfers over $10 million falling from 42.8% before the collapse of FTX to just 19.0%. glassnode says:

This signals a significant pause in institutional-sized capital flows, and perhaps a serious wavering of confidence among this cohort. It may also, in part and unfortunately, reflect a dislodgement of the questionable capital flows associated with the FTX/Alameda entities.

An indicator of an outbreak of boredom could be the inflow and outflow on exchanges. But again, Glassnode notes that the on-chain data doesn’t yet signal momentum for an explosive move. Bitcoin inflows are currently in the range of $350 million to $400 million per day, a far cry from the billions in 2021-22, according to Glassnode.

Key indicator remains bearish

According to the research firm, the Realized Cap is one of the most important metrics in on-chain analysis. Unfortunately, the benchmark currently gives BTC investors just as little hope for a change in the short term. The Bitcoin Realized Cap is down 18.8% from its all-time high, representing a net capital outflow of -$88.4 billion from the network.

“This represents the second largest relative decline in history, and the largest in terms of realized losses in USD,” Glassnode notes, pointing to the following chart. Only in 2011/2012 was the 24% bear market decline worse.

Bitcoin Realized Cap
Bitcoin realized limit, source: Glasnode

Concluding the report, Glassnode says:

[I]It is rare for such conditions to persist for a long time. Previous occasions where BTC and ETH volatility was this low preceded extremely volatile market environments, with past examples trading both higher and lower.

At the time of writing, BTC was slowly rising on the 1-day chart. The price was $17,268.

Bitcoin USD
Bitcoin Grinds Higher, 1-Day Chart | Source: BTCUSD on TradingView.com

Featured image of Jievani Weerasinghe / Unsplash, chart from TradingView.com

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