The start of 2023 has provided Bitcoin (BTC) with bullish indicators, and the rally to a yearly high of $21,647 is giving crypto traders hope that the worst part of the bear market is over. The bullish effect of BTC’s bullish price action carries over to Ether (ETH) and Bitcoin mining stocks as well.
The reduction in the Bitcoin Fear and Greed Index to neutral may be due to volume gains, Bitcoin on-chain data and BTC price decoupling from stock markets. While not all analysts believe the market has bottomed, let’s dive into the data.
Trading volume and volatility return
Bitcoin price surge has been accompanied by massive growth in trading volume. Over the past week, BTC volume has more than doubled to reach $10.8 billion, up 114% in seven days.
Bitcoin trading volume. Source: Arcane Research
Increased trading typically correlates with an increase in volatility. While the current 7-day volatility of 2.4% is still below the 7-day moving average of 3.1% for 2022, Bitcoin has remained steady throughout the 2023 rally.
BTC 30-day and 7-day volatility. Source: Arcane Research
Centralized exchanges (CEX) are struggling with low trading volume, which means lower fees for the business and leads to layoffs. The increase in volume for all exchanges is probably welcome news.
The increase in trading volume coincides with the return of profits
Bitcoin on-chain realized gains retest the Adjusted Consumed Earnings Profit Ratio (aSOPR) value of 1.0, which some analysts believe is a key resistance level. The aSOPR metric historically shows a change in overall market performance as profits are absorbed by trading volumes.
BTC aSOPR 7-day exponential moving average. Source: Glassnode
According to Glassnode,
“An aSOPR break to the upside, and ideally a successful retest of 1.0, has often signaled significant regime change as gains are realized and sufficient demand flows in to absorb them.”
Reversing a trend that started in May, the on-chain realized P&L ratio for BTC is above the 1.0 level, hitting 1.56 gains over losses on Jan. 16.
When more traders are in the green on BTC purchases and making profits without the price crashing, it signals market strength.
Realized win and loss ratio for BTC. Source: Glassnode
On-chain analysis is also showing positive signs that Bitcoin’s recovery may be on the way. The more the market can absorb the selling pressure without price capitulation, this speaks for the overall reduced market fear and possible macro shifts.
Related: Bitcoin on-chain and technical data suggest that the BTC price bottom is in
Bitcoins mitigate the correlation to stocks
Volatility, realized gains, and trading volume are helping Bitcoin decouple from stocks. As Cointelegraph reported, Bitcoin price action has typically been closely correlated with US stocks.
Bitcoin’s 30-day correlation to Nasdaq hit 0.29 on Jan. 17, the highest BTC divergence by stocks since December 2021.
Vetle Lunde, Senior Analyst at Arcane Research, explains what decoupling means for the Bitcoin market.
“The softening of correlations is a positive development in the market.”
Bitcoin’s past correlation may have been caused by institutional investors pooling BTC with other risk assets and large growth companies like Tesla holding exposure.
Now that institutional investors and growth companies are holding less bitcoin, the correlation with the markets could diminish going forward.
Stock markets may continue to flutter on the resilience of high inflation, but Bitcoin’s divergence from the stock market could help BTC become an investment hedge. Institutional investors could return to the market if bitcoin can become a hedge for stocks, according to some analysts.
The views, thoughts, and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.