Bitcoin (BTC) has had a rough year throughout 2022.
But recent on-chain and futures market data show positive signs that major cryptocurrencies by market capitalization are starting to recover.
After the short liquidation, the futures market shows a renewed equilibrium. According to data from Glassnode, the liquidation of short positions removes unhealthy market speculators, on-chain and exchange data now shows a better spot market and exchange net flow.
A large group of investors who previously lost are now back in a category that Glassnode analysts label as “unrealized gains.”
Massive short liquidations lay the groundwork for new investors to flourish
Futures usually have a balance between longs and shorts. When the market moves, investors tend to update their futures to avoid liquidation. Conversely, in mid-January investors were caught off guard resulting in an all-time high of 85% short liquidation.
The dominance of short liquidation has helped boost Bitcoin’s recent rally. By January 2023, more than $495 million in short-term was liquidated. Liquidated shorts make automatic Bitcoin purchases thus driving up the price of BTC. The year-to-date liquidation has three big waves that peaked at $165 million in one day of liquidation.
After a historic number of short liquidations, the futures market is trending toward longs. On January 30, 51.46% of the interest was open to long positions instead of shorts.
The liquidation of the shorts not only helped the Bitcoin price rally but also indicated the return of positive sentiment in the BTC market.
Glassnode researchers said:
“Every perpetual swap, and calendar futures, cash basis and carry are now back in positive territory, yielding 7.3% and 3.3% per year. This happened after much of November and December saw a retreat in all futures markets, and suggests a return of positive sentiment, and there may be speculation.
Centralized exchange flows reach equilibrium
The highest value of the CEX stock in March 2020. Since the all-time high was reached, Bitcoin has flowed out of the spot exchange. About 2.25 million BTC are currently held on the top 21 exchanges, which is the lowest it has been in years. 11.7% of the total Bitcoin supply was held on the last centralized exchange witnessed in February 2018.
Usually in the history of Bitcoin, exchange inflows and outflows have created an even balance. That balance was disrupted in November 2022 when the net outflow of Bitcoin from exchanges reached $200 million to $300 million per day. The huge outflow during the period was historic, with negative 200,000 Bitcoin leaving the exchange for the month.
When Bitcoin started gaining bullish momentum in January 2023, the inflows and flows of centralized exchanges were normalized. The net current is now closer to neutral indicating a reduction in high outflow.
Multiple Bitcoin investor cohorts return to the “unrealized profit” zone.
The movement of Bitcoin in and out of exchanges helps provide analysts with an estimate of the price of an investor’s BTC acquisition. During the bear market of 2022, only investors before 2017 have potential profits. Investors who came to Bitcoin after 2018 are all at an unreal loss.
According to Glassnode researchers,
“Through the 2022 downtrend, only investors from 2017 and before avoided net unrealized losses, with the 2018+ class seeing the cost base taken by the FTX red candle. However, the current rally has pushed the 2019 class ($21.8k) and before return to unrealized profits.
The fact that a growing number of investor cohorts have returned to profits is a good sign, especially after Bitcoin witnessed record losses in December 2022.
The two largest groups of investors, who bought BTC on Coinbase and Binance, had an average BTC acquisition price of $21,000. As Bitcoin continues to try to reach $24,000, any future correction caused by macro factors could reduce unrealized profits in this group.
Positive signs of Bitcoin price recovery can be seen in on-chain data, spot and futures exchanges. The futures market shows a renewed equilibrium after a very high short liquidation.
The market is currently showing better exchange netflows and spot market activity shows that investors are slowly retreating into the crypto market.
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