The beginning of 2023 has provided Bitcoin (BTC) with bullish indicators and the rally to a year-to-date high at $21,647 has crypto traders hopeful that the worst part of the bear market has ended. The surge effect of BTC’s bullish price action is also carrying over to Ether (ETH) and Bitcoin mining stocks.
The reduction in Bitcoin Fear and Greed index to neutral is possibly driven by volume increases, Bitcoin on-chain data and BTC price decoupling from equities markets. While not all analysts believe a market bottom is in, let’s dive into the data.
Trading volume and volatility return
Bitcoin’s price spike has been accompanied by massive growth in trading volume. Over the last week, BTC volume has more than doubled, reaching $10.8 billion, a 114% increase over 7-days.
Bitcoin trading volume. Source: Arcane Research
Increased trading typically correlates to an increase in volatility. While the current 2.4% 7-day volatility levels are still below the 2022 7-day average of 3.1%, Bitcoin has remained consistent during the 2023 rally.
BTC 30-day and 7-day volatility. Source: Arcane Research
Centralized exchanges (CEX) have been struggling with low trading volume, meaning lower fees for the business, inducing layoffs. The increase in volume for all exchanges is likely welcomed news.
Trading volume increases coincide with profits returning
Bitcoin on-chain realized profits are retesting the adjusted spent output profit ratio (aSOPR) value of 1.0, which some analysts believe to be a key resistance level. The aSOPR metric historically shows a change in the overall market trajectory as profits are absorbed by trading volumes.
BTC aSOPR 7-day exponential moving average. Source: Glassnode
According to Glassnode,
“An aSOPR break above, and ideally a successful retest of 1.0 has often signaled a meaningful regime shift, as profits are realized, and sufficient demand flows in to absorb them.”
Reversing a trend that started in May 2022, the on-chain realized profit and loss ratio for BTC is up over the 1.0 level, hitting 1.56 profits over losses on Jan. 16, 2023.