The Daily Dive #098 - HODL Waves And Realized HODL Ratio
Correction for The Daily Dive #097
In The Daily Dive #097, we covered the latest developments in the bitcoin derivatives market. In the article, we shared data on bitcoin-margined derivatives increasingly dramatically. While bitcoin-margined open interest has been increasing as of late, the large increase was due to the inclusion of a new contract offered on previously bitcoin-only BitMEX, which now supports USDT (tether) deposits and offers a perpetual swap contract that is collateralized with USDT (XBT/USDT).
On the first day of trading (November 11, 2021), the XBT/USDT perpetual swap contract had over $2 billion in open interest. This open interest was mislabeled by the Glassnode API as being a bitcoin-margined derivative, which was the cause for the large spike.
Realized Cap HODL Waves
HODL Waves is a visualization that displays the supply of bitcoin that last moved within a certain time period. Realized Cap HODL Waves takes the HODL Wave metric and weights the UTXOs in each age band by their realized price.
When looking at bitcoin that have been moved within the last six months weighted by their realized price over the history of the network, a clear trend emerges during market cycle tops and the ensuing bear market.
The “under six months Realized HODL Bands” metric is currently trending downward, which is yet another sign that the proverbial spring continues to compress.
Realized HODL Ratio
The Realized HODL (RHODL) ratio is “an indicator that aims to identify extremes in market psychology over time to accurately identify bitcoin price global cycle highs and lows.” The metric was created by Phillip Swift in 2020 building on the Market Value to Realized Value ratio, HODL Waves, and Realized HODL Waves metrics. You can read more about it here.
The RHODL ratio is a ratio between the one-week and the one-to-two-years Realized Cap HODL Age bands. The ratio is then multiplied by the total age of the market using the total number of days. The intent is to compare when shorter-term Realized HODL Waves are worth considerably more or less versus longer-term Realized HODL Waves. The result can indicate when the market is overheated or bottomed out. Historically, the ratio has been a valuable indicator for market timing tops within one week of all-time price high peaks.
Looking at the current state of the ratio, we’re still in the middle of a bull market far from reaching the cycle top. The ratio is only at 23% of its top threshold overheated zone, but it does move quickly in a parabolic fashion over two to three month periods when the euphoric market stage ramps up. The top of the threshold indicates the part of the market where younger coins are more dominant because the long-term holder selling of coins and new market entrant buying of coins becomes exhausted.
Zooming out, bitcoin seems to be in a longer, extended market cycle which has been a growing trend of lengthening bull cycles over the course of its history. This is a sign of increased adoption, more liquidity and lower volatility leading to an increased maturity of the market.
With many top indicators compared to previous cycles, the main concern is that bitcoin becomes less volatile over time resulting in a downward drift in some of the top thresholds of certain metrics. Simply said, tops become more difficult to time and certain metrics become less valuable.
RHODL ratio has held up fairly well over time with little drift in the top threshold. That said, it’s still subject to this dynamic playing out and just like any useful market indicator, it’s best used alongside other metrics.
Similarly, looking at the ratio between the 24 hour and the six month to one year Realized HODL Waves, bitcoin looks to be near bear market levels. For this metric, the lower the ratio value, the more realized value is held by longer-term market participants, and conversely, when the ratio is at elevated levels it shows that coins moved in the last 24 hours hold far more economic weight than those held from six months to one year.
This ratio is yet another metric which can be used to gauge how overheated the bitcoin market is at any point, and with one glance it is clear that the market is nowhere near a local top.
still a good time to buy more ₿! a nice bottom to start our climb!
Excellent 🙏🏽