Indicators on the Blockchain Show the Bitcoin Market is Now High-Risk

Several on-chain indicators have been marked as very high risk by Glassnode, signaling a precarious zone for investors.

Glassnode, a crypto analytics platform, has pointed out that on-chain indicators evaluating Bitcoin’s value have entered a high-risk territory, possibly indicating the digital currency is at the early stages of a bull market. In a post on February 10, Glassnode shared that an indicator for identifying Bitcoin’s long-term value relative to its market value has exceeded the average risk zone and is firmly in the high-risk band. Glassnode emphasized in a previous report on February 8 that high-risk levels are typically observed in the initial stages of Bitcoin’s bull market, indicating that long-term investors have returned to a significant level of profitability.

The Market Value to Realized Value (MVRV) ratio, aiming to identify when Bitcoin is over or undervalued relative to its fair value, contrasts Bitcoin’s market value with its realized value—the price when Bitcoin is transferred among long-term holder wallets—eliminating short-term market sentiment and providing a metric to indicate if the market is overheated.

Glassnode assigned a high or very high risk rating to seven out of ten indicators, including MVRV, supply profitability status, and net unrealized profit and loss, suggesting that despite significant price increases in crypto assets, very low levels of realized profits are locked in by investors. Glassnode noted that demand for Bitcoin block space and short-term profit-taking by new investors are decisively in the low-risk categories, adding that sales after confirmations of Bitcoin Exchange-Traded Funds (ETFs) in the United States have reduced risk overall.

According to CoinGecko, Bitcoin’s price has steadily increased over the past week, rising from $42,317 on February 4 to $48,582 at the time of publication. Bitcoin’s strength last week has been attributed to the reduction in outflow from the Grayscale Bitcoin Trust (GBTC) – newly converted ETF by the asset manager, alongside $9.1 billion inflows into 9 Bitcoin ETFs since their inception on January 11, based on data from the crypto analytics platform SoSoValue. On February 9, new US cash-settled Bitcoin ETFs generated a net inflow of $541 million, marking the largest entry day for the products, excluding the first day of trading.

Meanwhile, Grayscale’s GBTC recorded its lowest outflow day on February 9, with only $51.8 million leaving the fund, a 91% decrease from the daily outflow record of $620 million on January 23.