Is the bear market back or a bull market brewing? Bitcoin and Ethereum finally rallied , after oversold conditions, and boosted by reassuring sentiment for risky markets following the FED meeting in late July. Markets for bitcoin and other digital assets reacted strongly to the Federal Reserve's 75 basis point rate hike last week. BTC closed up 5.7% and ETH up 7.6% on the week.
Broader markets reacted positively to the Fed's announcement, with Chairman Powell indicating that the current Fed Funds target rate of 2.25% to 2.5% was now considered neutral.
In many ways, these recent positive Bitcoin and Ethereum price actions provide much-needed relief , after nine months of a persistent downtrend. The question now is whether this is a passing rally or the start of a sustained uptrend.
Let's discover the clues brought by the on-chain analysis of Glassnode on the events of the last week.
On-chain analysis of Bitcoin activity
Generally speaking, sustained increases in on-chain transactions signal an influx of new demands into blockchain networks. Both on-chain activity and supply dynamics can be used as a guide to gauge performance against recent comparable periods.
Active Bitcoin addresses remain firmly in a well-defined downtrend zone. Additionally, the October-November ATH is significantly lower than April 2021, suggesting a market purge and demand has not kept up. With the exception of a few higher activity spikes during major capitulation events, current activity suggests there is little influx of new demand left at this time.
Due to low transaction demand, on-chain transaction fees are firmly in bear market territory . Bull markets typically maintain high fee rates. This is often one of the first signs of a recovery in demand. While a noticeable rise in fees has yet to be seen, it's a good idea to keep an eye on this metric that could be a signal for recovery.
A brief burst of activity on Ethereum
The Ethereum network has generally seen the same trends as Bitcoin over the past 12 months. As a result, there has been a gradual deterioration in overall network utilization and congestion.
Demand for Ethereum transactions has seen a gradual decline since the May 2021 liquidation, seeing only a brief spurt of activity in recent weeks. If this trend continues upwards, it can be constructive, and should be watched.
Ethereum generally has a higher number of transactions in the mempool (the buffer that temporarily stores user transactions) than Bitcoin. The block space is regularly seen filled to more than 99% of its capacity.
Therefore, observing gas charges paid is often a relevant method of tracking actual congestion . This metric ultimately represents the urgency of users waiting for transaction confirmation, measured by how much value they are willing to spend on fees.
Ethereum gas prices have recently fallen . In fact, this is the lowest network congestion and gas price since May 2020, before DeFi Summer, and before the start of the bull market. This signals that, despite recent positive price action, there has not been an influx of new usage and, overall, Ethereum is at a relatively low level of activity.
The SOPR indicator
The exit profit ratio (SOPR) is an on-chain indicator. It is calculated by dividing the realized value (in USD) by the value of creating a spent product (also in USD). More simply, it corresponds to the ratio of price sold to price paid . If the ratio is greater than 1, the owner of the asset sold makes a profit.
For bitcoin, SOPR is trying to break above 1.0 for the second time since early June. Usually, the market needs a number of attempts before it reaches trailing speed. An ideal bullish scenario would be a break above 1.0 followed by a retest , finding support.
Ethereum had better luck, breaking above a SOPR value of 1.0 , and finding its first retest as support. However, given the somewhat lackluster on-chain activity metrics, it is prudent to watch for a move back below 1.0, which could signal weakness. This would resemble previous bearish periods, with a brief excursion above 1.0 seen, before falling back into net loss territory.
What should be remembered?
Bitcoin and Ethereum both saw a rebound in price last week, driven by extremely oversold conditions and risk-taking sentiment following the Federal Open Market Committee (FOMC) meeting on 26-27 July.
However, below the surface, demand for on-chain transactions remains rather lackluster. This recovery has therefore not yet been followed by a convincing increase in demand . Bitcoin blocks are partially empty, and Ethereum gas prices are at multi-year lows.
Of course, activity on the blockchain is only part of the picture, and early signs of a return to profitability in exit profit ratios (SOPRs) are encouraging . The focus can now shift to maintaining and improving these uptrends, to determine if this is just bear market relief or more constructive structural change.
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