In today’s chain analysis, BeInCrypto takes a look at a rarely used indicator that signals the end of a bear market. Profit transfer volume – as this indicator is referred to – ended a nearly 2-year downward trend in recent days. For Bitcoin, this could be one of the first signals of the start of a new bull market.
Transfer Volume in Profit is calculated based on the number of transferred coins whose price during the previous transfer is lower than the price during the current transfer. It should be noted that spent products with a lifespan of less than one hour are thrown away. This is done to reduce noise from ongoing trading of the asset.
In the long-term chart, we observe that the volume of profit transfer experiences very high volatility. It is even observed for the 7-day (168-hour) and 10-day (240-hour) moving averages (MA). The variability of this indicator varies between 25-80%.
Of course, during short-term uptrends in the price of BTC, the upper ranges of the transfer volume percentage are observed in profit. Lower ranges are observed during short-term downtrends. At the same time, the long-term bullish and bearish trends of this indicator correspond to bull and bear markets for Bitcoin. Nevertheless, they still operate in a wide range of tens of percent.
Transfer volume in profit jumps from the bottom
Well-known chain analyst in the last few days @SwellCycle tweeted a series of charts on the transfer volume in the profit indicator. Its purpose was to try to capture the moment of reversal of a long-term downtrend in both Bitcoin and our indicator.
However, it should be noted that the trend of decrease in profit transfer volume has been continuing since the beginning of 2021, that is, for almost 2 years. Thus, in November 2021, bitcoin’s all-time high (ATH) of $69,000 was already reached during a clear downtrend in the on-chain indicator. The largest percentage of profit-shifting volume occurred in early 2021, when BTC headed for its first peak at $64,900 in April.
In the first chart from January 5th, we see the percentage of transfer volume in profit, where the turning points of the previous two bear markets are marked (arrows and pink circles). The first happened in 2015. At the beginning of the year, the indicator recorded a macro bottom, and in the second half, a higher bottom. At the same time, the chart formed two higher peaks, which confirmed the reversal of the trend to the upside.
The same scenario played out in late 2018 and early 2019, with a macro bottom and a higher bottom confirmed by two high tops.
Also, in the current bear market, we could see a macro bottom of the indicator close to 25% (May-June 2022 – Terra LUNA crash), followed by a higher bottom in November (FTX crash). The next signal confirming the end of the downtrend should be a strong break of the indicator towards the first high peak.
A breakout of the indicator confirms a bullish reversal
Indeed, the breach has occurred. In the updated version of our indicator’s chart from January 11th, we see a clear breakout above the previous highs (black arrow). This means that another element of the historical model has just been confirmed.
The formation of the first high peak is the penultimate signal that gives us the percentage of transfer volume in profit. If a higher peak is seen in the coming weeks or months, Bitcoin’s uptrend reversal will be confirmed.
In the latest series of charts, @SwellCycle has added a BTC price chart to the indicator. This helps further define the turning point of Bitcoin’s downtrend, after which the long-term uptrend began (blue area and arrows).
However, two more things should be emphasized here. First, the blue areas did not signal the beginning of major increases. Rather, they can be seen as signals of decline and the end of ongoing accumulation. The biggest increases in BTC price happened about 12-18 months later.
Second, the end of the declines does not mean that BTC price declines are no longer visible after the blue regions. In contrast, Bitcoin still reached deep price lows in both historical periods – August 2015 and March 2020. However, none of them were below the previously achieved macro bottoms.
As a result, there is a chance that the transfer volume profit percentage will follow a similar pattern as it did at the end of the previous two bear markets. If so, Bitcoin has already reached the macro bottom of this period at $15,476 in November 2022. This doesn’t mean an immediate rally to new highs, but it does give hope that the cryptocurrency bear market is over.
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