The start of 2023 provided Bitcoin (BTC) with bullish signals and the recovery to a year-to-date high of $21,647 has cryptocurrency traders hoping that the worst of the bear market is over. The impact of rising BTC’s bullish price action is also being carried over to Ether (ETH) and Bitcoin mining stocks.
The improvement in the Bitcoin Fear and Greed indicator, which is now in neutral territory, is likely driven by the increase in trading volume, Bitcoin on-chain data and the decoupling of the BTC price from the stock markets. While not all analysts believe the market bottom has been solidified, let’s dive into the data.
Trading volume and return volatility
Bitcoin’s price hike has been accompanied by an exponential growth in trading volume. Last week, BTC doubled in volume to $10.8 billion, up 114% in seven days.
Increased trading volume is usually associated with increased volatility. While the current seven-day volatility levels of 2.4% are still below the 2022 seven-day average of 3.1%, bitcoin has remained flat throughout the 2023 rally.
Centralized exchanges (CEX) suffered from lower trading volumes, which led to lower transaction fee collection, which led to staff layoffs. The increase in the volume of all exchanges is likely to be welcome news.
The increase in trading volume coincides with the return of profits
Realized profits on the chain Bitcoin is retesting the value of the Adjusted Spending Exit Profit Rate (aSOPR) 1.0, which some analysts believe is a key resistance level. The aSOPR metric has historically shown a change in the overall market trajectory as profits are absorbed by trading volumes.
According to Glassnode:
“A breakout above aSOPR and ideally a successful retest of 1.0 usually indicates a significant change in the system where profits are being made and sufficient demand flows to accommodate them.”
Reversing the trend that started in May, achieving profit and loss ratio on the chain For BTC above the 1.0 level, it reached 1.56 profit/loss on January 16th.
When more traders are in the green taking profits without the price going down, it indicates the strength of the market.
analysis on the chain It also shows positive signs that a Bitcoin recovery may be on the way. The greater the market’s ability to absorb selling pressure without price capitulation, the greater the chances of an alleviation of general market concerns and the potential for a macro turnaround.
Bitcoin’s correlation with stocks is falling
Volatility, profits made, and trading volume help Bitcoin take off from the stock market. As reported by Cointelegraph, bitcoin price action is usually closely correlated with US stocks.
Bitcoin’s 30-day correlation with the Nasdaq reached 0.29 on January 17, which is the largest deviation for Bitcoin from stocks since December 2021.
Vetle Lunde, Senior Analyst at Arcane Research, explains what decoupling means in the bitcoin market:
“The decrease in correlations is a positive development for the market.”
Bitcoin’s previous correlation with stocks may have resulted from institutional investors pooling BTC with other risky assets and big tech companies like Tesla maintaining exposure to the crypto asset.
Now that institutional investors and developing companies own less bitcoin, the correlation tends to be lower in the future.
Stock markets may continue to be volatile due to inflationary resilience in the US and Europe, but Bitcoin’s difference from the stock market can help BTC become a hedge investment. According to some analysts, if Bitcoin can become a stock hedge, institutional investors may return to the market.
The views, ideas and opinions expressed herein are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.