Bitcoin’s Recent Rally: Insights from On-Chain Indicators

Strong Bullish Sentiment and Persistent Upward Momentum

Bitcoin’s recent all-time high of $107,000 reflects the strong bullish sentiment in the market over the past two months. To understand the persistent upward momentum this year, we can turn to the true market mean price (TMMP) and AVIV ratio. These on-chain indicators clarify investor behavior and provide insight into cost-basis trends.

True Market Mean Price (TMMP) and AVIV Ratio

The true market mean price (TMMP) is the average acquisition cost for the market, calculated by dividing the investor cap by the active supply. It excludes miners’ profit realizations to isolate investor-driven acquisition trends and measure Bitcoin’s cost basis across the secondary market. The AVIV ratio is often analyzed alongside TMMP, representing the ratio between active market valuation and realized valuation. It measures how far current market prices have diverged from the realized cost basis, showing potential overbought or oversold conditions. AVIV ratio is often used to identify profit-taking opportunities or risks during price volatility.

Market Behavior and TMMP

While TMMP has always been in a steady upward trend, changes in the pace of its increase can help clarify market behavior. The true market mean price has gradually risen throughout the year following Bitcoin’s price increase. The correlation between price increase and TMMP means that higher prices were supported by sustained market interest. As the year progressed, the gap between Bitcoin’s price and TMMP increased significantly, showing substantial unrealized profits for investors. This widening has historically been observed during mature bull markets, often preceding periods of increased volatility or corrections.

AVIV Ratio Insights

The AVIV ratio stood at moderate levels at the start of 2024, consistent with a market in an accumulation phase. By mid-year, as Bitcoin’s price advanced, the ratio climbed higher, reflecting growing investor profits and a strengthening market. In December, the ratio reached levels historically associated with overheated market conditions, similar to patterns seen in 2013, 2017, and 2021. Such spikes in the ratio occur when Bitcoin’s market price significantly exceeds realized valuation, signaling that the market may be approaching a local peak.

Maturity and Efficiency of the Market

Data from CryptoQuant shows an interesting pattern — 2024 has seen relative stability in the AVIV ratio and TMMP compared to previous years. This suggests that the market is maturing and becoming more efficient, with fewer extreme swings in acquisition costs. Historically, significant fluctuations in the AVIV ratio and TMMP have often followed sharp price movements that preceded bear markets. However, the reduced volatility in the AVIV ratio and TMMP throughout 2024 indicates that investor behavior is becoming more consistent, supporting a more resilient market structure.

Conclusion

In conclusion, Bitcoin’s recent rally is characterized by strong bullish sentiment, persistent upward momentum, and a maturing market. The true market mean price (TMMP) and AVIV ratio provide valuable insights into investor behavior and cost-basis trends. While the TMMP’s rise signals long-term investor confidence, the AVIV ratio’s elevated level highlights the short-term risks of a correction. The consistent increase in TMMP and the late-year spike in the AVIV ratio point to a healthy bull market structure but raise caution for a potential short-term correction.

FAQs

Q: What is the true market mean price (TMMP)?

A: The true market mean price (TMMP) is the average acquisition cost for the market, calculated by dividing the investor cap by the active supply. It excludes miners’ profit realizations to isolate investor-driven acquisition trends and measure Bitcoin’s cost basis across the secondary market.

Q: What is the AVIV ratio?

A: The AVIV ratio is the ratio between active market valuation and realized valuation. It measures how far current market prices have diverged from the realized cost basis, showing potential overbought or oversold conditions.

Q: What do the recent trends in the AVIV ratio and TMMP suggest?

A: The recent trends in the AVIV ratio and TMMP suggest a maturing market, with fewer extreme swings in acquisition costs and a more consistent investor behavior. This points to a resilient market structure, but also highlights the short-term risks of a correction.

Q: What does the elevated AVIV ratio level indicate?

A: The elevated AVIV ratio level indicates that the market may be approaching a local peak, as the ratio has reached levels historically associated with overheated market conditions. This suggests that the market may be due for a short-term correction.