Bitcoin has faced significant difficulties throughout the year 2022. However, recent on-chain and futures market data suggest that it is starting to recover.
After a number of short liquidations, the futures market is showing signs of stability, and on-chain and exchange data indicate a positive trend in the spot market and exchange netflows. This has resulted in a group of previously loss-making investors now being classified as "unrealized profits" by Glassnode analysts.
A large number of short liquidations created an environment for new investors to succeed. Usually, the futures market balances the number of long and short positions. However, when the market changes, investors usually adjust their futures to prevent liquidation. However, in mid-January, many investors were caught off guard, leading to a record high of 85% short liquidations according to coinstats platform.
The high number of short liquidations played a role in the recent increase in the price of Bitcoin. In January, more than $495 million worth of short futures were liquidated, leading to automatic purchases of Bitcoin and boosting its price. This year, the liquidations have happened in three big waves, reaching a peak of $165 million in a single day of liquidations.
Following the high number of short liquidations, the futures market is showing a shift toward long positions. On January 30th, 51.46% of open interests were in long positions compared to short positions. The liquidation of shorts not only contributed to the rise in the price of Bitcoin but also indicates a positive shift in sentiment in the Bitcoin market.
According to Glassnode researchers, the cash and carry basis for perpetual swap and calendar futures is now back in positive territory, yielding 7.3% and 3.3%, respectively, on an annualized basis. This change comes after most of November and December showed negative results in all futures markets and indicates a return of positive sentiment and possibly an increase in speculation.
Many groups of Bitcoin investors are returning to the "unrealized profit" category. The movement of Bitcoin in and out of exchanges provides an indication of the acquisition price of Bitcoin by investors. During the bear market in 2022, only investors who bought Bitcoin before 2017 were in potential profit. All investors who bought after 2018 were in an unrealized loss.
According to Glassnode researchers, only those who invested in Bitcoin before 2017 managed to avoid a net unrealized loss during the downtrend in 2022. However, the recent rally has pushed investors who bought in 2019 ($21.8k) and earlier back into an unrealized profit.
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<source: tradingview, binance>
The return to profitability for a growing number of Bitcoin investors is a positive sign, particularly after Bitcoin saw record realized losses in December. The two largest groups of investors, those who bought Bitcoin on Coinbase and Binance, have an average acquisition price of $21,000. While Bitcoin is trying to reach $24,000, any future corrections due to macroeconomic factors may reduce the unrealized profits for these groups.
Evidence of Bitcoin's price recovery can be seen in on-chain, spot exchange, and futures market data. The futures market has shown a rebalancing after a large number of short liquidations, and exchange netflows and spot market activity indicate that investors are gradually returning to the cryptocurrency market.
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