The blockchain offers an unprecedented level of transparency into digital asset behavior—transparency rarely seen in traditional financial markets. This visibility empowers analysts and investors to monitor market trends using a broad range of on-chain metrics. In this guide, we explore how on-chain data can reveal critical turning points and periods of sustained bullish momentum in the Bitcoin market.
We’ll break down market dynamics into four core analytical categories:
- On-chain activity: Measuring network usage and adoption growth.
- Market profitability: Assessing unrealized gains across the supply.
- Selling behavior: Detecting profit-taking and absorption by new demand.
- Wealth distribution: Tracking shifts in holdings between long-term and short-term investors.
While each metric offers valuable standalone insights, combining them into a unified model enhances our ability to assess the strength and direction of market momentum.
👉 Discover how real-time on-chain analytics can sharpen your market timing strategy.
On-Chain Activity and Network Adoption
Increased network usage often signals a period of growth, where user adoption expands alongside rising prices. By analyzing on-chain activity, we can identify early signs of bullish momentum.
Rising Transaction Fees
Transaction fees act as a proxy for demand for block space. When users compete to get their transactions confirmed quickly, fee pressure rises—indicating heightened urgency and engagement.
To standardize this metric across market cycles, we apply a 2-year rolling Z-Score to miner fee revenue. This transformation:
- Normalizes data across bull and bear markets.
- Highlights inflection points, such as fee spikes during recovery phases or declines after cycle peaks.
Positive momentum signal: Z-Score > 0
This indicates fee revenue is above its 2-year average, reflecting strong network demand.
Exchange Inflow Momentum
During growth phases, exchange-related activity typically increases. Exchange inflows—particularly when adjusted for entity clustering—serve as a direct proxy for spot trading volume.
We apply a fast/slow moving average crossover:
- 30-day simple moving average (SMA) vs. 365-day SMA
- When the 30-day SMA exceeds the 365-day SMA, it signals rising short-term activity relative to long-term trends.
Analysts can further refine this signal by examining the magnitude of the spread and its slope, helping detect divergences or acceleration in trading behavior.
Positive momentum signal: 30D-SMA > 365D-SMA
👉 Access advanced tools to track real-time exchange flows and network congestion.
Unrealized Profit and Market Valuation
One of the most powerful aspects of on-chain analysis is the ability to track the cost basis of Bitcoin supply. By measuring unrealized profit and loss, we can identify price levels where large volumes of coins change hands.
Supply in Profit Trend
During sustained bull runs, the spot price surpasses the cost basis of more Bitcoin holders, pushing larger portions of supply into profitable territory. To smooth volatility, we apply a 90-day exponential moving average (EMA) to the “Supply in Profit” metric.
We then calculate the 30-day change in this EMA:
- A positive value indicates increasing unrealized gains across the network.
- Larger values suggest accelerating momentum as more holders move into profit.
This oscillator is especially useful near cycle extremes—when nearly all supply is in profit at all-time highs or when large sell-offs occur at lows.
Positive momentum signal: 90D-EMA of supply in profit rising over past 30 days
MVRV and AVIV Crossover Signals
The MVRV (Market Value to Realized Value) ratio compares market cap to realized cap, helping identify overvalued or undervalued conditions. A crossover above its 365-day SMA often signals improving investor profitability—a hallmark of bullish momentum.
More recently, the AVIV ratio—developed with ARK Invest as part of the Coin Time Economics framework—offers a refined view of unrealized profit dynamics, particularly for active investors.
Positive momentum signal:
- MVRV or AVIV > 365D-SMA
This suggests investors are increasingly in profit, often preceding further price appreciation.
Negative momentum signal:
- MVRV or AVIV < 365D-SMA
Indicates deteriorating profitability, often seen when holders are underwater after sharp corrections.
Short-Term Holder (STH) Profitability
STH-MVRV focuses exclusively on coins moved within the last 155 days, offering insight into the sentiment of recent buyers. Because this cohort is more sensitive to price swings, their behavior often reflects short-term market stress or confidence.
When STH-MVRV crosses above its 365-day SMA, it suggests new buyers are gaining confidence and entering profitable positions—another sign of strengthening momentum.
Positive momentum signal: STH-MVRV > 365D-SMA
Realized Profit/Loss and Selling Behavior
Unrealized profit creates incentive—but actual selling behavior reveals market response. By tracking realized gains and losses, we assess how investors act under pressure.
SOPR Momentum
The Spent Output Profit Ratio (SOPR) measures the average profit or loss realized per transaction. To isolate economically meaningful activity, we use an entity-adjusted SOPR variant that excludes internal transfers.
Applying a 30D vs. 365D SMA crossover:
- Rising SOPR indicates increasing profit-taking.
- A crossover above the long-term average suggests strong selling pressure from profitable holders.
However, sustained momentum requires new demand to absorb these sales—a sign of market resilience.
Positive momentum signal: 30D-SMA > 365D-SMA
Realized Profit-to-Loss Ratio
This metric compares realized profits to realized losses over time. It’s highly sensitive during regime shifts:
- In strong uptrends, realized losses are minimal—most selling comes from profit-taking.
- During corrections, panic selling increases realized losses sharply.
- At bear market bottoms, widespread capitulation leads to high realized losses; any rebound triggers a surge in realized profits as sentiment shifts.
Using a 30D/365D SMA crossover helps identify acceleration in either direction—key for spotting reversals or continuation patterns.
Positive momentum signal: 30D-SMA > 365D-SMA
Wealth Distribution Shifts
Market cycles often involve wealth transfers from long-term holders to newer investors. At cycle bottoms, long-term holders dominate supply; at peaks, short-term speculators accumulate heavily.
SLRV Ribbons Momentum
The Supply-Lifetime Realized Value (SLRV) metric compares wealth held by coins with different age bands—specifically 24-hour old vs. 6-month to 1-year old coins. A 30-day vs. 150-day SMA crossover tracks shifts in ownership:
- A rising short-term average suggests newer investors are accumulating.
- A crossover above the long-term average may signal a transition from accumulation to distribution phase.
This helps contextualize whether current price action is driven by fresh demand or late-stage speculation.
Building a Composite Momentum Indicator
Combining signals from all four categories creates a robust model for assessing overall market health:
- On-chain activity (fees, exchange inflows)
- Profitability (supply in profit, MVRV/AVIV)
- Selling behavior (SOPR, profit/loss ratio)
- Wealth distribution (SLRV)
We assign equal weight to eight key conditions (two per category). When 4 out of 8 are met, we classify it as a period of positive momentum—historically aligning with sustainable uptrends. When all 8 align, momentum is exceptionally strong—often preceding major rallies.
Conversely, fewer than 4 signals suggest broad negative momentum—common during bear markets or early correction phases.
👉 See how integrating multiple on-chain signals can improve your investment decision-making process.
Frequently Asked Questions (FAQ)
Q: What makes on-chain data more reliable than traditional market indicators?
A: On-chain data is immutable and transparent—every transaction is publicly verifiable. Unlike self-reported financials or sentiment surveys, it reflects real economic activity without manipulation risk.
Q: Can on-chain metrics predict market crashes?
A: While no tool guarantees predictions, metrics like MVRV Z-Score, SOPR spikes, and declining exchange inflows have historically signaled overheating or distribution phases—often preceding corrections. They work best when combined with other analysis methods.
Q: How often should I check these indicators?
A: Daily monitoring is ideal for traders; weekly reviews suffice for long-term investors. Key metrics like MVRV and supply in profit tend to evolve slowly, while SOPR and exchange flows can shift rapidly during volatile periods.
Q: Are these signals applicable to other cryptocurrencies?
A: Many principles apply to other proof-of-work and transparent blockchains like Litecoin or Bitcoin Cash. However, Bitcoin’s depth of data and liquidity makes it the most reliable candidate for on-chain analysis.
Q: What’s the difference between realized profit and unrealized profit?
A: Unrealized profit refers to paper gains—coins held above their purchase price but not yet sold. Realized profit occurs when a coin is spent at a higher price than acquired, locking in gains permanently on-chain.
Q: How do I avoid false signals when using moving averages?
A: Use multiple confirmations—e.g., combine SOPR crossovers with volume trends or whale activity. Also, consider macro conditions like halving cycles or regulatory news that may distort typical patterns.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice. Always conduct your own research and consult with a qualified professional before making investment decisions.