Understanding salesperson exhaustion
Crypto market analytics firm Glassnode Insights has introduced a new framework for assessing seller exhaustion across multiple time frames. The framework, which leverages Glassnode’s new Breakdown Metrics, enables the discrete isolation of points of severe unrealized loss and investor capitulation.
During a bull market regime, long-term investors tend to be very profitable. Therefore, the dominant source of realized losses comes from the cohort of short-term holders, which can provide information about turning points during sell-off events.
The new framework profiles seller attrition across day trader and weekly-monthly investor cohorts. It uses on-chain metrics to assess both unrealized and realized losses of the target investor classes as a measure of their response to market declines.
Establishing a framework for seller attrition
The framework is designed to identify inflection points during corrections and consolidations within a dominant bull trend. Seller exhaustion is defined as a point of oversold conditions, where a majority of sellers likely to sell have done so. This can contribute to the creation of a local soil.
The framework uses three profit/loss measures to determine the severity of pressure experienced by investors: MVRV ratio, which assesses the unrealized gain or loss of investors within the cohort; SOPR, which evaluates the average size of gain or loss locked in by the cohort; and Realized Loss, which isolates the USD-denominated size loss locked up by the cohort.
Daily traders and weekly-monthly traders
The Daily Trader group is the fastest moving cohort and the most sensitive to the spot price, reacting almost instantly to any fluctuations in price action. The Weekly-Monthly traders, on the other hand, are less price sensitive than the Day Trader group, but are also more likely to experience volatility as the spot price fluctuates around their cost basis over the term.
The new metrics enable comprehensive analysis of these different cohorts, providing valuable insights into market dynamics and identifying periods of seller exhaustion.
Conclusions
On-chain data provides analysts and investors with a remarkable degree of transparency into the positioning, incentives, and actions of various market participants. Glassnode’s new breakdown metrics allow for the isolation of individual subgroups of investors, identifying points of micro-capitulation that often accompany local market lows. This can help investors better understand and predict market movements.
Disclaimer: This article does not provide investment advice. All data is provided for informational and educational purposes only. No investment decision will be based on the information provided here and you are solely responsible for your own investment decisions.
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