Understanding Bitcoin’s Market Behavior
Bitcoin recently hit an all-time high of $107,000, showcasing a strong bullish sentiment in the market over the past couple of months. To delve deeper into what has been driving this upward momentum, it’s essential to look at key on-chain indicators like the true market mean price (TMMP) and AVIV ratio.
True Market Mean Price (TMMP)
- The TMMP represents the average acquisition cost for the market, calculated by dividing the investor cap by the active supply.
- It excludes miners’ profit realizations to focus on investor-driven acquisition trends and measure Bitcoin’s cost basis across the secondary market.
AVIV Ratio
- The AVIV ratio is analyzed alongside TMMP and shows the ratio between active market valuation and realized valuation.
- It indicates potential overbought or oversold conditions, helping identify profit-taking opportunities or risks during price volatility.
Market Trends and Analysis
The TMMP has been steadily rising, reflecting the market’s behavior over the year. As Bitcoin’s price increased, so did the TMMP, indicating sustained market interest. This increase in TMMP also showed a widening gap between Bitcoin’s price and the cost basis, signaling substantial unrealized profits for investors. Historically, such gaps have preceded periods of increased volatility or corrections in mature bull markets.
AVIV Ratio Insights
The AVIV ratio, initially at moderate levels in 2024, climbed as Bitcoin’s price surged, indicating growing investor profits and market strength. By December, the ratio reached historically high levels associated with overheated market conditions, signaling a potential local peak. The stability in the AVIV ratio and TMMP throughout 2024 suggests a maturing and more efficient market, with fewer extreme swings in acquisition costs.
Future Market Outlook
While the rise in TMMP reflects long-term investor confidence, the elevated AVIV ratio levels point to short-term correction risks. Historical data shows that AVIV ratios exceeding 2 often precede price retracements due to profit-taking pressures. Despite this, ongoing institutional interest and a growing derivatives market indicate that any cooling phase may be temporary and less severe.
Investor behavior in 2024, characterized by increased TMMP and high AVIV levels, indicates a healthy bull market structure with potential for a short-term correction. It’s essential to monitor market indicators closely to navigate the ever-evolving cryptocurrency landscape.
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