Author | Glassnode Wu Shuo is authorized to reprint
This article was published on November 1, and some data is delayed
Summary
The digital asset market has seen impressive returns in 2023, with BTC and ETH outperforming traditional assets like gold by 93% and 39%, respectively.
Market corrections for both major digital assets have been significantly smaller than in previous cycles, which indicates investor support and positive capital inflows.
Our Altseason indicator shows the first significant appreciation against the US dollar since the highs of this cycle. However, it’s worth noting that this comes against the backdrop of Bitcoin’s continued rise in dominance, with its market capitalization increasing by 110% year-to-date.
Bitcoin prices have risen more than 30% in recent weeks, in part due to positive developments related to numerous Bitcoin ETF applications submitted to the SEC for approval. Also noteworthy is the relative performance of Bitcoin and digital assets as a whole compared to traditional asset classes such as commodities, precious metals, stocks and bonds.
In this week’s report, we explore this impressive relative performance of digital assets in 2023. BTC and ETH have significantly outperformed traditional assets so far, while also experiencing smaller drawdowns compared to previous cycles.
Relative toughness
The chart below compares BTC and ETH prices in terms of gold, showing performance compared to traditional defensive value stores. In 2023, BTC appreciated 93% compared to gold, while ETH rose 39%. Against the backdrop of increased global uncertainty, the strong performance of digital assets may have attracted the attention of many traditional investors.
We can see that based on a rolling 30-day basis, BTC and ETH returns have been closely correlated throughout 2023. Both assets have experienced declines of similar magnitude, but Bitcoin has performed more strongly during the rallies.
We can also see that the relative volatility of both digital assets exceeds that of gold (black), which has smaller price swings in both directions.
The relative strength of a digital asset can also be observed by evaluating the deepest corrections within a macro uptrend. Here, we will evaluate this metric for ETH so that we can see the performance relative to the USD (an external benchmark), but also compared to market leader BTC (an internal benchmark).
We believe that the cycle low for ETH/USD occurred in June 2022, following the collapse of 3AC, Celcius, and LUNA-UST. Since then, the deepest ETH/USD correction relative to the local high was -44%, which was set when FTX failed. Today, ETH is trading $2,118, or 2.6%, below its 2023 high, which is significantly stronger than the -60% or larger retracements seen in previous cycles.
BTC’s performance is comparable, with its deepest retracement in 2023 being just -20.1%. The 2016–17 bull run often saw corrections of more than -25%, while 2019 saw a retracement of more than -62% from its July 2019 peak of $14k.
To assess capital flows within the digital asset market, a useful reference is to look for periods when ETH has outperformed relative to BTC. The chart below shows the depth of the maximum retracement of the ETH-BTC ratio, compared to the local highs of the current uptrend.
Previous cycles have seen ETH retrace over -50% relative to the benchmark during bear market recovery phases, with the current retracement reaching -38%. Of particular interest is the duration of this trend, with ETH now depreciating relative to BTC for over 470 days. This highlights an underlying trend between cycles, where BTC dominance increases over longer periods of time during the post-bear market hangover.
We can also use this tool to monitor turning points in risk-on and risk-off cycles.
This chart shows the relative performance of the ETH/BTC ratio from another perspective, showing the quarterly, weekly, and rolling weekly ROI oscillators for the ETH/BTC ratio. A barcode indicator (blue) then highlights periods where all three time frames show ETH underperforming relative to BTC.
Here we can see that the recent weakness in the ETH/BTC ratio is similar to what happened in May–July 2022, with the price ratio reaching the same level of 0.052.
Investor sentiment trends
Digging deeper into the Ethereum price model, we notice that ETH is trading at $1,800, 22% above the realized price ($1,475). The realized price is typically viewed as the average cost basis of all coins in the supply, priced according to when they last traded.
This suggests that the average ETH holder is holding a modest profit, but it is still well below the extreme price levels often seen during bull run binges.
Another way to visualize changes in investor profitability is through the MVRV ratio, which is the ratio between price and realized price. In this case, we compare the MVRV ratio to its 180-day moving average as a tool to monitor trends.
When the MVRV ratio is above this long-term average, it indicates that investors are becoming significantly more profitable, which is usually a sign of a rising market. However, despite ETH’s good market performance at the start of the year, the market is still in a state of negative momentum according to this metric. It appears that the aftermath of the 2022 bear market is still slowly dissipating.
Changes in Confidence
We can also measure the relative performance of Ethereum investor profitability using the Investor Confidence in Trend metric. We attempt to gauge changes in Ethereum investor sentiment by comparing the difference between the cost benchmarks of holders and sellers.
When the seller's cost basis is lower than the holder's, it means
