Monitoring Bitcoin's Flows and Positioning

When stripping down financial markets to the most basic metric—supply and demand—it is important to understand at which level buyers historically have become sellers or sellers have become buyers. Technical analysts will often use measures such as moving averages to determine these levels. Other common levels can be previous highs or previous lows. Given the visibility of previous transactions on the blockchain, we can see what levels bitcoin has accumulated historically. There are many strategies used to determine key levels; here, we track two metrics: active investor cost basis and exchange-traded product (ETP) cost basis.

• Active-investor cost basis. The active-investor cost basis is the weighted average cost basis of bitcoin accumulated on the secondary market. This removes bitcoin rewarded to miners and only reflects levels where investors bought.
• ETP cost basis. The ETP cost basis is like the active-investor cost basis in that it tracks the cost basis across the spot exchange-traded products.  There are 11 ETPs included in this metric we track. These levels can act as support (a price level at which a falling asset finds buying interest) when bitcoin is trading above them, but also as resistance (a level where a rising asset faces selling pressure) when bitcoin is trading below them.

Beyond price levels that may act as support or resistance, spot activity gives us an understanding of what investors are doing. The metrics that we track here include ETP net flows, spot trading volumes, on-chain transaction fees, long-term-holder net position changes and balances held at exchanges.

• ETP net flows. While we previously looked at ETP cost-basis levels, looking at flows into ETPs takes this a step further. ETP investors are primarily retail investors who are not comfortable buying spot cryptocurrencies. These may include clients of wealth management and brokerage firms. While these ETP flows are sometimes referred to as institutional flows, because institutions are unlikely to purchase spot cryptocurrencies the core underlying client profile is still dominated by retail investors. To calculate this, we use the same ETPs used for calculating cost basis.
• Spot volumes. This metric refers to the notional value of a bitcoin that is traded in spot markets. For example, according to data from Glassnode, $4.5 billion of bitcoin traded on March 15, 2026, which was lower than the trailing 30-day median spot volume of $8.4 billion. This is a common metric tracked across many different asset classes. Spot volumes can be higher or lower on any given week for a variety of reasons, but they can often help put recent price action in perspective. If volumes are low, orders to buy and sell can have an outsized impact. Ideally, in a period where bitcoin's price is rallying, we want to see that accompanied by rising spot trading volumes. Low spot volumes following a sharp sell-off can also indicate that sellers are exhausted. Extreme levels can also potentially be contrarian indicators.
• On-chain transaction fees. While price action and spot volume may indicate rising demand for a bitcoin, on-chain transaction fees provide insight into how much of a bitcoin is being transferred directly to other wallets. This captures spot crypto purchased on exchanges, but also transactions from a user sending crypto directly to another user. During rallies, we would expect to see transaction fees increase, while during sell-offs we would expect to see them decrease.
• Long-term holder net position change. Due to visibility into past transactions on a blockchain, the holding period of cryptocurrencies is known. This metric looks at the dates at which bitcoin was purchased and establishes an average purchase date for each investor. Investors are then separated into long-term and short-term holders, with long-term holders having an average purchase date of at least five months. For many bitcoin investors, this average purchase date can be much longer than five months. When tracking the month-to-month change in long-term holder positioning (whether they are buying or selling), often this can confirm recent price movements. Divergences in long-term holder net position and bitcoin price should be carefully watched.
• Balances held at exchanges. The final spot metric we track is the amount of bitcoin held at the known addresses of exchanges. This is the amount of bitcoin that is actively available for trading. This metric has fallen over time, but we look for an increase in exchange balances during bull markets and a decrease in bear markets, which has been the historical pattern for this metric. Extreme readings in either direction can be interpreted as contrarian signals. Low levels of bitcoin held at exchanges could also indicate the potential for a short squeeze—when the price rises to such an extent that investors who have sold short purchase the asset in order to limit their losses—as a short-term spike in demand would not be met with immediate available supply.

Another common feature of financial markets is leverage,  a way of using a relatively small amount of capital to trade a large position. Leverage presents the opportunity to enhance returns, but it cuts both ways, and levered positions when the market moves against you, even smaller moves can magnify losses. We previously mentioned the deep derivatives markets that operate within the crypto market. Seeing how this level rises and falls helps put price action into perspective. For this measure we look at a combined level of bitcoin futures and options open interest, and total value locked (TVL) in Ethereum.

Historically, usage of the Ethereum network has been tied to more speculative crypto activity, such as trading of non-fungible tokens (NFTs) and usage of decentralized trading applications. As this measure rose, it was considered a gauge of rising sentiment in crypto markets geared toward speculative-use cases. While the majority of the Ethereum network's usage is now primarily stablecoins, lending products, and other liquidity products, the signal may be less effective. That said, most of this activity is still ultimately influenced by the broader crypto market cap and can offer a signal of investor sentiment.

• Total value locked. This metric measures the amount of funds that have been deposited into a DeFi protocol (a decentralized finance cryptocurrency application). We look at TVL across the entire Ethereum network. While this does not capture TVL on other smart-contract platforms, since Ethereum is the largest smart-contract platform—hosting digital contracts that automatically execute when predetermined conditions are met—we consider it a proxy for the rest of the crypto market. It does not include ether that is staked (i.e., when a crypto owner pledges it on the native cryptocurrency ecosystem) to earn validator rewards. This is ultimately a measure of usage of blockchain protocols. Since many blockchain protocols are financial in nature, TVL can serve as a good measure of speculation.

The sum of these metrics can also be viewed as a contrarian indicator, similar to other metrics.

Sentiment gives us a reading on the market's mood. Are investors bullish and convicted; are they bearish and uncertain? There are lots of different ways to determine the current vibe in the market, but we specifically look at Alternative.me's Crypto Fear & Greed Index.

• Crypto Fear & Greed Index. While there are many different fear-and-greed indexes for other asset classes, crypto data provider Alternative.me has created a Fear & Greed Index for the crypto market. This index is available on Glassnode and aims to track a diverse set of factors to determine the level of fear or greed present in the crypto market. The index specifically tracks volatility, market momentum, sentiment on social media, surveys, bitcoin's share of the total crypto market cap, and Google trend data for searches related to bitcoin.

For each of these measures, we would expect them to confirm bitcoin's recent price action, but they are no guarantee of future performance or success, but we can look for deviations in the derivatives market to see if investors are starting to change their positioning. Extreme readings in either direction are often found at market peaks and troughs.

It would not be a complete reading of the bitcoin ecosystem if we did not have a perspective on what miners were doing. Miners are a core stakeholder for bitcoin. They are the entities that ultimately unlock new bitcoin through block rewards, while also maintaining the historical blockchain records. Two metrics we track here are bitcoin's price relative to miner production prices and difficulty.

• Price/miner production prices. In the long run for any industry, one would expect the cost of production of a good or service to be less than the value you can realize for producing it—otherwise there would be no incentive to produce a good or provide a service. In industries focused on production, there can be periods where market prices temporarily fall below production prices, where a company may opt to shut down production temporarily. Bitcoin is no different. Miners are incentivized to maintain the blockchain by earning a block reward that is worth more than the equipment needed to produce it. Miners must frequently upgrade their equipment and may sell bitcoin to fund this. As a result, they are more likely to take advantage of rallies in prices. Some miners with less-efficient mining equipment may come under stress when bitcoin falls below their production prices. Often this can serve as a sign of a bottom in a sell-off; however, in deep bear markets, prices can stay under production levels for longer periods of time for these less-efficient miners. Measuring bitcoin's price relative to inefficient miner production prices allows us to put the cost of producing bitcoin into perspective.
• Difficulty drawdowns. A new block is mined roughly every 10 minutes. The method to maintain this time frame is referred to as a difficulty adjustment. Miners race to solve an algorithm, which produces a random output. The first miner to produce an output with a certain number of leading zeros is rewarded bitcoin. The more zeros, the harder this algorithm is to solve. The harder the algorithm is to solve, the higher the electricity costs of producing bitcoin are. Difficulty generally increases over time, but it can fall as miners shut down operations temporarily. With fewer miners on the network, the network must adjust to keep the block rewards on track for one roughly every 10 minutes. Drawdowns in difficulty can be a sign that a correction or bear market is potentially reaching an end.

While these metrics may help provide insight into current bitcoin positioning, and they may help inform a short-term view, it is important to not only look at positioning and flow data in isolation. Instead of looking at the absolute reading, using statistical measures such as percentiles, a way of measuring where an observation lies on a scale of 0 to 100, and z-scores, a way of measuring how far from the average an observation lies, may help put the readings into a clearer perspective. A balanced investment approach would involve applying a top-down macro framework, our fundamental framework for evaluating industry dynamics within the crypto market, and then applying insights from the positioning monitor to determine if positioning is confirming recent price action.

It is important to note that bitcoin and other cryptocurrencies are relatively new and due to their novel and unproven nature, reliable methods for estimating performance may not be available. The regulatory landscape for crypto is still evolving. Cryptocurrencies may be subject to potential encryption breaking, illiquidity and increased risk of loss. Theft, scams and fraud have been a factor to deal with, and if you decide to invest in crypto directly remember that there may not be an effective way to recover assets if they're stolen or lost. Investing in cryptocurrencies involves risk, including the risk of total loss of principal invested. Cryptocurrencies [such as bitcoin and ethereum] are highly volatile, are not backed or guaranteed by any central bank or government; are not deposits; are not FDIC insured; are not SIPC protected; and lack many of the regulations and consumer protections that legal-tender currencies and regulated securities have. Due to the high level of risk, investors should view digital currencies as a purely speculative instrument. Nothing in this report should be interpreted as a recommendation to invest in cryptocurrencies.