Bitcoin: Negative returns over the past 6 months

The 6-month average returns for those who invested in bitcoin plummeted to -27.81%. 

Santiment reveals this, but adds that when traders are so at a loss the FUD increases in the form of negative posts. 

Santiment, however, also states that it is in all respects a negative prejudice and that therefore this mass FUD is to be “taken with a grain of salt”. 

In fact, we must distinguish between traders and holders. 

Holders buy bitcoins to keep them in their wallet over the long term, i.e. for months or even years. For example, if he had bought bitcoin a year ago, he would now be up by 256%, and only those who bought in 2021 at a price higher than $ 33,000 are currently at a loss. 

Traders, on the other hand, operate intraday, or in any case with a very short time horizon, of hours, days or at most weeks. 

The returns of bitcoin: the MVRV index

The graph shown by Santiment examines the so-called MVRV (market-value-to-realized-value) ratio at 180 days (6 months), or the ratio between the market capitalization and its realized capitalization. It is used to compare the current price with what can be considered the “fair value” of the last six months. 

Starting around 19 May 2021, or the day of the flash crash that brought the price back to around $ 30,000, the 180-day MVRV ratio fell into negative territory, and starting from the collapse of 22 June it approached -30%. 

However, it must be said that the choice of 180 days is arbitrary, and for example if this value were reduced by half (90 days) the MVRV ratio would probably approach 0%. Indeed, doubling it, or taking it to one year, would probably become positive. 

However, the 180-day MVRV ratio is usually used to understand how positive or negative the sentiment of traders can be, also because most traders are not professionals who operate in the very short term with adequate hedges, but amateurs with time horizons. a little longer and generally no coverage, or in any case inadequate coverage. 

So the current low level of this index suggests that the sentiment of most traders towards bitcoin could be very negative indeed, with a higher likelihood of FUD being generated.

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