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The beginning of 2023 provided Bitcoin (BTC) with bullish indicators and the rally to a year-to-date high of $21,647, crypto traders are hoping the worst part of the bear market is over. The surging effect of BTC’s bullish price action also carries over to Ether (ETH) and Bitcoin Mining Stocks.

The reduction of Bitcoin Fear and Greed Index to neutral is possibly driven by volume increases, bitcoin on-chain data, and the decoupling of BTC prices from stock markets. Although not all analysts believe that a market the bottom is inlet’s dive into the data.

Trading Volume and Return Volatility

Bitcoin’s price surge has been accompanied by a massive growth in trading volume. Over the past week, BTC volume has more than doubled to $10.8 billion, a 114% seven-day increase.

Bitcoin trading volume. Source: Arcane Research

The increase in trading is generally correlated with an increase in volatility. While the current seven-day volatility levels of 2.4% are still below the 2022 seven-day average of 3.1%, Bitcoin has remained consistent during the 2023 rally.

BTC volatility 30 days and 7 days. Source: Arcane Research

Centralized exchanges (CEX) had trouble with low transaction volumewhich means lower costs for the company, causing layoffs. The increase in volume for all exchanges is probably good news.

Increases in trading volume coincide with return of profits

Bitcoin on-chain profits are again testing the adjusted output spent profit ratio (aSOPR) value of 1.0, which some analysts see as a key resistance level. The aSOPR metric historically shows a change in the overall trajectory of the market, with profits being absorbed by trading volumes.

BTC aSOPR 7-day exponential moving average. Source: Glassnode

According to Glassnode,

“A break above aSOPR, and ideally a successful retest of 1.0 has often signaled a significant regime shift, as profits are made and sufficient demand flows in to absorb them.”

Reversing a trend that started in May, the on-chain realized profit-loss ratio for BTC is up above the 1.0 level, reaching 1.56 profit-to-loss on January 16.

When more traders are in the green on BTC purchases and making profits without prices falling, this signals market strength.

Realized profit and loss ratio for BTC. Source: Glassnode

On-chain analytics are also showing positive signs that Bitcoin’s recovery is potentially underway. The more the market can absorb selling pressure without price capitulation, the less overall market fear and possible macroeconomic shift.

Related: Bitcoin on-chain and technical data is starting to suggest that the lowest price for BTC is in

Bitcoins softening correlation with stocks

Volatility, earnings, and trading volume help Bitcoin decouple from stocks. As reported by CointelegraphBitcoin’s price action has generally been closely correlated to US equities.

Bitcoin’s 30-day correlation with the Nasdaq reached 0.29 on January 17, the largest divergence between BTC and stocks since December 2021.

Vetle Lunde, Principal Analyst at Arcane Research, explains what decoupling means for the Bitcoin market.

“The softening of correlations is a positive development in the market.”

Bitcoin’s previous correlation could have been caused by institutional investors bundling BTC with other risky assets and large growth companies like Tesla holding exposure.

Now that institutional investors and growing companies are holding less bitcoin, the correlation with the markets may decrease in the future.

Stock markets may continue to float due to the resilience of high inflation, but Bitcoin’s divergence from the stock market could help BTC become an investment hedge. According to some analysts, if Bitcoin can become a hedge for stocks, institutional investors could return to the market.