With Bitcoin falling below 57,000 last week and failing to surpass its previous high for two months, market participants are generally concerned that the bull market may be over. However, this article reveals through a detailed analysis of historical on-chain data that Bitcoin may only be experiencing a temporary adjustment and still has the potential to rise.
(Current market structure: Why can’t retail investors make big money anymore?)
(Background supplement: When will the Bitcoin bull market “peak”? Seven indicators to help you find the right time to exit)
Table of Contents:
Comparison of current and past bull market on-chain data
Bitcoin balance on exchanges
URPD: Analysis of the main cost of on-chain chips
Percentage of realized value of old coins/new coins
Realized price change rate of long-term holders
Long-term holder-MVRV
Potential signal for the start of a main uptrend
Crossing of realized value curves of old coins/new coins
Crossing of realized market value curves of LTH/STH
Summary
Over the past month, the cryptocurrency market has experienced a massacre. According to CoinGecko data, Bitcoin reached $72,325.12 on April 8, but fell below $56,758 on May 1, a 23% retracement from the historical high of $73,737.94 on March 14.
Ether broke $3,722 on April 9, but fell to $2,826.93 on May 1, a 30.8% retracement from the high of $4,085.78 on March 14. The total market capitalization of the cryptocurrency market fell from $2.9 trillion to $2.3 trillion.
In addition, multiple macro factors such as persistent high inflation, delayed interest rate cuts, geopolitical tensions (Middle East, Russia-Ukraine conflict), and the risk of bank failures have further dampened market sentiment, causing investors to worry that this bull market may have ended.
However, if we compare the current situation with the performance of Bitcoin in past bull markets, the situation is not so pessimistic. Coinbase’s second-quarter report released on April 30 pointed out that Bitcoin has experienced five bull market cycles in history (it believes that the current one is the fifth), and each time it has been accompanied by the following retracements to reach the peak of the cycle:
6 retracements of 5-10%
3 retracements of 10-20%
2 retracements of 20-30%
1 retracement of 30-40%
1 retracement of 40-70%
So far, Bitcoin has retraced 23% from its historical high, and has risen again to around $65,000 this week, currently trading at $62,205.84, showing the resilience of Bitcoin.
Note that this article is not encouraging investors to stay in the market during major pullbacks. Investors should still make appropriate investment allocations based on their investment horizon, capital needs, and stop-loss and take-profit plans.
The following analysis will compare the current cycle with past bull markets based on on-chain data to determine whether the bull market has ended and when Bitcoin will enter a new main uptrend stage. This is a summary of the series of tweets by on-chain data analyst Murphy.
One characteristic of Bitcoin reaching its bull market peak is that a large amount of Bitcoin will be transferred to centralized exchanges for profit-taking (as shown in the green bar chart below), and the Bitcoin balance (as shown in the yellow line below) will significantly increase, leading to a subsequent gradual decline in Bitcoin price. The following chart shows the double peaks of Bitcoin during the bull market in 2021, and this phenomenon can be seen.
Currently, the Bitcoin balance on exchanges is continuing to decline, even reaching a new low in 6 years on April 29, with an 8% decrease since the beginning of this year. In addition, the chart below shows that Bitcoin has experienced a third significant net outflow between 60,000 and 68,000, which indicates that there may be large funds quietly buying Bitcoin and then withdrawing from exchanges, in addition to wallet consolidation.
By comparing these two scenarios, we can see that the current stage is different from the late stage of past bull markets.
URPD, which stands for UTXO Realized Price Distribution, reflects the price distribution of BTC on-chain chips when they were last moved. In simple terms, it is the price distribution of on-chain chip costs. It is a favorable indicator for analyzing the main cost and market sentiment of chips, and interested readers can refer to the introduction here for more details.
The two charts below show the turnover (movement) of BTC on-chain chips from April 15 to April 27. As shown in the charts, the ancient chips from the previous cycle (green box) have not changed much, while the 63,300-69,200 range has increased by 270,000. This means that 270,000 BTC has been moved within this price range. Apart from some wallet conversions, most of it is generated from transactions. There are both sellers and buyers, especially around $64,000 and $66,000, where the increase in the amount of Bitcoin is the highest, indicating that large funds are buying.
This coincides with the occurrence of the third net outflow peak within this price range mentioned earlier.
Realized value (RV) can be regarded as the average turnover cost of the on-chain group. The percentage of realized value can be understood as the percentage of wealth.
On April 29, the percentage of realized value of old coins decreased to 55.3%, which is still far from the low point of 9-26% in previous bull market peaks (Figure 1). The percentage of realized value of new coins increased to 44%, which also has a gap compared to the peak of 74-85% in previous bull market peaks (Figure 2). Therefore, the current bull market cycle is likely not yet complete.
Long-term holders (LTH) refer to users who have held coins for more than 155 days. Comparing the past two cycles (as shown in the chart below), before the bull market reaches its peak, the change rate of LTH-RP tends to increase gradually (highlighted in yellow circles in the chart), accompanied by a surge in the change rate of STH-RP (highlighted in red circles), such as 25% in 2018 and 20% in 2021, followed by a surge in the change rate of LTH-RP (highlighted in green circles), indicating that the last batch of diamond hands have exited the market in this cycle, indicating that the bull market has reached its peak.
Currently, as shown in the chart below, from April 17 to the present, the 7-day change rates of LTH-RP (blue line) and STH-RP (red line) are approaching zero. This indicates that both long-term holders and short-term holders have lost interest in the current price, proving that the market has entered a period of balance with fewer buyers and sellers. This is clearly different from the phenomenon observed in the late stage of previous bull markets.
MVRV is the ratio of market price to realized value (i.e., cost), which can be used to measure investors’ unrealized gains and losses. LTH-MVRV can serve as a reference for market phase positioning and risk assessment. LTH, as the diamond hands in the market, can achieve extremely high profit-to-loss ratios in each bull market. For example, in 2018, LTH-MVRV reached a peak of 29, indicating that LTH achieved a profit of 2,800%; in 2021, LTH-MVRV reached a peak of 9, indicating that LTH achieved a profit of 800%. The current LTH-MVRV is slightly below 3.5, still some distance from the data of previous bull market peaks, indicating that this bull market cycle may not be over yet.
Crossing of realized value curves of old coins/new coins
In the past bull and bear cycles, when long-term holders start selling and short-term holders increase their holdings, it often indicates the arrival of a raging bull market. From the chart below, we can see the realized value curves of old coins (1-2 years, blue line) and new coins (1 day to 1 week, red line). Whenever the red line crosses above the blue line, Bitcoin enters the main uptrend phase.
However, in this current cycle, the red line crossed above the blue line on March 9, but fell below the blue line on April 14, temporarily interrupting the upward trend, indicating that the bull market may have been delayed. (The main reasons for this interruption include the postponement of the expected interest rate cut by the Federal Reserve, market concerns about the possibility of an economic recession caused by long-term high interest rates, and sudden geopolitical conflicts in the Middle East.)
A similar situation occurred in 2016 when the red line first crossed above the blue line on July 14, and then crossed above again on November 8, with a gap of 4 months in between, and Bitcoin price retraced by 17% during this period.
Therefore, once the short-term trend changes, it may continue. From a technical analysis perspective, we should pay attention to typical signs of trend reversal, such as “break, turnaround, and cross.”
Crossing of realized market value curves of LTH/STH
Another similar indicator is the realized market value curves of long-term holders (LTH) and short-term holders (STH). When the main uptrend starts, the realized market value of long-term holders (represented by the blue line) usually rises significantly. This kind of “rapid growth” mostly occurs in the middle and late stages of a bull market (as indicated by the green arrows in the chart).
An important preliminary signal is that whenever the realized market value of short-term holders (red line) crosses above the blue line of long-term holders (red arrows in the chart), the market will soon enter such a main uptrend.
In conclusion, although Bitcoin has been unable to surpass its previous high for about two months, according to the analysis of historical on-chain data, it appears that the bull market cycle of Bitcoin is not yet over. Hopefully, this article provides insights to readers and helps them capture key signals that may trigger the next main uptrend.
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