Author: Michael Zhao, Grayscale; Compiler: Baishui, Golden Finance
Bitcoin has historically exhibited cyclicality, with distinct "bull" and "bear" phases.
The current bull cycle in Bitcoin appears to be driven by a variety of technical drivers, such as spot Bitcoin ETF inflows, as well as active stablecoin inflows and total value locked in DeFi applications (TVL) increases and other strong fundamental factors.
Bitcoin’s cyclical indicators suggest that we are currently in the middle of a bull market ( To use a baseball metaphor, probably around the fifth inning), there's room for continued growth based on current trends.
Given a series of positive fundamental developments, the bull market is likely to continue. However, investors may want to remain vigilant by monitoring spot Bitcoin ETF flows and macroeconomic indicators for signs of market change.
Bitcoin prices surged rapidly, breaking multiple all-time highs in the United States. Over the past month, Bitcoin has rebounded rapidly from its 2023 lows. Among more than 30 currency pairs, Bitcoin reached an all-time high even earlier. This resurgence has attracted the attention of the news media, with daily reports on Bitcoin price movements. But it doesn’t seem to stop there: Traditional investment managers are even starting to analyze memecoins in their research notes – historically this A clear sign of growing mainstream interest in cryptocurrencies. With overall cryptocurrency market capitalization approaching all-time highs (Chart 1), we must ask ourselves: Are we witnessing the start of a new bull market?
Chart 1: The total market value of cryptocurrency is close to a record high
First, let's clarify what we mean by a bull market. Although the exact definition can be difficult, a practical approach isto think of a bull market as starting approximately from the lowest price point of the previous cycle Three- to four-year cycle (Chart 2). Typically, these cycles are characterized by a gradual increase in prices, culminating at the cycle high, followed by a period of stability or slight decline.
Chart 2: Visualization of cryptocurrency bull market cycle
Identifying the elements of a bull market can be challenging: What factors brought us to this point? What can we expect in terms of duration and sustainability?
Historically, The beginning of a cryptocurrency bull market is often marked by a spike in Bitcoin “dominance,” a measure of Bitcoin’s value relative to the overall cryptocurrency market. This trend underscores Bitcoin’s role as a leading indicator of the broader crypto market. Typically,Bitcoin’s rise precedes broader altcoin gains. Investors, encouraged by Bitcoin profits, may venture into riskier cryptocurrencies in search of greater returns. This dynamic can be observed during the 2021-2022 bull run, during which Bitcoin’s rise quickly led to a sharp increase in altcoin valuations (Chart 3).
Chart 3: Bitcoin’s rise often precedes that of altcoins
While the current cycle exhibits a familiar pattern of Bitcoin’s growing dominance, it paves the way for an altcoin rally. path, but what’s remarkable about this cycle is its unique catalyst. As we have previously explored, key drivers such as Bitcoin ETF spot inflows and increased on-chain liquidity not only contribute to the current bull market momentum, but also marks a departure from the traditional dynamics observed in previous cycles.
With previous The first key difference in this bull run is the rapid change in positive market dynamics, which was largely influenced by inflows into spot Bitcoin ETFs. Since the ETF was approved in January, these inflows have consistently exceeded Bitcoin issuance by more than 3x as of mid-March, putting upward pressure on prices (Chart 4).
Chart 4: Cumulative inflows into spot Bitcoin ETFs push up the price of Bitcoin
From a high level, when new shares of a spot Bitcoin ETF are created, the ETF needs to start from The spot market purchases Bitcoin and delivers the Bitcoin to the fund. In other words, creation results in the need to purchase Bitcoin to match the increase in the fund's assets. In short, cash needs to be converted into Bitcoin based on the creation of a primary market. This dynamic is evident when analyzing the hourly premium of Coinbase BTC-USD versus Binance BTC-USDT (Chart 5). Coinbase's higher premium indicates increased spot buying pressure from U.S. investors, an indicator of the ETF's presence in market dynamics.
Chart 5: Coinbase (CB) BTC-USD is at a premium relative to Binance BTC-USDT, indicating buying pressure in the United States< /p>
On-chain indicators also indicate increasing liquidity. A key indicator of on-chain data is a positive shift in stablecoin inflows. Stablecoins are digital currencies pegged to stable assets such as the U.S. dollar and play a vital role in the cryptocurrency ecosystem. They are designed to provide a stable medium of exchange and serve as the primary underlying pair for trading on most centralized and decentralized exchanges.
Increased liquidity in stablecoins means more funds are available for transactions, whether buying or selling cryptocurrencies. An influx of stablecoin capital typically drives bull market momentum, as evidenced by growing exchange stablecoin reserves. (Chart 6).
Chart 6: Stablecoin inflows are related to BTC prices
Relatedly, on-chain liquidity also appears to be growing significantly, with decentralized finance (DeFi) applications The total value locked (TVL) demonstrates this (Chart 7). TVL aggregates the total value of assets deposited in various DeFi protocols and serves as another metric for assessing ecosystem liquidity. The increase in TVL not only means increased liquidity within the DeFi platform, but also indicates increasing user participation in the ecosystem. Increased liquidity is critical to the vitality of DeFi, helping to facilitate smoother transactions and a wider range of financial activities. Considering basic on-chain activity, it is worth noting that the TVL of decentralized applications has more than doubled since the beginning of 2023, when the TVL was approximately $40 billion, to It will reach approximately US$100 billion in mid-March 2024.
Chart 7: The total value locked in DeFi has more than doubled since 2023
In addition, Exchanges are holding significantly less Bitcoin, down 7% since the local peak of Bitcoin supply in May 2023, suggesting tight supply, in part due toSpot Bitcoin ETF moves BTC to custodial cold wallets for long-term storage (Chart 8). According to research from Glassnode, the share of total BTC held on exchanges has shrunk to around 12% of circulating supply, the lowest level in five years. This move away from exchanges has traditionally been seenas a bullish indicator that people are more inclined to hold than to sell, and investors Confidence in the value of Bitcoin. The ensuing liquidity crunch as demand on exchanges gradually outpaces supply not only highlights the influence of these spot Bitcoin ETFs, but also reinforces the bullish outlook for the cryptocurrency market.
Chart 8: Bitcoin supply decreases on exchanges
Now that we have identified the drivers of the bull market factors, we need to evaluate our position. While each cycle is inherently unique, established on-chain patterns and sentiment data lead us to believe thatwe are currently We are in the "mid-term" or "fifth inning" of the current bull market cycle. Although progress has been made, we believe there is still room.
The Market Value/Realized Value (MVRV) metric compares Bitcoin’s market value to “Realized Value” or last Compare the prices of all Bitcoins when they change hands. Taking advantage of this difference, net unrealized profit or loss (NUPL) calculates the profit or loss percentage by dividing the difference between market value and realized value by market capitalization. As the price of Bitcoin rises and investors who bought at a lower cost still hold Bitcoin, the NUPL ratio rises. With NUPL around 60% as of mid-March 2024, with historical peaks occurring at margins above 70%, it appears we may be approaching a cycle high for this metric (Chart 9).
Chart 9: NUPL reaches historical cycle high
In contrast, the MVRV Z-Score provides a different perspective, indicating the potential for further growth . This metric calculates the difference between market cap and realized cap and adjusts volatility based on the rolling standard deviation of market cap. Historically, high Z-scores have reflected a large gap between market value and realized value, marking the peak of the cycle. Currently, the Z-score is around 3, well below levels at previous cycle peaks, and appears to have plenty of room to rise (Exhibit 10).
Exhibit 10: MVRV Z-score suggests we are not yet close to the peak of the bull market
From a broader perspective, ColinTalksCrypto Bitcoin Bull Index The index (CBBI) provides a comprehensive view by combining nine different ratios into a single number that measures the progress of the bull market phase (Chart 11). These ratios cover a variety of values, including Bitcoin’s price relative to its historical performance, on-chain indicators indicating investor behavior, and broader market sentiment indicators. By integrating data from sources such as the MVRV Z-Score, Puell Multiples and RHODL Ratios, CBBI aims to provide a snapshot of broad market conditions. As of mid-March 2024, the CBBI is 79 out of 100, indicating that we are approaching the peak of the cycle, although the market still has further potential Upside potential.
Chart 11: CBBI shows we are closer to cycle peak
However, sentiment data shows a completely different picture scene. Subscription rates for cryptocurrency-related YouTube channels can be used as an indicator of retail investor interest, but their subscription rates are significantly lower than in 2020-2021 Enthusiasm during a bull market. However, the recent uptick in subscriber growth suggests retail investor interest is slowly growing (Exhibit 12).
Chart 12: Cryptocurrency Youtube subscriptions remain sluggish
Similarly, Currently on Google Trends Search interest levels for the term "cryptocurrency" are significantly lower than their 2021 peak, suggesting that broader public curiosity about cryptocurrencies may not have fully rebounded yet (Exhibit 13). Google Trends shows the popularity of a search term by giving it a score from 1 to 100 (Y-axis). The score is based on a sample of Google searches, randomly selected and unbiased. A score of 100 indicates that a term is at its highest popularity at the time and place selected. The discrepancy raises questions about retail investor participation in the current cycle.
Chart 13: Compared with the previous cycle, the search popularity of "cryptocurrency" has declined
Mobile engagement as measured by Coinbase app downloads appears to indicate growing interest from potential investors, peaking around March 5 when it entered the top 100 (Exhibit 14). However, its subsequent decline in rankings suggests a possible cooling or shift in the platforms used by market participants.
Chart 14: Coinbase application ranking hovers around 300
In order to coordinate rising prices/on-chain indicators with sluggish retail investor sentiment, it can be considered The retail investors that drove the previous cycle have not yet fully re-entered the market. In our research,this cycle may be driven by different types of investors — Investors who are less visible on social media platforms like Twitter or YouTube. The approval of a spot Bitcoin ETF may have attracted investors more comfortable with traditional investment vehicles. The shift signals Bitcoin's broader acceptance, potentially extending its appeal beyond typical cryptocurrency enthusiasts to include those who prefer established financial products.
The outcome of the bull market has yet to be determined. Nonetheless, we remain cautiously optimistic, buoyed by potential catalysts such as increased retail and institutional participation, which could help drive momentum into the cycle.
One thing we are cautious about is the behavior of new Bitcoin ETF spot buyers. Historically, Bitcoin does experience retracements in every bull cycle, so we are not sure how these new buyers will react when faced with a retracement. Encouragingly, the cycle has experienced relatively small retracements so far (Chart 15); the retracement amounts have been minimal compared to past cycles.
Chart 15: The current bull market cycle has the smallest retracement amount
On the other hand, we recognize that there is untapped need. In addition to the aforementioned retail investors who have not yet returned to the market, some institutional investors (such as telecommunications companies and wealth management companies) Still on the sidelines. However, one specific organization has begun approving the inclusion of spot Bitcoin ETFs in advisor-managed portfolios. This cautious but hopeful endorsement signals significant yet untapped investment potential that we believe can sustain or accelerate the market's upward trajectory.
Spot Bitcoin ETF flows and macroeconomic indicators are currently the main forces determining the near-term direction of the Bitcoin bull cycle, and like two sides of a seesaw, their influence grows with each other. fluctuate with the passage of time. At certain moments, spot Bitcoin ETF flows dominate, while at other moments, macroeconomic factors prevail. This changing dynamic ensures that our attention remains focused on these elements, as they are likely to continue to dominate the narrative of Bitcoin market behavior.
Looking ahead, our belief in the performance of Bitcoin as an asset class remains steadfast. Supported by favorable market conditions and its established role as a store of value and hard currency, we believe Bitcoin will continue to succeed. While markets are rallying strongly in early 2024, investors must remember the inherent volatility of cryptocurrencies, which is characterized by periodic pullbacks during bull markets. However, by maintaining a long-term view,we believe Bitcoin is clearly in a strong position.
The bull market has indeed returned, but this time it's more active, and it's happening a little earlier than many expected. Let’s dig into what’s different about the market this time.
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