Grayscale: 7 indicators to see where this round of crypto cycle is

Author: Zach·Pandl, Michael·Zhao, Grayscale Rresearch; Compiler: 0xjs@金财经< /p>

Key points:

From a historical perspective, cryptocurrencies show a clear four-year cycle. Go through successive phases of rising and falling prices. Grayscale Research believes that investors can monitor a variety of blockchain-based indicators and other measurements to track crypto cycles and provide a basis for risk management decisions.

Cryptocurrency is developing into a mature asset class: New Bitcoin and Ethereum spot ETPs expand market access, and the incoming U.S. Congress may bring changes to the industry for clearer supervision. Given the above factors, cryptocurrencies may finally break out of the four-year cycle that characterized the early market.

Nonetheless, Grayscale Research determines that the current combination of indicators fits the mid-term stage of the cycle. As long as the fundamentals are solid, if applications are popularized and the macro market environment improves, the bull market is expected to continue until 2025 and beyond.

Similar to many physical commodities, Bitcoin prices do not follow a strict "random walk" pattern. In fact, there are signs of statistical momentum in its price: when it rises, it tends to keep rising, but when it falls, it often keeps falling. Looking over a longer time span, Bitcoin’s ebb and flow cycles fluctuate around the historical upward trend line (Figure 1).

Figure 1: Bitcoin price fluctuates cyclically around an upward trend Features

The driving factors of each price cycle in the past have been different, and future price returns may not replicate past experience. As Bitcoin matures, is accepted by more traditional investors, and the supply impact of the four-year halving event fades, its price cycle may be reshaped or even disappear. However, studying past cycles can help investors gain insight into the typical statistical characteristics of Bitcoin and assist risk management.

Measuring momentum

Figure 2 shows the price of Bitcoin during the rising phase of previous cycles Performance. The price is based on the cycle low set at 100 (marking the beginning of the appreciation phase of the cycle) and tracks to the peak (marking the end of the appreciation phase). Figure 3 presents the same information in tabular form.

Bitcoin had a short early cycle and a rapid rise: the first cycle was less than one year, and the second cycle was about two years. Both surged more than 500-fold from their previous cycle lows. The latter two cycles last nearly three years each. In the cycle from January 2015 to December 2017, Bitcoin’s value increased by more than 100 times; in the cycle from December 2018 to November 2021, the increase was approximately 20 times.

Figure 2: The trend of Bitcoin in this cycle is very similar to the trajectory of the previous two market cycles

After reaching the top in November 2021, the price of Bitcoin fell to a cycle low of about $16,000 in November 2022. This started the current cycle, which has lasted more than two years. As shown in Figure 2, this round of price rise is similar to the previous two Bitcoin cycle trajectories, which both took one year to reach the price peak. In terms of magnitude, the increase in this cycle is about 6 times, which is also impressive, but far inferior to the past four rounds. In short, although it cannot be determined that future price trends will conform to past cycles, history shows that there is room for expansion in the length and magnitude of this bull market.

Figure 3: Four unique cycles in Bitcoin price history

Check key indicators

In addition to analyzing price trends in past cycles, investors can use a variety of blockchain indicators to measure the progress of the Bitcoin bull market. Common indicators include the appreciation of Bitcoin buyer costs, the scale of new capital inflows, the relative level of price and Bitcoin miners’ earnings, etc.

The most popular indicators are Bitcoin market capitalization (MV, calculated as the secondary market price per coin) and realized value (RV, calculated as the latest price on the chain) The ratio of transaction price per coin), that is, the MVRV ratio, can be regarded as the extent to which the market value of Bitcoin exceeds the total market cost. Over the past four cycles, the ratio has reached at least 4 (Figure 4). The current MVRV ratio is 2.6, indicating that there may be follow-up markets in this cycle. However, the ratio peaks gradually lower in each cycle, and the price may not reach 4 before reaching a peak. Figure 4: MVRV ratio is at the intermediate level

Other on-chain indicators consider the degree of new funds injected into the Bitcoin ecosystem, which veteran cryptocurrency investors often call "HODL Waves." The price increase may be due to new capital purchasing coins from long-term holders at a higher price. There are many indicators, and grayscale research tends to select the ratio of the amount of coins transferred on the chain to the total circulating supply of Bitcoin in the past year (Figure 5). In the past four cycles, this indicator has reached at least 60%, which means that during the appreciation stage, at least 60% of the circulating supply has changed hands within a year. It is currently around 54%, suggesting that we may see further increases in the on-chain turnover rate before the price reaches a peak.

Figure 5: The activity of Bitcoin circulation in the past year was less than 60%

Another cycle The indicator focuses on Bitcoin miners, the professional service providers who maintain the Bitcoin network. For example, the ratio of commonly used miner market capitalization (MC, the dollar value of miners’ currency holdings) to the “thermal cap” (TC, the cumulative value of Bitcoin earned by miners through block rewards and transaction fees). The principle is that miners may take profits when their assets reach a certain threshold. Historical data shows that after the MCTC ratio exceeds 10, prices tend to peak during the cycle (Figure 6). It is currently around 6, indicating a mid-cycle stage. But similar to the MVRV ratio, this indicator peaks downward in each cycle, and the price may top before it reaches 10.

Figure 6: Indicators based on Bitcoin miners are also lower than past thresholds

There are many indicators on the chain , there may be differences between different data sources. Moreover, these tools only roughly judge the similarities and differences between the current price appreciation stage and the past, and cannot ensure that the relationship between indicators and future price returns is constant. Taken together, common indicators of the Bitcoin cycle are still lower than past price peak levels. If fundamental support is solid, the current bull market may continue.

Other cryptocurrencies besides Bitcoin

The encryption market far exceeds the scope of Bitcoin, and the industry Signals from other areas can also guide market cycle trends. Metrics like these will be particularly critical in the year ahead given Bitcoin’s relative performance against other cryptoassets. In the past two market cycles, Bitcoin’s dominance (share of the total market capitalization of the crypto market) reached its peak about two years into the bull market (Figure 7). Its recent decline in dominance coincides with the two-year node of this market cycle. If this trend continues, investors should consider more indicators to determine whether crypto valuations are approaching cycle highs.

Figure 7: Bitcoin dominance was in the first two cycles and began to decline in the third year

For example , investors can monitor the funding rate, which is the cost of holding a long position in the perpetual futures contract. Funding rates climb when speculative traders' demand for leverage is high. Therefore, the level of market funding rates can measure the overall degree of speculative long positions. Figure 8 shows the weighted average funding rates for the top ten cryptoassets outside of Bitcoin (the largest “altcoins”). Rates are currently significantly positive, indicating strong long demand from leveraged investors, despite falling sharply last week when the market tanked. Even the local highs are lower than the peaks at the beginning of this year and the previous round. From this point of view, the current level is consistent with the market's moderate speculative long position and is still far from the peak of the market cycle.

Figure 8: Altcoin funding rates indicate moderate speculative longs

In contrast, Altcoin perpetual futures open interest (OI) rose to highs. Before the large-scale liquidation on Monday, December 9, altcoin OI on the three major perpetual futures exchanges was nearly $54 billion (Figure 9), highlighting the high speculative long positions in the market. OI is down about $10 billion but remains elevated following massive liquidations earlier this week. Highly speculative long positions are consistent with late market cycle characteristics and require continued monitoring.

Figure 9: The open interest of altcoins before the recent liquidation was at a high level

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Since the birth of Bitcoin in 2009, the digital asset market has made great strides in development. This crypto bull market is different from the past in many aspects. Crucially, U.S. market Bitcoin and Ethereum spot ETPs were approved to bring in $36.7 billion in net inflows, driving their integration into traditional investment portfolios. In addition, the recent elections in the United States are expected to increase the transparency of market supervision and consolidate the status of digital assets in the world's largest economy. This change is of far-reaching significance. In the past, the long-term prospects of crypto assets have been repeatedly questioned. Therefore, the valuation of Bitcoin and other crypto assets may not necessarily repeat the mistakes of the earlier four-year cycle.

At the same time, cryptoassets such as Bitcoin are similar to digital commodities, and their prices may have momentum characteristics. Therefore, analyzing on-chain indicators and altcoin holding data can contribute to investors’ risk management decisions.

Grayscale Research determines that the current indicator combination is in line with the mid-term of the crypto market cycle: the MVRV ratio is higher than the cycle low and is still far from the previous market top. As long as the fundamentals are solid, such as the popularity of applications and the improvement of the macro environment, there is no reason why the crypto bull market cannot continue until 2025 and beyond.