Is The Bitcoin Cycle Top In? What 13 On-Chain Indicators Say

In the latest edition of Capriole Investments’ “Bitcoin Update,” Founder and CEO Charles Edwards examines the current state of Bitcoin through a detailed analysis of thirteen on-chain indicators to address the critical question: Is the Bitcoin Cycle Top In?

A month after a promising technical breakout above $65.5K, which briefly touched $70K, Bitcoin experienced a sharp reversal, suggesting a possible cycle top. Edwards notes, “Never before has Bitcoin broken a new all-time high and had two retests instead of hitting new highs.” This pattern, he says, indicates a potential size-related consolidation, but is generally a sign of market weakness.

Bitcoin On-Chain Data Analysis

#1 Provides Delta + 90 Day CDD: These metrics provide a strong indication of cycle tops by displaying stock movements and coin destruction days. The recent data formed a rounded top after a vertical increase in both metrics, which historically corresponds to market peaks. Edwards rates it as bearish, implying that supply dynamics indicate a downturn.

#2 Long-Term Holder Inflation Rate: Historically, a threshold of 2.0 in this metric has been a reliable predictor of cycle tops. The rate rose from 0.5 in April to 1.9, now teetering near this critical level. This close suggests that long-term holders are becoming increasingly inclined to sell, marking another bearish indicator.

#3 Hodler Growth Rate (HGR): This measures the net growth of long-term holders. A decline or plateau in this rate often precedes market tops, as it indicates that long-term investors are cashing out. Currently, the HGR has not made new highs in more than six months, which is consistent with historical precedents of cycle tops and is therefore bearishly scored.

#4 Bitcoin Heater: Analyzing extreme readings in funding, basis and options, this benchmark stands neutral in the current cycle, indicating no significant market exuberance that typically precedes market tops. Furthermore, the absence of new leverage in the market contributes to this neutral stance.

#5 Dynamic Range N/A: This valuation metric compares on-chain transaction volume to market capitalization, and has recently moved out of the value zone due to increased on-chain activity from innovations such as Ordinals and Runes. Despite this rise, it remains neutral, suggesting a balanced market valuation.

#6 On-chain transaction fees: Increased transaction fees typically indicate high network demand, which can indicate cyclical peaks when followed by a sharp drop. Current fees showed some increases, but largely mirrored the decline seen in April. This metric remains neutral, but is something Edwards recommends keeping a close eye on.

#7 Net Unrealized Profit/Loss (NUPL): Placed just below the euphoria zone at 74%, the NUPL suggests that most market participants are in profit, but not excessively so. This delicate balance leaves the metric in a neutral state, reflecting potential caution but not outright exuberance.

#8 Spent volume 7-10 years: A significant increase in spent volume of older coins usually indicates selling by long-term holders or “whales”, which may precede a market top. The massive transaction on May 28, involving 138,000 Bitcoin, mainly from Mt Gox distributions, marks it as bearish, indicating possible market pressure from large-scale selling.

#9 SLRV Ribbons: This metric, which looks at short and long returned ribbons, shows a bearish crossover for the first time this year. Although it has not reached an elevated point that suggests a cycle top, the recent trend is worrisome and adds to the bearish outlook.

#10 Dormant Flow: With Dormant Flow peaking significantly this year, the average age of spent coins is higher, similar to peaks seen in 2017 and 2021. This continuation of a high resting flow rate is bearish, suggesting a potential cycle top is near.

#11 percentage of addresses in profit: More than 95% of addresses in profit usually precede a cycle top. With the recent peak and subsequent decline, this indicator turns bearish, indicating that many investors may take profits, which may lead to a price decline.

#12 Mayer Multiple: Despite peaking at 1.9 in March, the Mayer multiple remains below the 2.5 threshold that has historically signaled major cycle stops. Currently at 1.0, this measure is neutral, indicating that while the market is heated, it has not reached the extremes of previous cycle peaks.

#13 US Liquidity: The correlation between liquidity and Bitcoin’s price is strong, and recent trends show a persistent downward trend in liquidity, which Edwards finds. This negative liquidity growth aligns with a bearish outlook for Bitcoin.

What does this mean for the Bitcoin cycle?

Out of thirteen metrics analyzed, eight are currently bearish, five remain neutral and none are bullish. This dominance of bearish indicators suggests that the cycle top may well be in, indicating a potential pivot point for Bitcoin. “I won’t lie, I find this on-chain data hard to believe. I’m surprised by the number of Bearish signals because it’s only two months after halving,” Edwards noted.

Despite the bearish leaning in on-chain statistics, he emphasizes the importance of considering technical patterns and broader market behavior. Bitcoin’s price is currently above the $58K support level, and the potential formation of a Wyckoff accumulation pattern on the daily chart suggests that the market may still hold bullish potential.

However, the mixed signals call for cautious optimism and vigilant risk management. “Fundamentals look bearish, but technicals are still skewed bullish. This leaves ambiguity here. All the bearish top signals could be the result of typical summer months of inactivity. Or maybe this cycle will be a little more like 2013 with a double top, or a hybrid mid-cycle grind that we have to go through now as we’re playing in the big league with the TradFi today,” Edwards noted.

However, he also concluded, “My gut tells me this is just an exceptionally bad summer period for Bitcoin chain activity, and we’ll see what is usually the best 12-month window for Bitcoin risk-adjusted returns after Halving resume in Q4 and beyond.”

At press time, BTC was trading at $62,747.

Featured image created with DALL·E, chart from TradingView.com