Historical Bitcoin BTCUSD market cycle indicators show that the crypto market is “currently in the middle of the bull run,” backed by a mix of strong fundamental and technical factors, according to a recent report from Grayscale.
Determining the onset of crypto bull runs is not easy, aside from the fact that BTC price often peaks 8-11 months after Bitcoin supply halving. Grayscale analysts set out in a recent report to outline the key elements of a bull market.
These factors are divided into the leaders and the “fifth inning”, which shows where the market currently stands.
Precursors of a crypto bull run
According to the report, crypto bull markets previously started with a surge in Bitcoin’s dominance.
“This trend highlights Bitcoin’s role as a leading indicator for the broader crypto market,” the report added. Typically, a rally in altcoins is preceded by growth in BTC price, as investors “venture into higher-risk, cryptocurrencies in search of greater returns” fueled by their Bitcoin gains.
Grayscale analyst Michael Zhao said,
“This dynamic was observable during the 2021-2022 bull run, a period where Bitcoin’s gains were quickly followed by a significant rise in altcoin valuations.”
After analyzing Bitcoin’s market value, Grayscale analysts said the benchmark is displaying a “familiar pattern” where BTC’s increasing dominance paves the way for a rally in altcoins.
However, three unique catalysts distinguish this cycle from previous ones: spot Bitcoin ETF inflows, positive stablecoin inflows, and declining BTC balance on exchanges.
“The first crucial difference in this bull market compared to previous ones is the rapid change in positive market dynamics, largely influenced by spot Bitcoin ETF inflows,” Grayscale noted. Since their approval on January 10, capital inflows into spot Bitcoin ETFs have consistently outpaced BTC “issuance by more than 3 times since mid-March, putting upward pressure on the price,” the report added.
Other catalysts of the latest rally in BTC price that saw it breach previous all-time highs on March 5 were sound on-chain fundamentals, including stablecoin supply on exchanges.
The stablecoin supply change chart showed growth in stablecoin liquidity, indicating the availability of more capital for trading, mainly to buy cryptocurrencies.
“This inflow of stablecoin capital, as indicated by rising stablecoin reserves on exchanges, usually fuels the momentum of bull markets.”
In addition to an increase in intent to buy, evidenced by a larger supply of stablecoin, a lack of intent to sell, supported by declining supply on exchanges, is also a major factor supporting Bitcoin’s rally.
Additional data from Glassnode reveals that the total number of BTC held in known exchange wallets has fallen to around 12% of the total supply, “marking its lowest level in five years.”
In addition, Grayscale reported that there has been a noticeable decrease in the Bitcoin held on exchanges “with a reduction of 7% since the local peak of Bitcoin supply in May 2023.” This suggests a supply squeeze driven in part by spot Bitcoin ETFs transferring BTC to custodian cold wallets for long-term storage as investors anticipate price growth in the future.
Is the bull market here?
After understanding the factors that have driven Bitcoin’s price so far, it is important to determine where the market currently stands. Grayscale uses a baseball analogy to say, “We are currently navigating the ‘middle phase’ or the ‘fifth inning’ of the current bull.”
Using the net unrealized gain/loss (NUPL) – a measure that calculates the percentage gain/loss by dividing the difference between market value and realized value by the market capitalization, Greyscale analysts report that the NUPL ratio rose with the rise in BTC’s price. This means that as the price has grown, investors who bought the asset at lower prices are “still hanging on to their coins.”
“As of mid-March 2024, with a NUPL at around 60% and historical peaks occurring at earnings ratios above 70%, it appears we may be approaching a cycle by this measure.”
Bull markets are mainly driven by euphoria, fear of missing out (FOMO) and speculative trading by retail investors. One of the ways to determine this is by analyzing the sentiment of the retail market.
Grayscale analysts looked at data from Satiment, which revealed that interest from retail investors is still significantly lower than the levels seen during the 2021 bull market.
Additionally, data from Google Trends reveals that search interest levels for the word “crypto” are below 40, significantly lower than the peaks seen in 2021 at 99.
This suggests that “the broader public’s curiosity with cryptocurrency may not have fully recovered,” the report says.
This raises questions about whether retail investors are participating in the current cycle.
“To reconcile the rising prices/on-chain metrics with subdued retail sentiment, it is plausible to consider that the retail investors who fueled the previous cycle have not fully entered the market.”
However, data from Alternative, a platform that analyzes “emotions and sentiments” around cryptocurrencies, shows that the market sentiments are similar to those seen at the height of the 2021 bull market when BTC reached the previous high of $69,000.
This could signal the return of retailers to the crypto market, and the accompanying greed and FOMO is expected to push prices higher.
After considering these technical and fundamental factors, Grayscale concluded that the “bull run will continue.” However, the firm advised its investors to carefully monitor flows into spot Bitcoin ETFs and other macroeconomic factors for signs of market shifts.
Zhao says,
“While progress has been made, we believe there is still room to run.”
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.
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While we love diving into the exciting world of crypto here at Uncirculars, remember that this post, and all our content, is purely for your information and exploration. Think of it as your crypto compass, pointing you in the right direction to do your own research and make informed decisions.
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