The Fuel For Next Bull Run

Bitcoin has faced significant macro headwinds, and while they will likely continue, it is worth looking at a number of on-chain factors that may indicate when the bitcoin market could shift.

Relevant Past Articles:

• Markets Brace For Max Pain: Is The Bottom In For Bitcoin?

• Historical Comparisons - When Will The Bear Market End?

• A Quantified Look at Bitcoin’s Monetization

Revisiting Our Base Case

As readers know, our base case has been a bearish one for the bitcoin price throughout this year. That doesn’t change our long-term views on where we see bitcoin (and Bitcoin) going over the next decade, but price does matter to many today. 

Our conviction is that we face significant headwinds as long as the macro environment is this terrible. With that being said, we’re always looking for reasons to test that conviction and even change our bias based on new data and developments. 

Today, we want to highlight many of the cyclical bottom and top metrics that we’ve analyzed before. Many do make the case that a bitcoin bottom might be in. Overall, we think these conflict with much more important macro trends that are still unfolding. We may be wrong in our views, and over time the market will provide us with the answer. Over the last couple of days, bitcoin has shown some resilience relative to equities with a strong support and interest level at $20,000. It’s that time again in the bear market for active participants to gauge if this is a new breakout trend or a delayed reversal coming as equities continue selling off heavily (at the time of writing). 

In an overview of key on-chain cyclical indicators, nearly every metric used to gauge overheated and overcooked market conditions are in some of the lowest historical percentiles we’ve seen compared to previous cycles. In the below chart, there’s a short list of these key on-chain metrics which we highlight more in this analysis: Can On-Chain Indicators Call Tops And Bottoms?

Bitcoin’s realized price hovers just below the realized price of nearly $21,100. It’s no coincidence that this metric has acted as a major support for the bitcoin price over time and also as the short-term resistance bitcoin has been looking to break out of this week. 

One thing that has been positive about realized price is that, looking at the 30-day percentage change, we’re far beyond a deep decline phase in realized price. Simply put, when realized price is trending down, that’s capital outflows we can see on-chain. Said even more simply, the average price of all bitcoin holders (as viewed by the bitcoin UTXO set) is still declining, but declining at a less aggressive pace than it was previously. When we see realized price climbing at a rapid pace, those periods show capital inflows to bitcoin and buyers coming in. We’re still in a period of seeing realized price fall over the last 30 days but it’s nowhere near the decline we saw back in the June and July contagion event. 

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A deeper look at the Market Value To Realized Value Ratio (MVRV) shows us that bitcoin’s price has been suppressed below the realized price for some time. On one hand, this is a major allocation signal for long-term buyers. On the other hand, the few cycles we know of show us that this dynamic can last for quite some time. See 2015-2016 as an example of how long that dynamic played out.  

Throughout the history of bitcoin, there have only been 710 days where the market price was below the realized price (average cost basis of all bitcoin visible on-chain).