The cryptocurrency market has been consolidating in the range of $60,000 to $70,000 for nearly 4 months. Although it is difficult to determine when it will rise again, I don’t believe this is likely the cycle top. This article is sourced from @0xjaypeg and compiled by Deep Tide.
Market Value to Realized Value (MVRV)
Changes in Bitcoin long-term holders
USD supply
Coinbase jumps 106 spots in one day (they gained a large number of app downloads)
Bitcoin ETF inflows peaked at $1.045 billion and then sharply slowed down.
A large amount of very aggressive regulatory news
Miners actively selling off during the post-halving slump
Is this the market top now?
Bitcoin has been hovering in the range of $60,000 to $70,000 for nearly 4 months, which, though frustrating, is not uncommon. Typically, after a halving event, we see the market enter a slump. Looking back at the halving cycles of 2016 and 2020, we can find similar consolidation phases before entering the so-called “banana area,” the final parabolic rise phase.
However, we should not just be satisfied with “this is how it was in the past,” but rather try to analyze the current market conditions to learn from it and even profit. At first glance, if we try to answer why there is a lot of supply around $70,000, the simplest and most obvious answer might be:
A large amount of funds entered the market before the halving event
Miners forced to sell off due to halving of income
U.S. tax factors
We can list numerous reasons, but it is more meaningful to examine some objective indicators.
One interesting indicator is the ratio between Bitcoin’s weighted average purchase price (the price at the last move) and the current market price. In short, this reflects Bitcoin’s unrealized profits.
MVRV reached a peak in March at a ratio of 2.75, meaning that when Bitcoin’s price was $73,100, the average purchase price was $26,580. Although this indicator is not entirely accurate (for example, centralized exchanges may not move tokens but only update database entries), it usually increases synchronously with the market price hitting a peak. At some point, people need to cash in profits, right?
Another interesting indicator is the changes in long-term holder positions, defined as wallets holding Bitcoin for over 155 days. Tops usually form when these holders complete selling, while bottoms form when they start buying.
From the end of January to the end of March, there is a noticeable sharp increase in selling volume. More importantly, they are now starting to buy again.
Finally, considering that Bitcoin is priced in USD, observing the USD supply is crucial. How much “money” is flowing in the market? More importantly, is this quantity increasing or decreasing? At what speed? Is it accelerating or decelerating?
I believe this chart explains it all — the growth rate of global M2 (a critical factor in global liquidity) has significantly slowed down since the end of March/early April. The market is forward-looking, and if the outlook for M2 slows down, the market will anticipate the USD to strengthen relative to cryptocurrencies (all else being equal).
In addition, there are many other signals:
At the top (including regional tops), selling is always difficult because they often last longer (or shorter) than we expect, and emotions make it difficult for us to remain objective. Furthermore, the market also influences us, where we are cautious at the initial breakout, then envy those who make more money than us (buying memes, increasing leverage), and finally try to replicate and “chase” to the end.
The good news is, I don’t think this is the cycle top (if the concept of a cycle top still exists under factors like ETFs). As I mentioned at the beginning, I think this is quite typical in the weeks and months following a halving. Each cycle is obviously different, but I believe the basic principles are generally the same:
There can only be so much unrealized profit in the system
Selling by long-term holders forms a top (buying forms a bottom)
The rate of increase or decrease in USD supply
These factors will manifest differently based on participants’ positions.
I don’t think this is likely the cycle top. Although it’s hard to say exactly when we will rise again, I think we are closer to breaking out of this range than when we started (hopefully to the upside).