With Bitcoin dropping below 57,000 last week and failing to break its previous high for two months, market participants are generally concerned that the bull market may have ended. However, this article reveals that Bitcoin may be experiencing a temporary adjustment based on a detailed analysis of historical on-chain data, indicating that there is still potential for an upward trend.
Comparison of current and past bull market on-chain data
Bitcoin balance on exchanges
URPD: Analysis of the main cost of on-chain chips
Realized value ratio of old coins/new coins
Realized price change rate of long-term holders
Long-term holder MVRV
Potential signal for the start of the main upward wave
Crossing of realized value curve of old coins/new coins
Crossing of realized market value curve of LTH/STH
Conclusion
In the past month, the cryptocurrency market has experienced a massacre. CoinGecko data shows that Bitcoin rose to $72,325.12 on April 8, but dropped to $56,758 on May 1, a 23% retracement from its historical high of $73,737.94 on March 14.
Ether broke through $3,722 on April 9, but fell to $2,826.93 on May 1, a 30.8% retracement from its high of $4,085.78 on March 14. The total market value of the cryptocurrency market has fallen from $2.9 trillion to $2.3 trillion.
Furthermore, multiple macro factors such as persistent high inflation, delayed interest rate cuts, geopolitical tensions (Middle East and Russia-Ukraine conflicts), and the risk of bank failures have further suppressed market sentiment, causing investors to worry that this bull market may have already ended.
However, if we compare the current situation with the performance of Bitcoin in past bull markets, the situation is not so pessimistic. Coinbase’s second-quarter report released on April 30 points out that Bitcoin has gone through five bull market cycles in history (it believes that the current one is the fifth), and each time it was accompanied by the following retracements before reaching the cycle peak:
6 retracements of 5-10%
3 retracements of 10-20%
2 retracements of 20-30%
1 retracement of 30-40%
1 retracement of 40-70%
So far, Bitcoin has retraced 23% from its historical high, and it has rebounded to around $65,000 this week, currently trading at $62,205.84, indicating the resilience of Bitcoin.
Note that this article is not encouraging investors to stay in the market during major retracements. Investors should still make appropriate investment allocations based on their investment horizon, capital needs, and stop-loss and take-profit plans.
The following analysis will compare the current cycle with past bull markets based on on-chain data to determine whether the bull market has ended and when Bitcoin will enter a new main upward wave. The content is based on the series of tweets by on-chain data analyst Murphy.
One characteristic of Bitcoin reaching its bull market peak is that a large amount of Bitcoin is transferred to centralized exchanges for profit-taking (green bars in the chart below), leading to a significant increase in Bitcoin balance (yellow line). This subsequently causes the Bitcoin price to gradually decline. The chart below shows the double tops of Bitcoin during the 2021 bull market, where this phenomenon can be observed.
However, currently, the Bitcoin balance on exchanges is continuously decreasing, even reaching a new low in six years on April 29, with an 8% decrease year-to-date. In addition, the chart below shows that Bitcoin has experienced the third significant net outflow between 60,000 and 68,000, indicating that there are large funds quietly buying Bitcoin and then withdrawing from exchanges.
URPD, short for UTXO Realized Price Distribution, reflects the price range of BTC’s last movement when it was last transferred. In simple terms, it represents the price distribution of on-chain chip costs and serves as a favorable indicator for analyzing market sentiment. Interested readers can refer to the introduction here.
The two charts below show the turnover (movement) of BTC on-chain chips from April 15 to April 27. As shown in the chart, the ancient chips from the previous cycle (green box) did not change significantly, while the range of 63,300-69,200 increased by 270,000. This means that 270,000 BTC moved within this price range. Apart from some wallet conversions, most of them are generated from transactions, indicating both selling and buying, especially around $64,000 and $66,000, where the increase in Bitcoin quantity is the highest, suggesting significant buying by large funds.
This aligns with the occurrence of the third net outflow peak within this price range mentioned earlier.
Realized value (RV) can be seen as the average turnover cost of the on-chain community. The ratio of realized value can be understood as the proportion of wealth.
On April 29, the realized value ratio of old coins decreased to 55.3%, still far from the low point of 9-26% in previous bull peaks (Figure 1). The realized value ratio of new coins increased to 44%, also showing a gap compared to the peak of 74-85% in previous bull peaks (Figure 2). Therefore, the current bull market cycle is likely not yet complete.
Long-term holders (LTH) refer to users who have held coins for more than 155 days. Compared to the previous two cycles (as shown in the chart below), the change rate of LTH-RP gradually increases before the bull market reaches its peak (highlighted in yellow circles), accompanied by a sharp increase in the change rate of STH-RP (highlighted in red circles), such as 25% in 2018 and 20% in 2021. Subsequently, the change rate of LTH-RP also surges (highlighted in green circles), indicating that the last batch of diamond hands has left the market, reaching the peak of the bull market.
Currently, as shown in the chart below, from April 17 to the present, the 7-day change rates of LTH-RP (blue line) and STH-RP (red line) have both approached zero. This indicates that both long-term and short-term holders have lost interest in the current price, demonstrating that the market has entered a period of balance with fewer participants. This is clearly different from the phenomena observed in the late stages of previous bull markets.
MVRV is the ratio of market price to realized value (cost), which can be used to measure investors’ unrealized gains and losses. LTH-MVRV can serve as a reference for market phase positioning and risk assessment. LTH, as the diamond hands of the market, has always achieved a high profit ratio in each bull market. For example, in 2018, LTH-MVRV reached a maximum of 29, indicating a profit of 2800% for LTH; in 2021, LTH-MVRV reached a maximum of 9, indicating a profit of 800% for LTH. The current LTH-MVRV is slightly below 3.5, still a distance from the data of previous bull market peaks, suggesting that this bull market cycle may not have ended.
The curve crossing of the realized value of old coins/new coins is another similar indicator. In the past bull and bear cycles, when long-term holders start selling and short-term holders increase their holdings, it often indicates the arrival of a violent bull market. From the chart below, we can see the realized value curves of old coins (1-2 years, blue line) and new coins (1 day to 1 week, red line). Each time the red line crosses above the blue line, Bitcoin enters the main upward wave phase.
However, in this cycle, the red line crossed above the blue line on March 9, but fell below the blue line on April 14, temporarily interrupting the upward trend, indicating that the bull market may have been delayed. (The main reasons for this interruption include the delay of the Federal Reserve’s interest rate cut expectations, market concerns about long-term high interest rates leading to an economic recession, and the sudden geopolitical conflicts in the Middle East.)
Similar situations occurred in 2016 when the red line first crossed above the blue line on July 14 and then crossed again on November 8, with a 4-month gap in between. During this period, Bitcoin prices retraced by 17%.
Therefore, once there is a change in the short-term trend, it may continue. From a technical analysis perspective, we should pay attention to typical signs of trend reversal, such as “break, reversal, and crossover.”
In summary, although Bitcoin has been unable to break its previous high for about two months, based on the analysis of historical on-chain data, it appears that Bitcoin’s bull market cycle has not yet reached its end. It is hoped that this article can provide insights to readers and help capture key signals that may trigger the next wave of the main upward trend.