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

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As a researcher with experience in analyzing on-chain data for Bitcoin, I find the latest Capriole Investments’ “Bitcoin Update” by Charles Edwards insightful and thought-provoking. The detailed examination of thirteen on-chain indicators to determine if the Bitcoin cycle top is in is an essential aspect of understanding the market dynamics.

In the most recent issue of Capriole Investments’ “Bitcoin Update,” Charles Edwards, the company’s founder and CEO, delves into the present condition of Bitcoin by meticulously examining thirteen on-chain markers to tackle the pressing query: Has the Bitcoin trend peaked?

Approximately a month after reaching a promising technical milestone at $65,500 and briefly touching $70,000, Bitcoin unexpectedly underwent a significant price reversal. Edwards points out that Bitcoin has never before reached a new all-time high only to have two tests instead of setting new records. This pattern, according to him, may indicate a potential period of consolidation due to size-related factors, but it generally signifies market instability.

Bitcoin On-Chain Data Analysis

#1: The latest supply Delta and 90-day Coin Destruction Days indicators reveal significant insights about potential market tops. By depicting supply trends and the days of coin destruction, these metrics have previously signaled rounded market peaks following steep upward movements. According to Edwards’ analysis, this bearish signal suggests that the underlying supply dynamics may be hinting at an upcoming market downturn.

Long-term Holders Inflation Rate: Traditionally, a 2.0 percentage point in this indicator has signaled market peaks. It has risen from 0.5% in April to nearly 2.0%, nearing the significant threshold. This close proximity indicates that long-term investors are increasingly considering selling, adding another bearish signal.

The Hodler Growth Rate (HGR) signifies the percentage increase of long-term investors in the market. A decrease or leveling off of this rate typically signals that long-term holders are selling off their assets. Historically, such occurrences have preceded market peaks, indicating a bearish trend. At present, there haven’t been new highs in the HGR for more than six months, which is consistent with past market cycle tops.

As a crypto investor, I closely monitor the Bitcoin Heater metric to gauge the market’s sentiment and potential trends. Currently, this indicator remains neutral in the ongoing cycle since extreme readings in funding rates, basis, and options are absent. This lack of market exuberance, which is often a precursor to market tops, suggests a more balanced market situation. Additionally, with minimal new leverage in the market, I interpret this as further evidence supporting the neutral stance.

As a researcher studying cryptocurrency markets, I’ve come across the Dynamic Range NVT (Net Value to Transactions) metric. This particular valuation tool calculates the relationship between on-chain transaction volume and market capitalization. Lately, this ratio has moved out of the value zone due to heightened on-chain activity brought about by innovations such as Ordinals and Runes. Even with this surge in activity, the Dynamic Range NVT remains neutral, signaling a well-balanced market valuation.

#6 On-chain Transaction Fees: High transaction fees often signal increased network usage, potentially hinting at market peaks when followed by a significant drop. The current fees have experienced some increases, yet they mainly reflect the decrease observed in April. This indicator holds a neutral stance for now, but Edwards recommends keeping a close eye on it.

The NUPL, which lies at a moderate 74% level beneath the euphoria threshold, indicates that the majority of market participants currently enjoy profits. However, this balanced situation does not suggest extreme profit-taking or excessive optimism, keeping the metric in a neutral position and potentially signaling caution rather than outright enthusiasm.

As an analyst, I have observed that a substantial rise in spent volume from coins that are several years old tends to indicate selling behavior from long-term holders or major players, often referred to as “whales.” This trend can be a sign of an approaching market peak. For instance, the enormous Bitcoin transaction on May 28th, which consisted of approximately 138,000 coins, primarily sourced from Mt. Gox distributions, is a bearish signal. It suggests that there could be significant market pressure due to large-scale sell-offs in the near future.

#9 SLRV Ribbons: This indicator, which examines short-term and long-term reversion ribbons, has signaled a bearish crossover for the first time in 2023. Although it hasn’t yet reached a level that indicates a market top, this trend, combined with other bearish factors, strengthens the pessimistic viewpoint.

As a researcher studying the cryptocurrency market, I’ve observed an intriguing trend this year: the dormancy flow has reached a notable peak. In simpler terms, this means that the average age of coins last in use before being spent again has increased significantly. This trend mirrors peaks we witnessed in 2017 and 2021.

Approximately 95% of cryptocurrency addresses are currently showing a profit. historically, such a high percentage has often indicated a market peak. Following the recent surge and subsequent downturn, this trend now suggests that investors may be cashing out, potentially triggering a price decrease.

As a financial analyst, I would interpret the Mayer Multiple’s current reading of 1.0 as neutral in the context of historical market cycles. Although we experienced a peak of 1.9 in March, this value is still below the 2.5 threshold that typically signals major market tops. This suggests that while the market is showing signs of heat, it has not yet reached the extreme levels observed during past cycle peaks.

As a crypto investor, I’ve noticed that the relationship between Bitcoin’s price and its liquidity is quite significant. Lately, I’ve seen a troubling trend emerging in this area – the liquidity has been dwindling at an alarming rate. Edwards, an analyst I follow closely, shares my concerns regarding this negative trend in liquidity growth. It seems to be pointing towards a bearish forecast for Bitcoin’s price.

What Does This Mean For The Bitcoin Cycle?

Among the thirteen metrics I’ve examined, eight are showing negative signs, five remain neutral, and none are signaling a bullish trend at present. The preponderance of bearish indicators raises suspicion that we might have reached the cycle top for Bitcoin, which could potentially serve as a turning point. To be frank, I find this data quite intriguing given that it’s only been two months since the halving event occurred.

In contrast to the pessimistic signs from on-chain data, it’s crucial to keep in mind the significance of technical indicators and overall market trends. The Bitcoin price now hovers above the $58K mark as a potential Wyckoff Accumulation pattern emerges on the daily chart, hinting at remaining bullish prospects.

As a researcher, I find myself in a complex situation where the underlying fundamentals suggest bearish trends, while the technical indicators exhibit a bullish bias. This ambiguity warrants a careful approach, balancing optimism with prudent risk management. The bearish signals could merely be a reflection of seasonal market inactivity during summer months. Alternatively, we might be witnessing a double top formation similar to what occurred in 2013. It’s also possible that the current cycle will involve a protracted mid-cycle grind – an experience unprecedented in our dealings with the TradFi today.

Despite this assessment, he believes that the current slump in Bitcoin on-chain activity during the summer could be an anomaly. He anticipates that the optimal 12-month period for Bitcoin’s risk-adjusted returns following the halving will reactivate in the last quarter and beyond.

At press time, BTC traded at $62,747.

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

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2024-07-03 00:12