Summary:
The fourth Bitcoin halving initially led to a sell-off, with the price of Bitcoin falling to $57,000 before quickly recovering. This was the worst pullback since the FTX lows.
Ethereum showed similar price performance, experiencing its biggest drop of the cycle, which was twice as severe as Bitcoin.
Ethereum’s underperformance relative to Bitcoin this cycle is reflected in a clear lag in speculative interest among the short-term holder community.
Realized caps for both assets remain relatively low relative to long-term holders, suggesting the market could be in the early stages of a macro uptrend.
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Cost-effectiveness
Bitcoin halving events are widely publicized ahead of time and have historically been a volatile sell-off news event in the short term. The fourth halving was no exception, with BTC prices falling 11% to trade in the $57,000 region. This is the lowest price in the past two months, although markets have returned to stability since the halving.
Curiously, the first two halving cycles saw prices flatline two weeks later, with only the first halving cycle seeing gains of +11%. Overall, the 60 days following a halving event tend to be volatile and sideways, with slight declines to around -5% to -15%.
Stage 2: +9.0%
Stage 3: +0.4%
Stage 4: -1.5%
Stage 5: 0.3%
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Ethereum price experienced similar pressure as Bitcoin price fell immediately after the halving and recorded its worst post-halving performance on record. However, in the following days, ETH price also recovered, bringing the overall performance into positive territory.
Stage 3: +16%
Stage 4: -4%
Stage 5: +1.5%
Live Workbench
From its $73K ATH, Bitcoin price corrected -20.3%, the largest correction in terms of closing price since the FTX low in November 2022. Nevertheless, this macro uptrend still appears to be one of the most resilient in history, with relatively shallow corrections so far.
Notably, we can also observe a striking similarity in the retracement structure between the current cycle and the 2015-17 bull run (blue). The 2015-17 uptrend occurred during the infancy of Bitcoin, when there were no derivatives available for the asset class. Therefore, this rally was entirely spot-driven, perhaps suggesting that there may be some similarities in the current market structure.
A large amount of leverage from the 2020-22 cycle is eliminated in 2022, and new US ETFs add an important new vector of demand in the spot market.
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For Ethereum, we can see a similar retracement structure, with the correction since the FTX low being significantly shallower. This has impacted a degree of resilience during pullbacks and reduced volatility across the digital asset space.
However, it is worth noting that Ethereum’s biggest drop this cycle is -44%, more than double Bitcoin’s -21%. This highlights Ethereum’s relative underperformance over the past two years, which is also reflected in the weakness of the ETH/BTC ratio.
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Investor Positioning
To compare the relative performance between BTC and ETH, we can turn to the Net Unrealized Profit and Loss (NUPL) metric. By comparing NUPL, we can understand how profitability for BTC vs ETH investors is performing relative to the average on-chain cost basis of each asset.
The main threshold for this indicator is NUPL > 0.5, which usually coincides with the breakout of a new ATH and the beginning of the excitement phase. NUPL values above 0.5 mean that investors are holding unrealized profits exceeding 50% of the asset's market value.
Amid the hype and market rally surrounding the approval of a spot Bitcoin ETF, unrealized profits for Bitcoin holders grew much faster than those for Ethereum investors. As a result, the Bitcoin NUPL indicator broke through 0.5 three months earlier than the Ethereum equivalent, entering the excitement phase.
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The short-term holder group consists of investors who purchased tokens within the past 155 days and is often considered a proxy for new investor demand. Typically, the average purchase price of this group has strong resistance in bearish trends and acts as a support area in bullish trends.
So far this week, this thesis has held true, with the Bitcoin market correcting back below the STH cost basis at $59,800, where it found support and rallied higher. Historically, retests of the STH cost basis are common during uptrends and provide a key level to monitor for potential inflection points if it fails to hold.
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We can also assess Ethereum’s STH cost basis, which has provided support multiple times in this uptrend. Ethereum’s STH-MVRV is currently trading at very low levels, which could indicate that spot price is very close to the cost basis for recent buyers who may panic if the market sees some downside volatility.
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Growing divisions
Prior to Bitcoin’s all-time high (ATH) on March 14, there was a clear increase in speculative activity. Specifically, capital accumulation was observed among short-term holders, with USD wealth held in tokens approaching $240 billion over the past 6 months, close to the ATH.
Live Workbench Chart
However, this trend is not reflected in ETH, whose price has yet to break through the 2021 ATH. While Bitcoin’s STH achieved cap is almost on par with the last bull run peak, ETH’s STH achieved cap has barely recovered from its lows, indicating a clear lack of new capital inflows.
In many ways, the lack of new capital inflows reflects ETH’s underperformance relative to BTC. This can be attributed in part to the attention and access that spot Bitcoin ETFs have brought.
The market is still awaiting the SEC’s decision to approve a series of ETH ETFs expected to launch in late May.
Live Workbench Chart
If we noticed a significant decline over 2 to 3 years, we could apply a similar analytical approach to the long-term holders. Some of this is in tokens purchased 3 years ago (May 2021) with 3-5 year maturities, but the rest represents profit-taking divestments.
This was likely influenced by the ETF approval, with a large portion of the withdrawals occurring in February 2024, when the market was rising, about a month before BTC reached its current ATH of $73,000. These long-term holders have historically waited for strong demand inflows to convert profits into market strength.
Live Workbench Chart
For Ethereum, we continue to see sustained holding behavior, especially among 1 to 3 year investors. It appears that experienced investors are patiently waiting for higher prices as ETH is currently underperforming.
Live Workbench Chart
If we examine the amount of profit payouts for LTH, we can see that the group of BTC holders who have held for 6 months to 2 years increased their withdrawals during the ATH run-up.
Live Workbench Chart
From this perspective, it seems that long-term Ethereum holders are still waiting for better profit-taking opportunities.
Live Workbench Chart
As we noted in WoC 08, inflows into ETH do tend to lag relative to BTC. In the 2021 cycle, the peak inflows of new funds into BTC occurred 20 days before the peak inflows into ETH. We can monitor the rotation of capital between the two assets by evaluating the 30-day change in realized cap.
In this case, we’ve broken down the metric by short-term and long-term holders. For both assets, the short-term holder variant peaked just before the 2021 cycle top for both assets. This year, BTC short-term holder realized cap has peaked near all-time highs, while the ETH metric has barely moved higher.
Live Workbench Chart
For the long-term holder variant, both assets saw relative maximums near the top of the second cycle. This is a very different interpretation, as it takes at least 155 days for capital to reach LTH status.
Therefore, this indicator describes the top buyers in Q1 2021 who first bought BTC and then ETH and who maintained the supply until the peak in October-November 2021. These buyers are likely the ones who survived and created the selling pressure in the subsequent 2022 bear market.
Live Workbench Chart
Summarize
The market movement around Bitcoin’s fourth halving was very similar to previous cycles, with prices temporarily dropping to $57,000 before rebounding to flat overall. Ethereum markets followed a similar trajectory, but several indicators showed ETH’s underperformance relative to BTC.
When we break down capital flows and rotations between BTC and ETH, we can see that Bitcoin has received the largest share of inflows, likely driven in part by U.S. spot ETFs. Short-term holders and speculative activity appear to be concentrated in Bitcoin, with very little spillover to Ethereum to date.
