Editor's note: The impact of the German and American government currency sales and the Mentougou case on the market is gradually coming to an end, and community sentiment has bottomed out. Where should the crypto market go next? There are many factors to consider in this process. Tom Dunleavy, the author of this article, remains optimistic about the future market, believing that the current encryption market is standing at a historical turning point, Bitcoin has great potential, and market fluctuations are only temporary adjustments.
Different from the general simple bullish statements, Tom Dunleavy gave specific reasons for the bullishness in terms of technical indicators, overall economic liquidity and market structure, and made his own analysis of potential new crises in the crypto market. Readers with either bullish or bearish attitudes can get some inspiration from this article.
In this article I will discuss:
Current market status: We are standing at a historical turning point, Bitcoin has huge potential, and market fluctuations are temporary adjustments.
Outlook for the next 18 months: Increased global liquidity and the influx of institutional funds will continue to drive the market, and the outlook is promising.
Investment advice: It is crucial to choose industries and early-stage projects with potential, and invest with focus and prudence.
In short, you are not optimistic enough.
After massive deleveraging, the market is about to kick off
First, let's review the current market conditions. In the fourth quarter of 2023, the expectation that the United States will soon approve a Bitcoin ETF triggered a wave of enthusiasm, symbolizing the beginning of this cycle. In the first half of 2024, the market attracted approximately $15 billion in new capital inflows. In particular, the launch of the Ethereum ETF on May 23 caused the price to soar by more than 30%. Although there has been a correction in recent weeks, this is just a normal fluctuation in the cycle and there is no need to worry too much.
At the same time, we also experienced a massive deleveraging event. At the end of the second quarter, nearly $1 billion in assets were liquidated in a single weekend. While this may seem scary, it actually helps the market shed the burden of over-leverage, making it healthier and more stable.
Image source: tradingview
Key Metrics: MVRV
Let’s look at a very important market indicator – MVRV, which is the ratio of market value to realized value. This ratio is an important reference for judging whether the market is overvalued or undervalued, and it is also the most reliable indicator of short selling or oversold conditions in Bitcoin. Currently, Bitcoin’s MVRV ratio is 1.5, indicating that the market is relatively undervalued.
The current low MVRV values suggest the potential for further upside in the market as a large amount of leverage is removed from the market. Historical data shows that when the ratio exceeds 4, it is often a signal to sell, while when it is below 1, it is a good time to buy. Therefore, from this perspective, Bitcoin still has a lot of room for growth in the future.
Source: X.com
Positive stimulus from global liquidity
Global liquidity is an important driver of market cycles. As we all know, the stimulus policies of global central banks and governments have a profound impact on the market, especially the United States. As the world's largest economy, policy changes in the United States are crucial to the market. Currently, the market expects that the Federal Reserve may cut interest rates twice this year, and Citibank even predicts that there may be eight interest rate cuts in the next 12 months. This will greatly increase market liquidity, which is undoubtedly good news for the cryptocurrency market.
Crossbordercap, a liquidity-focused institution, has called for increasing liquidity growth to 20% in the second half of 2024. In addition, Sweden and the European Central Bank also said they would begin to loosen monetary policy. Such policy changes will inject more funds into the market and drive up the prices of risky assets.
Source: X.com
The impact of the election cycle
The impact of election cycles on markets cannot be ignored either. Government spending tends to increase every election year, which is also a positive sign for markets. In particular, current governments typically ramp up direct and indirect spending during election campaigns, which often results in strong market performance at the beginning of the year, a slight lull in the summer, and then another rebound in the second half of the year. The 2024 election cycle is no exception, and markets are expected to perform well in the second half of the year.
Source: X.com
Source: X.com
New purchasing power from FTX
We have additional bullish catalysts, with $12 billion to $14 billion in FTX compensation claims expected to flow into the market in October and November 2024. This will inject a large amount of new money into the cryptocurrency market, further driving up market prices. For investors, this is undoubtedly very good news.
Source: X.com
Halve "tradition"
Having said that, we cannot ignore the lessons learned from the past. Historically, cryptocurrency markets have tended to follow a four-year cycle centered around Bitcoin's halving. In the first year after the halving, the market will rise rapidly; in the second year, the increase will begin to slow down; in the third year, the price will remain roughly the same; in the fourth year, the price will drop sharply. Prices typically peak around 500 days after the halving. If the cycle follows the same pattern this time around, the market could peak around October 2025.
If we go by this "tradition", we are still in the early stages of the cycle, and the market is expected to be relatively calm in July and August before the rapid rise in the next 12 months.
What is Bitcoin Halving? Time period? Understand the impact of Bitcoin halving at once
Source: X.com
How to control this bull market without taking advantage of the situation?
While we believe the broader market will follow previous cycles higher, there do exist some nuances to the market this cycle.
Market variables that cannot be ignored
The impact of institutional admissions
In this cycle, we see some new factors. First, there is the growing influence of institutional products. Since the Bitcoin ETF was approved, the market has attracted more than $15 billion in inflows. And, only about 25% of U.S. financial advisors can currently recommend these products to clients, meaning there's plenty of room for growth in the future.
Gold ETFs have experienced five consecutive years of net inflows since being approved, so we can expect Bitcoin ETFs to continue attracting inflows as well. This will help reduce market volatility and extend the duration of the cycle.
More Tokens and a Bigger Hair Backlog
Secondly, the number of tokens available for purchase has increased significantly. In 2021, there were approximately 400,000 tokens on the market, and today this number has exceeded 3 million, with 100,000 new tokens being added every day. Additionally, there are a large number of tokens unlocked from previous issuances, with $350 million worth of tokens unlocked in July alone. Such an increase in supply would undoubtedly have an impact on the market.
There are also a number of private projects on the market ready to be launched. These projects are expected to conduct token generation events in the fall. More than 1,000 projects funded in 2023 and early 2024 have yet to issue tokens, with the total supply expected to reach billions of dollars. The issuance of these new tokens could have a significant impact on the market.
general economic conditions
General economic conditions in the United States also have an important impact on the market. Currently, the U.S. unemployment rate remains low, inflation continues to decline, unemployment claims are flat, and wage growth is stagnant. These factors provide reasons for the Federal Reserve to cut interest rates. We are expected to see interest rate cuts in 2024 and 2025, which will lower the cost of capital for businesses, lower debt rates for consumers, and provide more funding for risk assets.
VC’s reserve funds
In 2021 and 2022, multiple $1 billion+ cryptocurrency-focused fund launches were successful. These funds typically have a 3-4 year timeline for capital deployment. Due to the impact of FTX, many funds will invest cautiously in late 2022 and early 2023. However, the recent market rally has taken many venture capital firms by surprise, resulting in significant reserves sitting on the sidelines this cycle. Much of the reserve funds are being actively deployed in Q1 and Q2 of 2024.
A clearer regulatory environment
Finally, changes in the regulatory environment also have an important impact on the market. While the upcoming regulations may be controversial, clear rules can reduce market uncertainty. The EU’s MiCA has already been launched, and the US has several bills on market structure, banking services and stablecoins. If Republicans win the president and Senate, the bills could be released quickly in the first quarter of 2024.
How do you view this cycle?
Longer and less volatile
Overall, we believe this cycle is likely to be longer and less volatile than previous cycles. Large-cap assets will lead the rally, with large reserves from venture capital firms supporting a slew of new projects, but we will still need new net buyers to support more assets. Although we get many buyers through the ETF, these buyers are unlikely to be on-chain users supporting the valuation of other tokens.
Large-cap assets lead the gains, and the “altcoin season” is no longer
We expect large-cap assets to lead the gains in this cycle, while long-tail assets will be more volatile. Many top assets may be included in institutional-grade products. Compared to past cycles, many small or emerging protocols will be ground zero as competition for capital intensifies. In this cycle, the investment and performance of long-tail protocols will diverge greatly.
Choice and focus are crucial
In this cycle, asset selection is more important than ever. The old method of "casting a net to catch fish" no longer works. As supply increases, attention is almost as important as fundamentals (or even more important in some verticals). Investors should focus on vertical industries and protocols at the seed and Series A stages.
[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reprinted with permission from: "Rhythm Blockbeats"
Original author: Tom Dunleavy
