Article Source: Wu Says Blockchain
Authors | Nathan Frankovitz, Matthew Sigel
Compiled by | Wu Says Blockchain
Driven by the regulatory benefits following Trump's election, Bitcoin has successfully broken through historical highs. As market attention continues to rise, various key indicators suggest that the strong momentum of this bull market is likely to persist.
As we predicted in September, Bitcoin (BTC) prices have surged in volatility following the election. Now, Bitcoin enters uncharted territory without technical price resistance, and we believe the next phase of the bull market is just beginning. This pattern is reminiscent of the post-2020 election period when Bitcoin prices doubled before the end of the year and further increased by about 137% in 2021. With the government's significant shift in support for Bitcoin, investor interest is rapidly increasing. Recently, we have received a surge of investment inquiries, with many investors realizing their allocation in this asset class is significantly lacking. While we closely monitor for signs of market overheating, we reaffirm our prediction for this cycle's Bitcoin price target of $180,000/BTC, as tracked key indicators show sustained bullish signals.
Bitcoin Price Trends
Market Sentiment
Bitcoin's 7-day moving average (7 DMA) reached $89,444, setting a new all-time high. On election night, Tuesday, November 5, Bitcoin surged approximately 9%, reaching an all-time high of $75,000. This is consistent with our previous observation: when the likelihood of Trump's victory increases, Bitcoin prices tend to rise. Trump has explicitly promised to end the SEC's "enforcement-based regulation" strategy and to make the U.S. the "world capital of crypto and Bitcoin."
Following Trump's election, regulatory resistance has shifted to support for the crypto space. Trump has begun appointing pro-crypto officials in the executive branch, and with the Republican Party controlling a united government, the likelihood of related supportive legislation passing has increased. Key proposals include plans for a national Bitcoin reserve and rewriting legislation related to the structure of the crypto market and stablecoins, with expectations that FIT21 will be rewritten with market- and privacy-friendly terms, allowing state-chartered banks to issue stablecoins without Federal Reserve approval.
As BRICS nations explore alternatives like Bitcoin to bypass dollar sanctions and currency manipulation, stablecoins provide a strategic opportunity for the dollar's global reach. By eliminating regulatory barriers and allowing state-chartered banks to issue stablecoins, the U.S. can maintain the dollar's global influence and leverage the faster adoption of cryptocurrencies in emerging markets. These markets have a strong demand for financial services, hedging against local currency inflation, and decentralized finance (DeFi).
We expect SAB to be repealed in the first quarter following Trump's inauguration, either by the SEC or Congress, which would prompt banks to announce cryptocurrency custody solutions. If Gary Gensler has not resigned, Trump may fulfill his promise to replace the SEC chair with a candidate more supportive of crypto and end the agency's infamous "regulation by enforcement" era. Additionally, by 2025, the U.S. Ethereum (ETH) ETF will be revised to support staking, and the SEC will approve Solana (SOL) ETF's 19b-4 proposal, while creating and redeeming ETFs in physical form will make these products more tax-efficient and liquid. Given Trump's previous acknowledgment of the commonality between Bitcoin mining and AI in energy-intensive aspects, it is expected that energy regulations will be relaxed, facilitating cheaper and more abundant base-load energy (like nuclear) and thus enhancing America's global leadership in energy, AI, and Bitcoin.
This election marks a bullish turning point, reversing the capital and job outflow caused by previous tough policies. By stimulating entrepreneurial vitality, the U.S. is expected to become a leader in global crypto innovation and jobs, transforming cryptocurrency into a key domestic growth industry and an important export product for emerging markets.
Bitcoin Dominance
The 7-day moving average of Bitcoin dominance (a measure of Bitcoin's market capitalization relative to the total market capitalization of all cryptocurrencies) rose by 2 percentage points this month to 59%, reaching its highest level since March 2021. Although this upward trend, which began at 40% in November 2022, may continue in the short term, it may soon peak. In September, we noted that Harris's election victory could enhance Bitcoin's dominance due to clearer regulatory status as a commodity. In contrast, Trump's pro-crypto stance and his expanded cabinet team may drive broader investment in the crypto market. As Bitcoin reaches new highs in an innovation-friendly regulatory environment, the wealth effect and reduced regulatory risks are expected to attract native capital and new institutional investors into DeFi, thereby enhancing returns on smaller projects within the asset class.
Regional Trading Dynamics
At first glance, it appears that traders in the Asian market trading hours have significantly increased their Bitcoin holdings this month, contrary to the trend in recent years where Asian traders typically net sold while European and American traders net bought. However, the surge in Bitcoin prices on election night occurred during Asian trading hours, likely due to a large number of U.S. investors trading around the election. This specific event makes it difficult to attribute such price fluctuations solely to regional dynamics. Consistent with historical behavior, traders in U.S. and European trading hours continued to accumulate Bitcoin, maintaining the price performance trend observed in October.
Source: Glassnodeas, 11/18/24 (past performance is not indicative of future results.)
Key Indicators
To assess the potential upside and duration of this bull market cycle, we analyze several key indicators to evaluate the level of market risk and potential price tops. This month, our analysis begins with perpetual contracts (perps), where the performance of funding rates provides insights into market sentiment and helps gauge the likelihood of market overheating.
Bitcoin prices typically show signs of overheating when the 30-day moving average funding rates exceed 10% and persist for 1 to 3 months.
BTC Average Return Compared to Perpetual Funding Rates (January 4, 2020 - November 11, 2024)
BTC price performance when 30 DMA annualized Perps fees exceed 10%
Source: Glassnode, as of November 12, 2024
Since April 2020, we have analyzed periods when the 30-day moving average perpetual contract funding rates exceeded 10%. The average duration of these periods is about 66 days, with an average return of 17% from open to close, although the duration varies significantly across periods. The only exception was a single-day spike on June 18, 2024, reflecting short-term market sentiment. Other cases lasted several weeks, highlighting structural bullish sentiment that typically leads to significant short- to medium-term gains.
For example, the high funding rate phase that began on August 31, 2021, lasted for 23 days, followed by a 28-day cooling period, and then resumed for 51 days on October 19. Including this brief interval, the total duration of high funding rates in 2021 reached 99 days. Similarly, the current high funding rate phase that began on November 12, 2024, has lasted for 80 days, followed by a 19-day interval, and then restarted for 69 days of high funding rates, totaling 168 days, comparable to the 186 days from November 11, 2020, to May 21, 2021. Notably, when purchasing Bitcoin on days when funding rates exceed 10%, the average return rates over 30, 60, and 90-day time frames are all higher than on days with lower funding rates.
However, data shows a poor performance pattern over longer time frames. On average, Bitcoin purchased on days when funding rates exceed 10% starts to underperform the market from 180 days, and this trend becomes more pronounced over 1 and 2 years. Since market cycles typically last about 4 years, this pattern indicates that persistently high funding rates are often associated with cycle tops and may serve as an early signal of market overheating, showing a greater susceptibility to long-term downside risks.
Bitcoin Cycle Analysis
Source: Glassnode, as of November 13, 2024
As of November 11, Bitcoin entered a new phase with funding rates exceeding 10% again. This shift indicates stronger short- to medium-term momentum, as historically, higher funding rates correlate with higher 30-day, 60-day, and 90-day returns, reflecting increased bullish sentiment and demand. However, as funding rates remain elevated, we may diverge from a phase where long-term (1-2 years) returns are similarly favorable. Given the current regulatory environment supporting Bitcoin, we expect another high-performance period similar to post-2020 election, when sustained funding rates above 10% drove a 260% increase over 186 days. With Bitcoin's current trading price approaching $90,000, our target price of $180,000 remains feasible, reflecting a potential cycle return of around 1,000% from cycle trough to peak.
Historically, higher 30-day moving average (DMA) levels of relative unrealized profit (above 0.60 and 0.70) typically indicate a peak in Bitcoin prices.
BTC Average Returns Compared to Relative Unrealized Profit (RUP) Over 30-Day Moving Average (November 13, 2016 - November 13, 2024)
Source: Glassnode, as of November 13, 2024
BTC Average Returns Compared to Relative Unrealized Profit (RUP) Over 30-Day Moving Average (November 13, 2016 - November 13, 2024)
Source: Glassnode, as of November 13, 2024
Next, we focus on Relative Unrealized Profit (RUP), another important indicator for assessing whether the Bitcoin market is overheated. RUP measures the proportion of unrealized profits (i.e., paper gains that have not yet been realized through sale) in the total market capitalization of Bitcoin. This indicator rises when Bitcoin prices exceed the last purchase price of most holders, reflecting more of the market entering profit, thereby embodying market optimism.
Historically, high levels of the 30-day moving average (DMA) RUP (especially above 0.60 and 0.70) typically indicate strong market sentiment and potential overheating. As shown in the red zone in the chart, when RUP 30 DMA exceeds 0.70, it often coincides with market tops, as higher unrealized profit ratios trigger more profit-taking. Conversely, when RUP levels fall below 0.60, it indicates more favorable market conditions for long-term buying; historical data shows that buying below this threshold yields higher returns over 1 and 2 years.
Analysis of the past two market cycles indicates that levels of 30 DMA RUP between 0.60 and 0.70 typically yield the highest short- to medium-term returns (7 days to 180 days). This range usually reflects the midpoint of a bull market, where market optimism is rising but has not yet reached excessive levels. In contrast, when RUP exceeds 0.70, returns across all time frames consistently show negative correlation, reinforcing its role as a strong sell signal.
As of November 13, Bitcoin's 30 DMA RUP is about 0.54, but daily values have exceeded 0.60 since November 11. According to our detailed data table, when RUP approaches 0.70, risks gradually increase, emphasizing the importance of short-term trading within the 0.60 to 0.70 range. However, if the 30 DMA of RUP rises close to 0.70, it may indicate market overheating, and caution should be maintained for long-term positions.
U.S. regional "Cryptocurrency" search interest
Source: Google Trends, as of November 18, 2024
"Cryptocurrency" as a Google search keyword reflects interest from retail investors and market momentum, making it an important indicator. Historically, peaks in search interest are closely related to peaks in the total market capitalization of cryptocurrencies. For instance, after reaching historical highs in search interest in May and November 2021, significant market declines followed: approximately 55% correction occurred within about two months after the May peak, while a bear market lasting about 12 months followed the November peak, with a total decline of about 75%.
Currently, search interest is only 34% of the peak in May 2021, slightly below the 37% local peak observed in March 2024 (when Bitcoin reached its highest price of this cycle). This relatively low search interest suggests that Bitcoin and the broader crypto market have not yet entered a speculative frenzy phase, leaving room for further growth, and have not yet reached the level of mainstream attention typically associated with market tops.
Coinbase App Store Ranking
Source: openbb.co, as of November 15, 2024
Similar to Google's search interest in "cryptocurrency," Coinbase's ranking in the app store is also an important indicator of retail investor interest. On March 5 of this year, after Bitcoin prices surged about 34% in 9 days and retested the historical high of around $69,000 from 2021, Coinbase re-entered the top 50 of the app store rankings. Although Bitcoin reached a new high of about $74,000 later that month, retail interest waned as price volatility decreased to summer lows and public attention shifted to the presidential election. However, the breakout on election night reignited retail interest, with Coinbase's app store ranking soaring from 412th on November 5 to 9th on November 14. The surge in participation drove further price increases and set a new record for Bitcoin ETF inflows.
Bitcoin's Network Activity, Adoption, and Fees
Daily Trading Volume: The 7-day moving average of daily trading volume is approximately 543,000 transactions, down 15% month-over-month. Despite the decline, activity remains strong, at the 96th percentile level in Bitcoin's history. Although the number of transactions has decreased, larger transaction loads have offset this impact, as evidenced by the increase in transfer amounts.
Ordinals inscriptions: Daily inscription (NFTs and meme coins on the Bitcoin blockchain) trading volume increased by 404%, reflecting a revival of speculative enthusiasm driven by rising prices and favorable regulations.
Total Transfer Volume: Bitcoin transfer volume increased by 118% month-over-month, with a 7-day moving average of approximately $85 billion.
Average transaction fees: Bitcoin transaction fees decreased by 5%, with an average fee of $3.58 and an average transaction load of about $157,000, resulting in a corresponding transaction fee rate of approximately 0.0023%.
Bitcoin Market Health and Profitability
Profit Address Ratio: As Bitcoin prices reach all-time highs, approximately 99% of Bitcoin addresses are currently in profit.
Unrealized Net Profit/Loss: This ratio increased by 21% over the past month, reaching 0.61, indicating a significant rise in the ratio of relative unrealized profits to unrealized losses. As an indicator of market sentiment, this ratio is currently in the "Belief-Denial" range, corresponding to a phase of rapid expansion and contraction between peaks and troughs in the market cycle.
Bitcoin On-chain Monthly Dashboard
Source: Glassnode, VanEck Research, as of October 15, 2024
Bitcoin Miners and Total Market Capitalization of Crypto
Mining Difficulty (T):
The Bitcoin block difficulty rose from 92 T to 102 T, reflecting that miners are expanding and upgrading their equipment queues. The Bitcoin network adjusts its difficulty automatically every 2,016 blocks (approximately two weeks) to ensure each block takes about 10 minutes to mine. The rise in difficulty indicates increased competition among miners and represents a strong and secure network.
Total daily income for miners:
Miners' daily income increased by 30% month-over-month, benefiting from rising Bitcoin prices, but BTC-denominated transaction fees decreased by 30%, impacting total revenue.
Volume of miners transferring to exchanges:
On November 18, miners transferred approximately $181 million in Bitcoin to exchanges, equivalent to 50 times the previous 30-day average, driving the 7-day moving average up by 803%. This extreme fluctuation is the highest level since March, and similar levels were observed before the last Bitcoin halving. Although the sustained high transfer volume from miners to exchanges may indicate market overheating, this peak occurred after relatively low miner sell-offs in the summer, suggesting that this is profit-taking for operational and growth purposes rather than a signal of market tops.
Total Market Capitalization of Crypto Stocks:
The MarketVector Digital Asset Stock Index (MVDAPP) has seen a 30-day moving average increase of 47%, outperforming Bitcoin. Major index constituents like MicroStrategy and Bitcoin mining companies benefit directly from rising Bitcoin prices through their holdings or mining operations. Meanwhile, companies like Coinbase leverage broader crypto market gains as rising prices drive expectations for increased trading fees and other revenue sources.
Source: farside.co.uk, as of November 18, 2024
