A large number of data indicators suggest that the current crypto bull market has not yet peaked.
Author and Source: Grayscale
Article Translated by: Luffy, Foresight News
· Historically, the cryptocurrency market follows a clear four-year cycle, with prices experiencing consecutive phases of rise and fall. Grayscale Research believes investors can monitor various blockchain-based metrics and other indicators to track cryptocurrency cycles and inform their risk management decisions.
· Cryptocurrency is an increasingly mature asset class: new spot Bitcoin and Ethereum ETFs broaden market entry channels, and the incoming Trump administration may bring greater regulatory clarity to the crypto industry. For these reasons, the cryptocurrency market valuation may break historical highs.
· Grayscale Research believes the current market is in the mid-stage of a new crypto cycle. As long as the fundamentals (such as application adoption and macro market conditions) remain sound, the bull market could continue into 2025 or even longer.
Like many physical goods, the price of Bitcoin does not strictly follow the 'random walk' model. Instead, Bitcoin price trends exhibit characteristics of statistical momentum: upward movements often follow upward movements, and downward movements often follow downward movements. While Bitcoin may rise or fall in the short term, its price shows a significant upward cyclical trend in the long term (Figure 1).
Figure 1: Bitcoin's price fluctuates repeatedly but shows an overall upward trend
Each past price cycle has had its unique drivers, and future price trends will not entirely follow previous experiences. Moreover, as Bitcoin matures and is adopted by a broader base of traditional investors, along with the diminishing impact of the four-year halving events on supply, the cyclical patterns of Bitcoin price changes may reshape or completely disappear. Nevertheless, studying past cycles can still provide investors with some guidance on the typical statistical behaviors of Bitcoin, which can inform their risk management decisions.
Observations of Bitcoin's historical cycles
Figure 2 shows Bitcoin's price performance during the upward phases of each previous cycle. Prices are indexed at 100 at the cycle low (the start of the upward phase) and tracked up to the peak (the end of the upward phase). Figure 3 presents the same information in tabular form.
The first price cycle in Bitcoin's history was relatively short and volatile: the first cycle lasted less than a year, while the second cycle lasted about two years. In both cycles, the price of Bitcoin rose over 500 times from relative lows. The subsequent two cycles each lasted less than three years. In the cycle from January 2015 to December 2017, Bitcoin's price increased over 100 times, while in the cycle from December 2018 to November 2021, Bitcoin's price rose about 20 times.
Figure 2: Bitcoin's performance in the last two market cycles is similar
After peaking in November 2021, the price of Bitcoin fell to around $16,000 in November 2022, marking a cyclical low. The current price increase phase has continued for over two years since then. As shown in Figure 2, the latest price rise is relatively close to the last two Bitcoin cycles, both of which lasted about three years before reaching their peaks. In terms of magnitude, Bitcoin’s current rise in this cycle is about 6 times, and while the returns are considerable, they are significantly lower than the returns achieved in the previous four cycles. In summary, while we cannot be certain that future price returns will mimic those of past cycles, Bitcoin’s history suggests that the latest bull market can continue in terms of duration and magnitude.
Figure 3: Four different cycles in Bitcoin's price history
On-chain metrics
In addition to observing price performance from past cycles, investors can also apply various blockchain-based metrics to gauge the maturity of the Bitcoin bull market. Common indicators include: the profitability of Bitcoin buyers, the inflow of new funds into Bitcoin, and price levels associated with Bitcoin miner revenues.
A particularly popular metric is the ratio of Bitcoin's market value (MV) (Bitcoin circulation * current market price) to its realized value (RV) (the sum of the prices of each Bitcoin at its most recent on-chain transfer). This metric is known as the MVRV ratio and can be seen as an indication of how much Bitcoin's market value exceeds the total cost basis of the market. In the past four cycles, the MVRV ratio has reached at least (Chart 4). Currently, the MVRV ratio is 2.6, suggesting that the latest cycle may last even longer. However, the peak values of the MVRV ratio in past cycles have been declining, so this round of the cycle may never see this metric reach levels of 4.
Figure 4: Historically, the trend of Bitcoin's MVRV ratio
Some on-chain metrics measure the extent of new funds entering the Bitcoin ecosystem. Experienced cryptocurrency investors often refer to this framework as HODL Waves. There are various metrics to choose from, but Grayscale Research prefers to use the ratio of the number of tokens moved on-chain last year relative to the total circulating supply of Bitcoin (Chart 5). In the past four cycles, this metric has reached at least 60%. This means that during the upward phase, at least 60% of the free-floating supply was traded on-chain within a year. Currently, this figure is around 54%, indicating that before prices peak, we may see more Bitcoin changing hands on-chain.
Figure 5: The ratio of active Bitcoin addresses to circulating supply over the past year is below 60%
Some cyclical indicators focus on Bitcoin miners, who are the specialized service providers that secure the Bitcoin network. For example, a common metric is the ratio of miner holdings (MC) (the dollar value of all Bitcoin held by miners) to the so-called 'thermocap' (TC) (the cumulative value of Bitcoin issued to miners through block rewards and transaction fees). Generally, when the value of miners' assets reaches a certain threshold, they may start to take profits. Historically, when the MCTC ratio exceeds 10, prices subsequently peak within that cycle (Chart 6). Currently, the MCTC ratio is around 6, indicating we are still in the middle stage of the current cycle. However, similar to the MVRV ratio, this metric has been peaking lower in recent cycles, so price peaks may arrive before the MCTC ratio reaches 10.
Figure 6: The peak of the Bitcoin miner metric MCTC is also declining
There are many other on-chain metrics, and these metrics may have subtle differences from those from other data sources. Additionally, these tools can only provide a rough understanding of how the current Bitcoin price rise phase compares to the past, and do not guarantee a similar relationship between these metrics and future price returns. That said, overall, common indicators of Bitcoin cycles are still below the levels seen when prices peaked in the past. This suggests that if the fundamentals are sound, the current bull market may continue.
Market indicators outside of Bitcoin
The cryptocurrency market is not just Bitcoin; signals from other areas of the industry may also provide guidance on market cycle states. We believe that due to the relative performance of Bitcoin and other crypto assets, these indicators may be particularly important in the coming year. In the past two market cycles, Bitcoin's dominance (its share of the total cryptocurrency market capitalization) peaked about two years after the bull market began (Figure 7). Bitcoin's dominance has recently begun to decline, coinciding with the two-year mark of this market cycle. If this trend continues, investors should consider monitoring broader metrics to determine whether cryptocurrency valuations are approaching cyclical highs.
Figure 7: Bitcoin's dominance has been declining in the third year of the last two cycles
For example, investors can monitor funding rates, which indicate the cost of holding long positions on perpetual futures contracts. When speculative traders have a high demand for leverage, funding rates tend to rise. Therefore, the level of funding rates across the entire market can indicate the overall positions of speculative traders. Chart 8 shows the weighted average funding rates of the ten largest crypto assets (i.e., the largest 'altcoins') following Bitcoin. Currently, funding rates are significantly positive, indicating demand from leveraged investors for long positions, although they sharply declined during last week's drop. Furthermore, even at current local peaks, funding rates remain below earlier levels this year and last cycle’s highs. Therefore, we believe the current level of funding rates indicates that market speculation has not yet reached its peak.
Figure 8: Funding rates indicate a moderate level of speculation in altcoins
In contrast, the open interest (OI) of altcoin perpetual futures has reached relatively high levels. Before a significant liquidation event on December 9, the open interest of altcoins across the three major perpetual futures exchanges had reached nearly $54 billion (Chart 9). This indicates that the overall speculative trading positions are relatively high. After the massive liquidation, the open interest of altcoins fell by about $10 billion but remains elevated. The high long positions of speculative traders may align with the later stages of the market cycle, making it important to continue monitoring this metric.
Figure 9: Recent liquidations show high altcoin positions
The bull market will continue
Since the birth of Bitcoin in 2009, the cryptocurrency market has made significant progress, with many features of the current crypto bull market differing from the past. Most importantly, the approval of spot Bitcoin and Ethereum ETFs in the U.S. market has brought in $36.7 billion in net capital inflows and helped incorporate crypto assets into broader traditional portfolios. Furthermore, we believe that the recent U.S. elections may bring more regulatory clarity to the market and help ensure the permanent status of crypto assets in the world’s largest economy. This is a significant change compared to the past, where observers repeatedly questioned the long-term prospects of the crypto asset class. For these reasons, the valuation of Bitcoin and other crypto assets may not follow the early historical patterns.
Meanwhile, Bitcoin and many other crypto assets can be seen as digital commodities, which, like other commodities, may exhibit a certain degree of price momentum. Therefore, evaluating on-chain metrics and altcoin data may help investors make risk management decisions. Grayscale Research believes that the current set of indicators suggests that the crypto market is in the mid-stage of a bull market: indicators like the MVRV ratio are far above cycle lows but have not yet reached levels marking previous market tops. As long as the fundamentals (such as application adoption and macro market conditions) remain sound, we believe the crypto bull market will continue into 2025 and beyond.
