Original Authors: Nathan Frankovitz, Matthew Sigel
Original Translation: Wu Says Blockchain
With the regulatory benefits brought by Trump's election, Bitcoin has successfully broken through historical highs. As market attention continues to grow, various key indicators suggest that the strong momentum of this bull market is expected to persist.
As we predicted in September, Bitcoin (BTC) prices experienced a high volatility rise following the election. Now, Bitcoin has entered uncharted territory without technical price resistance, and we believe the next phase of the bull market has just begun. This pattern is reminiscent of the post-2020 election period, when Bitcoin prices doubled before the end of the year and further rose by approximately 137% in 2021. With the government's significant shift in support for Bitcoin, investor interest is rapidly increasing. Recently, we have seen a surge in investment inquiries, with many investors realizing their allocations in this asset class are significantly insufficient. While we closely monitor for signs of market overheating, we reaffirm our target price of $180,000/BTC for this cycle, as key indicators tracked continue to show sustained bullish signals.
Bitcoin Price Trends
Market Sentiment
Bitcoin's 7-day moving average (7 DMA) reached $89,444, setting a new historical high. On election night, November 5, Bitcoin surged about 9%, reaching a historical high of $75,000. This aligns with our previous observations: Bitcoin prices tend to rise when the likelihood of Trump's victory increases. Trump explicitly promised during his campaign to end the SEC's 'regulatory through enforcement' strategy and to make America the 'world capital of crypto and Bitcoin.'
Following Trump's election, regulatory resistance turned into a driving force for change. Trump has begun appointing pro-crypto officials in the executive branch, and with the Republican Party controlling the joint government, the likelihood of passing relevant supportive legislation has increased. Key proposals include establishing a national Bitcoin reserve and rewriting related legislation on crypto market structure and stablecoins. FIT21 is expected to be rewritten with market- and privacy-friendly terms, while the new stablecoin draft will allow state-chartered banks to issue stablecoins without Federal Reserve approval.
As countries like those in BRICS are exploring alternatives like Bitcoin to circumvent dollar sanctions and currency manipulation, stablecoins provide a strategic opportunity for the dollar's global outreach. By eliminating regulatory hurdles and allowing state-chartered banks to issue stablecoins, the U.S. could maintain the dollar's global influence and leverage the faster adoption of cryptocurrencies in emerging markets. These markets have a high demand for financial services, hedging against local currency inflation, and decentralized finance (DeFi).
We expect the SAB to be abolished in the first quarter following Trump's inauguration, whether by the SEC or Congress, prompting banks to announce cryptocurrency custody solutions. If Gary Gensler has not resigned, Trump may fulfill his promise to replace the SEC chair with a more crypto-friendly candidate and end the agency's notorious 'regulatory through enforcement' era. Additionally, by 2025, Ethereum (ETH) ETFs in the U.S. 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 that Trump has previously acknowledged the commonalities between Bitcoin mining and artificial intelligence (AI) in terms of energy intensity, energy regulation is expected to be relaxed, making base-load energy (such as nuclear) cheaper and more abundant, thus enhancing the U.S.'s global leadership in energy, AI, and Bitcoin.
This election marks a bullish turning point, reversing capital and job outflow caused by previous tough policies. By stimulating entrepreneurial vitality, the United States is poised to become a global leader in cryptocurrency innovation and employment, transforming cryptocurrency into a key industry for domestic growth and an important export product to emerging markets.
Bitcoin Dominance
The 7-day moving average of Bitcoin's dominance (a measure of Bitcoin's market capitalization relative to the total market capitalization of all cryptocurrencies) rose by 2 percentage points to 59% this month, reaching its highest level since March 2021. While this rising trend, which began at 40% in November 2022, may continue in the short term, it could soon peak. In September, we noted that Harris's victory might elevate Bitcoin's dominance due to a clearer regulatory status for Bitcoin as a commodity. In contrast, Trump's supportive stance on cryptocurrency and his expanded cabinet team may drive broader cryptocurrency market investments. As Bitcoin reaches new highs in a regulatory environment friendly to innovation, the wealth effect and reduced regulatory risks are expected to attract native capital and new institutional investors into DeFi, enhancing returns for smaller projects within the asset class.
Regional Trading Dynamics
At first glance, traders in the Asian market trading session appear to have significantly increased their Bitcoin holdings this month, contrasting with 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 the Asian trading session, likely due to a large number of American investors trading around the election. This special event makes it challenging to attribute such price fluctuations solely to regional dynamics. Consistent with historical behavior, traders in the U.S. and European trading sessions continue to increase their Bitcoin holdings, maintaining the price performance trend observed in October.
Source: Glassnode, 11/18/24 (Past performance does not guarantee future results.)
Key Indicators
To assess the potential upside and duration of this bull market, we analyzed several key indicators to evaluate market risk levels and potential price tops. This month, our analysis began with perpetual contracts (perps), where the performance of funding rates provides insights into market sentiment and helps measure the likelihood of market overheating.
Bitcoin prices typically show signs of overheating when the 30-day moving average funding rate (30 DMA Perp Funding Rates) exceeds 10% and persists for 1 to 3 months.
BTC Average Return Rate Compared to Perpetual Financing Rate (January 4, 2020 — November 11, 2024)
When the 30 DMA annualized Perps fees exceed 10%, BTC price performance
Source: Glassnode, as of November 12, 2024
Since April 2020, we have analyzed periods when the 30-day moving average perpetual contract funding rate exceeded 10%. These periods had an average duration of about 66 days, with an average return from open to close of 17%, although the duration of each period varied significantly. The only exception was a single-day spike on June 18, 2024, reflecting short-term market sentiment. Other instances lasted for several weeks, highlighting a structural bullish sentiment that often brings significant short-term to medium-term gains.
For instance, 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, before resuming another 69-day high funding rate period, totaling 168 days, comparable to the 186 days from November 11, 2020, to May 21, 2021. Notably, purchasing Bitcoin on days when funding rates exceed 10% yields average return rates higher than those on days with lower funding rates, across 30-day, 60-day, and 90-day timeframes.
However, data indicates a pattern of underperformance over longer timeframes. On average, Bitcoin purchased on days when funding rates exceed 10% tends to underperform the market starting from 180 days, with this trend becoming more pronounced over 1 and 2-year timeframes. Given that market cycles typically last about 4 years, this pattern suggests that sustained high funding rates are often associated with cycle tops and may serve as an early signal of market overheating, indicating increased susceptibility to long-term downside risks.
Source: Glassnode, as of November 13, 2024
As of November 11, Bitcoin has entered a new phase, with funding rates exceeding 10% again. This shift indicates stronger short-term to medium-term momentum, as historically, higher funding rates have been associated with higher 30-day, 60-day, and 90-day return rates, reflecting stronger bullish sentiment and demand. However, as funding rates remain high, we may deviate from a long-term (1-2 years) return phase that is similarly favorable. Given the current supportive regulatory environment for Bitcoin, we expect another high-performance period, similar to the aftermath of the 2020 election, when sustained funding rates above 10% drove a 260% increase over 186 days. With Bitcoin currently trading near $90,000, our target price of $180,000 remains feasible, reflecting a potential cyclical return of about 1,000% from the cycle low to peak.
Higher 30-day moving average (DMA) relative unrealized profit levels (>0.60 and 0.70) have historically indicated Bitcoin price tops.
BTC Average Return Compared to 30-Day Moving Average Relative Unrealized Profit (RUP) (November 13, 2016 — November 13, 2024)
Source: Glassnode, as of November 13, 2024
BTC Average Return Compared to 30-Day Moving Average Relative Unrealized Profit (RUP) (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 measuring whether the Bitcoin market is overheating. RUP measures the proportion of unrealized gains (i.e., paper profits not yet realized through sales) in Bitcoin's total market capitalization. This indicator rises when Bitcoin prices exceed the last purchase prices of most holders, reflecting that more of the market is entering a profitable state, thereby embodying market optimism.
Historically, high levels of 30-day moving average (DMA) RUP (especially above 0.60 and 0.70) have typically indicated strong market sentiment and potential overheating. As indicated in the red zones of the chart, when RUP 30 DMA exceeds 0.70, it often coincides with market tops, as a higher proportion of unrealized profits triggers more profit-taking. Conversely, when RUP levels fall below 0.60, it suggests more favorable market conditions for long-term buying; historical data shows that buying below this threshold yields higher 1-year and 2-year return rates.
Analysis of the last two market cycles indicates that levels of 30 DMA RUP between 0.60 and 0.70 typically yield the highest short-term to medium-term returns (7 days to 180 days). This range usually reflects the mid-stage of a bull market, where market optimism is rising but has not yet reached excessive levels. In contrast, when RUP exceeds 0.70, return rates across all timeframes consistently show negative correlations, reinforcing its role as a strong sell signal.
As of November 13, the 30 DMA RUP for Bitcoin is approximately 0.54, but the daily value has exceeded 0.60 since November 11. According to our detailed data table, as RUP approaches 0.70, risk gradually increases, 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, warranting caution for long-term positions.
U.S. Region 'Cryptocurrency' Search Popularity
Source: Google Trends, as of November 18, 2024
The popularity of 'cryptocurrency' as a Google search term is an important indicator of retail investor interest and market momentum. Historical data shows that peaks in search popularity are often closely related to peaks in total market capitalization of cryptocurrencies. For example, significant market declines followed the peaks in search popularity in May and November 2021: about a 55% correction occurred within approximately two months after the May peak, while the November peak experienced a bear market lasting about 12 months, with a total decline of about 75%.
Currently, the search popularity is only 34% of the peak in May 2021, slightly below the 37% local peak observed in March 2024 (when Bitcoin reached its cycle high). This relatively low search interest indicates that Bitcoin and the broader cryptocurrency market have not yet entered a speculative frenzy phase, leaving room for further growth without reaching the mainstream attention levels typically associated with market tops.
Coinbase App Store Ranking
Source: openbb.co, as of November 15, 2024
Similar to Google's search popularity for 'cryptocurrency,' Coinbase's ranking in the app store is also an important indicator of retail investor interest. On March 5 this year, after Bitcoin prices surged approximately 34% within 9 days and retested the historical high of around $69,000 in 2021, Coinbase re-entered the top 50 in the app store rankings. Although Bitcoin reached a new high of around $74,000 later in the month, retail interest waned as price volatility decreased to summer lows and public attention shifted to the presidential election. However, the breakthrough on election night reignited retail interest, with Coinbase's app store ranking soaring from 412th on November 5 to 9th on November 14. This surge in participation drove further price increases while setting 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% week-on-week. Despite the decline, activity remains strong, at the 96th percentile in Bitcoin's history. Although the number of transactions has decreased, larger transaction loads have offset this impact, as evidenced by the rise in transfer amounts.
Ordinals Inscriptions: Daily inscriptions (NFTs and meme coins on the Bitcoin blockchain) saw a week-on-week increase of 404%, reflecting a resurgence of speculative enthusiasm driven by price increases and regulatory benefits.
Total Transfer Volume: Bitcoin transfer volume increased by 118% week-on-week, with the 7-day moving average reaching approximately $85 billion.
Average Transaction Fees: Bitcoin transaction fees decreased by 5% week-on-week, with an average fee of $3.58 and an average transaction load of approximately $157,000, corresponding to a transaction fee rate of about 0.0023%.
Bitcoin Market Health and Profitability
Profit Address Percentage: With Bitcoin prices reaching historical highs, approximately 99% of Bitcoin addresses are currently in profit.
Unrealized Net Profit/Loss: This ratio has increased by 21% over the past month, reaching 0.61, indicating a significant rise in the ratio between relative unrealized profits and unrealized losses. As an indicator of market sentiment, this ratio is currently in the 'Belief-Denial' zone, 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 vs. Total Market Capitalization of Cryptocurrency
Mining Difficulty (T):
Bitcoin's block difficulty increased from 92 T to 102 T, reflecting that miners are expanding and upgrading their equipment queues. The Bitcoin network automatically adjusts difficulty every 2,016 blocks (approximately two weeks) to ensure an approximate 10-minute mining time per block. The increase in difficulty indicates intensified competition among miners and also represents a robust and secure network.
Miners' Total Daily Income:
Miners' daily income rose by 30%, benefiting from the increase in Bitcoin prices, but BTC-denominated transaction fees dropped by 30%, impacting total revenue.
Miner Transfers to Exchanges:
On November 18, miners transferred approximately $181 million worth of Bitcoin to exchanges, equivalent to 50 times the previous 30-day average, pushing the 7-day moving average up 803% week-on-week. This extreme fluctuation is the highest level since March, similar levels were also seen just before Bitcoin's last halving. While the ongoing high transfer volume from miners to exchanges may indicate market overheating, this peak occurred after a lower summer sell-off by miners, suggesting it's for operational and growth purposes rather than a signal of a market top.
Total Market Capitalization of Crypto Stocks:
The 30-day moving average of the MarketVector Digital Asset Stock Index (MVDAPP) increased by 47%, outperforming Bitcoin. Major index components like MicroStrategy and Bitcoin mining companies benefit directly from the rise in Bitcoin prices through their holdings or mining operations. Meanwhile, companies like Coinbase leverage broader cryptocurrency market gains, as rising prices drive increased expectations for transaction fees and other revenue sources.
Source: farside.co.uk, as of November 18, 2024
