Bitcoin price fluctuations are highly correlated with the capital movements of its spot ETFs or ETPs. Two weeks ago, the cryptocurrency market was in great condition. According to Coinshares data, global cryptocurrency investment products attracted $308 million in capital inflows in a single week. However, with the Fed's hawkish remarks on December 19, there was a large capital outflow of $576 million, with total outflows over the weekend reaching $1 billion.
Additionally, influenced by the recent price drop, the total value of assets managed by cryptocurrency exchange-traded products (ETPs) has decreased by $17.7 billion, indicating a significant outflow of funds. By this week's Christmas trading situation, Bitcoin experienced some outflows during the week but ultimately achieved a net inflow of $375 million against the trend, reflecting that market sentiment is not as pessimistic as it seems. In contrast, the outflow of multi-asset investment products is the most pronounced, reaching $12.1 million.
The progress of this bull market has not yet reached its end.
The 'halving' has always been a key event in the Bitcoin market, representing a technical node where block rewards decrease, and it is also an important catalyst for market sentiment and capital flow. The historical price trends starting from the halving day indicate that there are significant differences in market performance across different halving cycles, reflecting the gradual maturation of the market and the complex interaction between supply-demand dynamics and market expectations. In the first halving cycle, Bitcoin's price increased by 5315%, with a maximum drawdown of 85%; in the second halving cycle, it increased by 1336%, with a maximum drawdown of 83%; the third halving cycle saw growth slow to 569%, with the maximum drawdown shrinking to 77%.
This gradually smoothing volatility indicates that the expansion of market size and increased capital flow are buffering the diminishing returns effect brought by the halving.
From the perspective of supply-demand dynamics, the halving market is not simply driven by a reduction in supply, but rather the result of a dynamic balance between supply and demand interwoven with market expectations. The early entry of institutional funds and long-term layouts have established new price support for the market, while the FOMO sentiment of retail investors has further amplified the gains.
It is noteworthy that this halving cycle has broken through the historical high (ATH) for the first time before the halving. From the overall performance before and after the halving, the current market is still in an upward phase, and future growth may continue to find new balance points in the supply-demand game.
The pullback in this bull market is much smaller than in previous cycles.
A significant feature of the current Bitcoin market is the noticeable reduction in pullback depth, demonstrating unprecedented buying power and market resilience. Compared to previous cycles where pullbacks often exceeded 30% or even 50%, the deepest pullback in this cycle is only around 30%, indirectly confirming the improvement of the overall supply-demand relationship in the market. It also shows the dual support of institutional funds and favorable policies. Notably, the approval of Bitcoin spot ETFs in the U.S. and the positive changes in the related policy environment have injected long-term funds into the market and boosted investor confidence.
This phenomenon of shallow pullbacks can be seen as a sign of the gradual maturation of the market structure. With deep participation from institutional investors, the Bitcoin market is transitioning from the early, retail-driven stage of high volatility to a more stable development led by institutional funds. At the same time, the launch of spot ETFs also provides a convenient entry point for long-term funds, reducing severe pullbacks caused by short-term market sentiment fluctuations.
Bitcoin market share hits a multi-year high
The Bitcoin Dominance Index (BTC.D) is an important indicator that measures the proportion of Bitcoin's market value in the entire cryptocurrency market. Since September 2022, Bitcoin's market share has shown an overall upward trend, breaking through 60% at one point in 2024, with an annual increase of over 10%, refreshing the high since April 2021. This phenomenon can be traced in Bitcoin's historical cycles, usually marking a concentrated inflow of funds at the early stage of a bull market.
According to past patterns, the initiation phase of a bull market is often accompanied by a rise in Bitcoin's market share, as funds during this phase flow more towards Bitcoin, the core asset of the market, while the performance of other tokens lags behind. When Bitcoin's market share reaches a peak, market liquidity and investor sentiment often approach a critical point. At this time, investors begin to take profits, and Bitcoin's market share subsequently declines, with funds gradually shifting towards altcoins, forming what is known as 'Altcoin Season.'
However, the rise in Bitcoin's market share in this cycle differs from the past in that the deep involvement of institutional funds and the approval of spot ETFs have further strengthened Bitcoin's dominant position, significantly enhancing its attractiveness compared to other assets. This may mean that the peak of Bitcoin's market share will be more sustainable in future bull markets, while the arrival of 'Altcoin Season' may be delayed or even weakened, with the market structure potentially tending toward a more centralized pattern.