Historical Review of Cryptocurrency Cycles
Historical data shows that cryptocurrency valuations have followed a four-year cycle pattern, with prices rising and falling. However, now, with new spot Bitcoin and Ethereum exchange-traded products (ETPs) emerging, market access has expanded, and the U.S. Congress is expected to improve regulatory clarity in the industry, cryptocurrency valuations may break away from this traditional four-year cycle.
Bitcoin Price Trends and Cycle Characteristics
1. Price Patterns: Bitcoin prices do not fluctuate randomly but exhibit statistical momentum characteristics, meaning that after a rise, it is easier to rise further, and after a decline, it is easier to decline. In the long run, its price oscillates around a historical upward trend. The driving factors of different price cycles vary and may change or even disappear as Bitcoin becomes widely accepted by traditional investors and the impact of the four-year halving events on supply weakens. However, studying past cycles can still provide references for investors.
2. Momentum Measurement: In the first few cycles of Bitcoin, the first cycle lasted less than a year, with gains exceeding 500 times; the second cycle lasted about two years, with gains also exceeding 500 times. The subsequent two cycles were both less than three years, with gains exceeding 100 times from 2015 to 2017 and about 20 times from 2018 to 2021. After peaking in November 2021, it fell to about $16,000 in November 2022. The current price increase has lasted more than two years, similar to the duration and pre-peak phases of the past two cycles, but the return rate of about 6 times in this cycle is lower than in the past.
Measuring Bitcoin's Bull Market Status Through Indicators
1. MVRV Ratio: This ratio measures the degree to which Bitcoin's market value exceeds the total cost basis of the market. In the past four cycles, this ratio has at least reached 4, currently at 2.6, showing that there is still potential for continuation in this cycle. However, this ratio's peak values may be lower in each cycle, and it may be difficult to reach 4 before prices peak.
2. On-chain Metrics (HODL Waves): Grayscale Research measures the extent of new capital entering the Bitcoin ecosystem by comparing the number of tokens transferred on-chain last year to the total freely circulating supply of Bitcoin. Over the past four years, during appreciation phases, at least 60% of the freely circulating supply was traded on-chain annually; currently, this ratio is about 54%, indicating that more tokens may change hands before a price peak.
3. Bitcoin Miner Indicators (MCTC Ratio): This calculates the ratio of miners' upper limit to the 'hot upper limit.' Historically, when this ratio exceeds 10, prices often peak. Currently, this ratio is about 6, indicating that the market is at a midpoint in the cycle. Similar to the MVRV ratio, this indicator's peak values may be lower in each cycle, and prices may peak before the ratio reaches 10. Overall, various on-chain indicators are currently below past price peak levels, and if there is fundamental support, a bull market may continue.
Beyond Bitcoin: Looking at the Cryptocurrency Market
1. Changes in Bitcoin's Dominance: The cryptocurrency market is broader than the Bitcoin market, and signals from other areas can also provide guidance for market cycles. In the past two cycles, Bitcoin's dominance in the total cryptocurrency market capitalization peaked about two years into the bull market and has recently begun to decline. If this trend continues, investors need to pay attention to more indicators to assess whether cryptocurrency valuations are approaching a peak.
2. Financing Rates and Open Interest Indicators: Financing rates reflect the positions of speculative traders. Currently, the weighted average financing rate for the top 10 largest crypto assets (altcoins) is positive, indicating bullish demand, but has declined over the past week, with local peaks lower than earlier this year and in the previous cycle, indicating that the current level of speculative positions is moderate and the market cycle has not yet matured. Additionally, perpetual futures open interest for altcoins has reached a high level, with nearly $54 billion before the liquidation on December 9. Although it has declined by about $10 billion after the liquidation at the beginning of this week, it remains at a high level, indicating that speculative long positions are high, which may be related to the later stages of the market cycle and need to be monitored continuously.
Summary
Since the birth of Bitcoin in 2009, the digital asset market has developed significantly. The U.S. has approved spot Bitcoin and Ethereum ETPs, leading to significant capital inflows and integrating them into traditional investment portfolios. At the same time, the upcoming U.S. elections are expected to clarify market regulations, solidifying the position of digital assets. Against this backdrop, Bitcoin and other crypto asset valuations may no longer follow the early four-year cycle. They possess price momentum as digital commodities, and by evaluating on-chain indicators and altcoin data, they can provide references for risk management for investors. Grayscale Research believes that the current crypto market is in a mid-cycle phase, with indicators like the MVRV ratio above cycle lows but not reaching previous market peaks. If there is fundamental support, the crypto bull market is expected to continue until 2025 and beyond.#BTC