This report aims to analyze the relationship between Bitcoin and various indicators, compare the interest rate, Nasdaq, M2, US dollar index and gold trends, analyze the correlation and the reasons behind it, and use this to judge the current stage and future trend of Bitcoin prices. (Note: The first round of bull-bear switching below refers to the market from 2015 to 2018, the second round of bull-bear switching refers to the market from 2018 to 2022, and the third round is the current market from 2022 to now)
1) For long-term prices, look at M2, which moves in the same frequency as the Nasdaq, but with large differences in amplitude and rhythm. Bitcoin moves in the opposite direction to the U.S. dollar index and has a low correlation with gold.
Interest rate comparison: After 2019, Bitcoin's dominance shifted from Asia + Europe to North America, which explains why the first round of Bitcoin bull market took place against the backdrop of the Fed's continued interest rate hikes. At that time, China, Japan, and the European Union were all in a downward interest rate cycle; and starting from the second round, the correlation between Bitcoin's trend and the Fed's interest rate increased. The bottom of the second cycle came when the Fed stopped raising interest rates, and ended when the Fed expected to start a new round of interest rate hikes; the third round bottomed out when the Fed raised interest rates to a high level, and is still ongoing.
M2 comparison: The bottom of Bitcoin prices basically appeared at the bottom of the month-on-month year-on-year growth rate of M2 in the world's four major countries and regions (the United States, Japan, China, and the European Union), and the cycle price peak corresponds to the short-term peak of the month-on-month year-on-year growth rate of M2. Against the backdrop of this round of interest rate hikes, the monthly growth rate of M2 in the four major countries and regions continued to decline, and the total M2 volume in the United States and the European Union gradually bottomed out and rebounded in 2024. In the long term, the general trend of M2 expansion remains unchanged, and the price of Bitcoin is highly correlated with the supply of M2.
Nasdaq comparison: Nasdaq and Bitcoin have shown an increasingly obvious synchronization trend since 2019. In the short term, the trend divergence is more manifested in the rise of Nasdaq and the sideways or decline of Bitcoin. However, when the rise and fall are synchronized, the rise and fall amplitude and speed of the two are quite different.
US Dollar Index: In contrast to the trend of Bitcoin, the peaks of the US Dollar Index in the last two rounds corresponded to the bottoms of the Bitcoin price, and the peaks of Bitcoin corresponded to a US Dollar Index below 95.
Gold comparison: There is a big difference in trends between traditional safe-haven assets and new-age safe-haven assets.
2) The consensus in this round is stronger, the foundation for the rise is solid, and the current position is similar to the previous round at the end of 2019
The first wave of the second bull market was from early 2019 to mid-2019, which corresponds to the two nodes when the Fed stopped raising interest rates and began to cut interest rates. The second wave bottomed out in March 2020, and the acceleration of the first wave of highs was in October 2020. The corresponding node for the bottoming out was when the interest rate dropped to 0% in March 2020 after 4 interest rate cuts starting in July 2019, and the previous high was broken 6 months after the interest rate dropped to 0%.
In this round, the price of Bitcoin hit the bottom in November 2022, which corresponds to the end of the Fed's rapid rate hike (increased to 4% in 8 months). With the support of ETF incremental funds, it rose to a short-term peak in March 2024. It has been fluctuating widely for 5 months and is close to the time when the Fed will cut interest rates. With the continuous inflow of ETF funds in this round and a stronger consensus than the previous round, it is expected that the gradual easing of liquidity will push Bitcoin to break through the previous high.
1. Comparison of Bitcoin and Various Indicators
Comparison of Bitcoin and Interest Rate Trends
The last three rounds of Bitcoin bull and bear markets correspond to two rounds of interest rate hikes by the Federal Reserve. The Bitcoin bull market from 2015 to 2017 coincided with the Federal Reserve’s interest rate hike cycle, and the latter two rounds were during interest rate cut cycles.
Bitcoin has experienced a round of switching of dominant forces. If you focus on the Fed interest rate, you cannot explain the Bitcoin bull market from 2015 to 2017. You need to broaden your perspective to the four countries or regions of the United States, China, Japan, and the European Union. Between 2015 and 2016, China, Japan, and the European Union all lowered their interest rates, with the European Union dropping to ultra-low interest rates and Japan even dropping to zero interest rates. Before 2019, the dominant funds for Bitcoin came from the Asia-Pacific and European regions, but gradually shifted to North America after 2019, which explains why the Fed interest rate diverged from the previous 2015 to 2017 market for Bitcoin. Since 2019, the correlation between the trend of Bitcoin and the Fed interest rate has increased, and North American capital has begun to dominate the crypto market. The bottom of the bull-bear cycle from the end of 2018 to 2022 came from the Fed's cessation of interest rate hikes, and ended with the Fed's expected start of a new round of interest rate hikes. The market has bottomed out since 2023 when the Fed raised interest rates to a high level.
Comparison of Bitcoin and M2 trends
The growth trend of Bitcoin and M2 is relatively consistent
The several rounds of bull and bear markets of Bitcoin correspond to the increase and decrease of the monthly year-on-year growth rate of M2 in the world's four major countries and regions. The bottom of Bitcoin prices basically appears at the bottom of the M2 growth rate, and the peak of the cycle price can basically correspond to the short-term peak of the M2 growth rate. Against the backdrop of this round of tightening interest rates, the monthly growth rate of M2 in the four major countries and regions has continued to decline, and the M2 of the United States and the European Union will gradually bottom out and rebound in 2024. In the long term, the general trend of M2 expansion remains unchanged, and the price of Bitcoin is highly correlated with the supply of M2.
Comparison of Bitcoin and Nasdaq
From a longer-term perspective, the Nasdaq and Bitcoin have shown an increasingly obvious long-term synchronization trend since 2019.
Since 2019, in the short term, Bitcoin and Nasdaq have not been synchronized, and the divergence has lasted for less than half a year. But it is clear that Bitcoin has risen independently very rarely, and most of the asynchrony comes from the Nasdaq rising while Bitcoin is sideways or falling.
For most of the time after 2022, the trend is basically synchronized, but the amplitude is very different. For example, starting from October 5, 2020, Bitcoin rose from $10,547 to $63,577 on April 15, 2021, an increase of 502.8%. During this period, the Nasdaq rose from 11,332.5 points to 14,038.8 points, an increase of 23.9%; from October 1, 2023 to March 15, 2024, Bitcoin rose from $26,917 to $73,098, an increase of 171.6%. During this period, the Nasdaq rose from 13,219.3 points to 15,973.2 points, an increase of about 20.8%.
Comparison of Bitcoin and US Dollar Index Trends
The US Dollar Index moves inversely to Bitcoin:
In early 2016, the US dollar index continued to rise, reaching a peak of around 103 at the end of 2016. During this process, the price of Bitcoin continued to rise, showing a trend synchronized with the US dollar index. In 2017, the US dollar index fell, reaching a minimum of around 89 in early February 2018, while the price of Bitcoin peaked in December 2017. This trend shows a low correlation. After entering 2019, with the influx of North American capital, the US dollar index reached a stage-by-stage top in March 2020, which coincided with the stage-by-stage bottom of Bitcoin, and Bitcoin peaked at a low point of around 90 in early 2021. The bottom of this round of Bitcoin also corresponds to the top of the US dollar index. In the downward cycle of the US dollar index, Bitcoin's growth performance is outstanding.
The corresponding US dollar index of the last two rounds of Bitcoin peaks was lower than 95. The current US dollar index is around 101, which is still at the high point of the last two rounds of US dollar index.
Comparison of Bitcoin and Gold Trends
The overall trend of Bitcoin and gold is quite different
Bitcoin and gold are often discussed together because of their so-called safe-haven properties. However, when the two price trend charts are put together, it is difficult to see the similarities between their trends. Gold has a strong consensus as a long-standing safe-haven asset, while Bitcoin was born in 2009 and has only been around for 15 years. Compared to gold, it is still very "young", so Bitcoin's fluctuations are more severe.
However, in terms of Bitcoin's own properties, it does have good safe-haven characteristics, distributed network construction, free convertibility, high degree of decentralization, limited total amount, cannot be tampered with, and increasingly broad consensus. Therefore, it is expected that as the global awareness of Bitcoin continues to increase, Bitcoin's safe-haven properties will become more and more prominent. At present, the difference in the trends of the two is still large.
2. Stronger consensus and a solid foundation for growth
Bitcoin’s current position may be similar to that at the end of 2019
2019: Bitcoin prices bottomed out when interest rate hikes stopped at the end of 2018 and the beginning of 2019, and then continued to rise until the July rate cut, when the price rose from a low of $3,217 to $12,996, an increase of more than 300%, completing the first stage of the rise. Then in the second half of 2019, the interest rate cut cycle began, and Bitcoin fluctuated and fell. Without considering the impact of the sudden epidemic, the price of the currency fell back to $6,627 in December 2019, and after 6 months, it had retreated 49% from the high point. If the impact of the epidemic is taken into account, the price of the currency fell back to a low of $5,033 in March 2020, and retreated more than 61% from the high point, and after an adjustment period of 9 months, the main upward trend began, and continued to rise in a low-interest environment.
This round of Bitcoin bottomed out and started to rise when the Fed was halfway through its rate hike, and did not bottom out and rise until the rate hike process was nearing the end like in 2019. From the low of $15,742 at the end of 2022 to the beginning of 2023 to the short-term high of around $73,098 in March 2024, the increase was 364%, slightly higher than the 300% increase in the previous round. The rising cycle lasted 16 months, which was longer than the 6 months in 2019.
Analyze why there was a rise before this round of interest rate cut, why it lasted longer, and why the increase was relatively larger?
First, let’s discuss the time when the two rounds hit bottom from their highs. The last round of Bitcoin prices peaked in December 2017 and bottomed in December 2018. This round peaked in November 2021 and bottomed in November 2022. The two rounds’ retracement cycles were both 12 months, and the retracement amplitudes were 83.6% and 76.7% respectively. In terms of the retracement amplitude and retracement time, they are similar, so the basis for the rise is comparable.
The biggest differences between the two rounds are: 1) high interest rate environment; 2) application and approval of Bitcoin ETF.
1) High interest rate environment - duration of impact: In the last round, after the interest rate hikes were stopped, the price of Bitcoin bottomed out and continued to rise amid expectations of interest rate cuts, with a faster pace of performance; in this round, the price bottomed out when the interest rate hikes were halfway through, and after rising from November 2022 to April 2023, it fluctuated widely for half a year, and interest rates continued to rise during the process. A new round of increases was not started until the interest rate hikes were confirmed to have stopped in September 2023, which means that the time it takes to rise to the high point in March 2024 after the actual cessation of interest rate hikes is consistent with the time it took to rise to the short-term high point after the cessation of interest rate hikes in the previous round, both of which are about half a year.
2) ETF-influence of the increase: BlackRock officially submitted the ETF application on June 15, 2023. In January 2024, 11 institutions approved the Bitcoin ETF, introducing incremental funds. BlackRock IBIT's current net inflow of Bitcoin ETF is US$20.55 billion, and the overall scale of Bitcoin ETF issued in the United States has reached US$53.11 billion.
What do you think about the follow-up?
Since March 2024, the wide range of fluctuations has lasted for 5 months, which is close to the last round of fluctuations, but the maximum decline from the high point is about 26%, which is smaller than the 49% retracement in 2019 (excluding the impact of the epidemic). Reason analysis: The retracement is smaller, mainly due to the continuous acceptance of ETF funds in this round and the limited selling pressure from miners, and the consensus on holding coins has been further strengthened.
Without considering the impact of the epidemic, the last round of Bitcoin price correction from the short-term high point in 2019, after the interest rate was cut to the 1.5 platform (3 interest rate cuts), it started to rise. It has been consolidating for 5 months and is about to enter the interest rate cut cycle. With the support of ETF incremental funds, it is expected that the consolidation will come to an end. After the interest rate is cut to a certain platform, a new round of rise will start.
The proportion of coin holders exceeds that of the previous round
The amount of bitcoins in circulation and trading is decreasing, while the amount of bitcoins held is increasing.
As of now, the proportion of addresses that have held Bitcoin for more than 2 years is 53.87%. In 2019, when the price of Bitcoin rebounded and hit the bottom at the beginning of the year, the proportion of addresses that have held Bitcoin for more than 2 years was 38.74%. If the proportion of addresses with a holding period of less than 1 year is considered, the proportion was 41.02% in the previous round and 34.4% in this round. There are fewer coins in circulation with transaction demand in this round.
The decrease in deposits mainly occurred in the Coinbase exchange
Large amounts of Bitcoin were withdrawn from spot exchanges
Since 2022, the amount of Bitcoin held in Bitcoin spot exchanges has continued to decline, reaching a peak of nearly 1.9 million and then falling all the way. In February 2024, there was a significant decrease, and the current downward trend continues. As of August 15, the total amount of Bitcoin held by spot exchanges was 1.186 million, a decrease of about 700,000 in two years.
The number of bitcoins held by Coinbase Advanced has declined significantly since February 2024, from 1.045 million in February to 848,000 recently (as of August 24). At the peak of 2022, there were nearly 1.3 million bitcoins. Therefore, Coinbase alone has withdrawn nearly half of the bitcoins. Coinbase mainly conducts business in North America, which means that American audiences have purchased and held a large amount of spot bitcoins in the past two years.
In contrast, Bitcoin futures exchanges are more focused on short-term volatility trading, and the stock of Bitcoin has remained basically stable in the past two years.
Comparison chart of Bitcoin, MSTR, Coinbase, and Hive Digital trends
Comparison of Bitcoin price trend and related benchmark trend:
Micro Strategy: The company mainly purchases and hoards Bitcoin. The sources of funds are convertible bond issuance, common stock issuance, secured loans, and stock sales, which amplifies the price effect of Bitcoin. The trend is basically consistent with Bitcoin, but it peaked before Bitcoin in 2021.
Hive Digital: A mining company with higher elasticity than Bitcoin, but its stock price peaked before the price of the currency during the first wave of Bitcoin's market in 2019, and then continued to fluctuate until Bitcoin confirmed a breakthrough in its previous high in October 2020, when it began to rise rapidly.
Coinbase: A crypto exchange that moves roughly in sync with Bitcoin, but with greater volatility.
