Bitcoin has been hovering in the $60,000 – $70,000 range for nearly 4 months, which is frustrating but not unusual. Usually after a halving event, we see the market enter a period of downturn. If we look back at the 2016 and 2020 halving cycles, we can see similar consolidation phases before entering the so-called "banana zone", which is the final parabolic rise phase.
However, we cannot just be satisfied with "that's how things have been in the past", but should try to analyze the current market conditions in order to learn from them and even profit from them. On the surface, if trying to answer why there is a lot of supply around $70,000, the simplest and most obvious answer might be:
- A large amount of funds entered the market in advance before the halving event
- Miners’ income halved and forced to sell
- US tax factors
We could list countless reasons, but it makes more sense to examine some objective indicators.
Market Value vs. Realized Value (MVRV)
This is the ratio between Bitcoin’s weighted average purchase price (i.e. the price at the time of its last move) and its current market price. Simply put, this reflects Bitcoin’s unrealized profits.
MVRV peaked in March at a ratio of 2.75, meaning that when Bitcoin was priced at $73,100, the average purchase price was $26,580. While this metric is not entirely accurate (for example, a centralized exchange may not move the token, but simply update the repository entry), it usually rises in tandem with market price peaks. At some point, people need to take profits, right?
Changes in long-term Bitcoin holders
Another interesting metric is the change in the position of long-term holders, defined as wallets holding Bitcoin for more than 155 days. Tops usually form when these holders complete selling, while bottoms form when they begin buying.
From the end of January to the end of March, a sharp increase in selling volume is evident. What’s more, they are now starting to buy again.
dollar supply
Finally, considering that Bitcoin is priced in U.S. dollars, it is also crucial to observe the U.S. dollar supply. How much “money” is flowing in the market? More importantly, is this number increasing or decreasing? How is the speed? Is it accelerating or decelerating?
I think this chart says it all - the growth rate of global M2 (an important factor in global liquidity) has slowed significantly since late March/early April. Markets are forward-looking and if the outlook for M2 slows, markets will expect the USD to strengthen relative to cryptocurrencies (all else being equal).
In addition, there are many other signals:
Coinbase jumped 106 spots in the rankings in one day (they got a lot of app downloads)
Bitcoin ETF inflows peaked at $1.045 billion before slowing down sharply.
Lots of very positive regulatory news
Miners sell aggressively in post-halving downturn
Is this the market top now?
Selling at tops (including regional tops) is always difficult because they tend to last longer (or shorter) than we expect and emotion makes it difficult to remain objective. In addition, the market will also sway us, we will be cautious at the beginning of the breakthrough, then we will envy those who make more than us (buy memes, increase leverage), and finally try to copy and "catch up" until the end.
The good news is that I don't think this is a cycle top (if the concept of a cycle top still exists in the context of ETFs and such). As I mentioned at the beginning, I think this is fairly typical in the weeks and months following a halving. Each cycle is obviously different, but I think the basic principles are roughly the same:
- There can only be so much unrealized profit in the system
- Selling by long-term holders forms top (buying forms bottom)
- The rate of increase or decrease in the supply of U.S. dollars
These factors will manifest themselves in different ways depending on the positioning of the participants.
I think this is unlikely to be a cycle top. While it's hard to say exactly when we'll see another move higher, I think we're closer to the end of this range than we were to the beginning (hopefully to the upside).
