Author | Nathan Frankovitz, Matthew Sigel
Compiled by | Wu Blockchain
Driven by the regulatory tailwind from Trump's election, BTC has successfully broken through its historical high. As market attention continues to rise, various key indicators suggest that the strong momentum of this bull market is likely to persist.
As we predicted in September, BTC price experienced high volatility and a surge after the election. Now, BTC has entered uncharted territory without technical price resistance, and we believe the next stage of the bull market has just begun. This pattern is similar to 2020, when BTC price doubled by the end of the year and further increased by about 137% in 2021. As the government's supportive attitude towards BTC undergoes a significant transformation, investor interest is rapidly increasing. Recently, the number of investment inquiries we have received has surged, and many investors have realized that their allocation to this asset class is clearly insufficient. Although we are closely monitoring the market for signs of overheating, we reiterate our price target of $180,000/BTC for this cycle, as the key indicators we track continue to show bullish signals.
BTC Price Trends
Market Sentiment
BTC's 7-day moving average (7 DMA) reached a new all-time high of $89,444. On election night, Tuesday, November 5th, BTC soared about 9% to a new all-time high of $75,000. This is consistent with our previous observation: when the likelihood of a Trump victory increases, BTC price tends to rise. Trump explicitly promised in his campaign to end the "enforcement-based regulatory" strategy of the U.S. Securities and Exchange Commission (SEC) and make the U.S. the "world capital of crypto and Bitcoin".
After Trump's election as president, regulatory resistance has turned into a driving force for the first time. Trump has already begun appointing crypto-friendly officials in the executive branch, and with the Republican Party in control of the unified government, the likelihood of relevant supportive legislation being passed has increased. Key proposals include plans to establish a national BTC reserve and rewrite legislation related to the crypto market structure and stablecoins, with FIT21 expected to be rewritten in market and privacy-friendly terms, and new stablecoin drafts allowing state-chartered banks to issue stablecoins without Federal Reserve approval.
As countries like the BRICS are exploring alternatives like BTC to circumvent U.S. dollar sanctions and currency manipulation, stablecoins provide a strategic opportunity for the U.S. dollar to be exported globally. By eliminating regulatory barriers and allowing state-chartered banks to issue stablecoins, the U.S. can maintain the global influence of the U.S. dollar and leverage the faster adoption of cryptocurrencies in emerging markets. These markets have a strong demand for financial services, hedging against local currency inflation, and DeFi.
We expect the SAB to be repealed in the first quarter of Trump's term, if not by the SEC, then by Congress, which will prompt banks to announce crypto custody solutions. If Gary Gensler has not yet resigned, Trump may fulfill his promise to replace the SEC chairman with a more crypto-friendly candidate and end the agency's notorious "regulation by enforcement" era. Furthermore, by 2025, the U.S. will revise its Ethereum (ETH) ETF to support Staking, the SEC will approve Solana's (SOL) ETF 19b-4 proposal, and the ability to create and redeem ETFs in-kind will make these products more tax-efficient and liquid. Given Trump's prior acknowledgment of the energy-intensive similarities between BTC mining and artificial intelligence (AI), energy regulations are expected to be relaxed, making baseload energy (such as nuclear) cheaper and more abundant, thereby driving U.S. global leadership in energy, AI, and BTC.
This election marks a bullish inflection point, reversing the previous capital and employment outflows caused by the hardline policies. By igniting entrepreneurial dynamism, the U.S. is poised to become the global leader in crypto innovation and employment, transforming cryptocurrencies into a key domestic growth industry and an important export product for emerging markets.
BTC Dominance
The 7-day moving average of BTC dominance (a metric measuring BTC market capitalization relative to the total crypto market capitalization) has risen 2 percentage points this month to 59%, the highest level since March 2021. While this upward trend from the November 2022 level of 40% may continue in the short term, it is likely to peak soon. In September, we pointed out that a Harris victory could increase BTC's dominance due to a clearer regulatory status as a commodity. In contrast, Trump's pro-crypto stance and his expanded cabinet team are likely to drive broader crypto market investment. As BTC reaches new highs in a crypto-friendly regulatory environment, the wealth effect and reduced regulatory risk are expected to attract native capital and new institutional investors to DeFi, boosting the returns of smaller projects in the asset class.
Regional Trading Dynamics
At first glance, traders in the Asian market trading session appear to have significantly increased their BTC holdings this month, contrary to the recent trend of Asian traders typically being net sellers while European and U.S. traders are net buyers. However, the BTC price surge on election night occurred during the Asian trading session, likely due to a large number of U.S. investors trading around the election. This specific event makes it difficult to attribute such price movements entirely to regional dynamics. Consistent with historical behavior, traders in the U.S. and European trading sessions continue to increase their BTC 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 the market's risk level and potential price tops. This month, our analysis starts with perpetual futures (perps), where the performance of funding rates provides insights into market sentiment and helps gauge the likelihood of market overheating.
BTC price typically exhibits signs of overheating when the 30-day moving average (30 DMA) of perpetual funding rates exceeds 10% and persists for 1 to 3 months.
BTC Average Returns vs. Perpetual Funding Rates (January 4, 2020 - November 11, 2024)
BTC Price Performance When 30 DMA Annualized Perps Fees Exceed 10%
Source: Glassnode, as of November 12, 2024
Starting from April 2020, we analyzed the periods when the 30-day moving average perpetual futures 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 individual periods varied significantly. The only exception was the single-day spike on June 18, 2024, reflecting short-term market sentiment. Other instances persisted for weeks, highlighting the structural bullish sentiment, which typically leads to significant short-to-medium-term gains.
For example, 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 another 51 days on October 19. If this brief interval is included, the total duration of the high funding rate in 2021 reached 99 days. Similarly, the current high funding rate phase that began on November 12, 2024 lasted for 80 days, followed by a 19-day interval, and then another 69-day high funding rate period, totaling 168 days, comparable to the 186 days from November 11, 2020 to May 21, 2021. It is worth noting that when the funding rate exceeds 10%, the average returns within the 30-day, 60-day, and 90-day time frames for BTC purchases are higher than on days with lower funding rates.
However, the data shows that there is a pattern of underperformance over longer time frames. On average, BTC purchased on days when the funding rate exceeds 10% starts to underperform the market from the 180-day mark, and this trend becomes more pronounced within the 1-year and 2-year time frames. Given that market cycles typically last around 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 a higher risk of long-term downside.
BTC Cycle Analysis
Source: glassnode, as of November 13, 2024
As of November 11, BTC has entered a new phase, with the funding rate once again exceeding 10%. This shift suggests stronger short-term to medium-term momentum, as historically, higher funding rates have been associated with higher 30-day, 60-day, and 90-day returns, reflecting increased bullish sentiment and demand. However, as the funding rate remains elevated, we may depart from the stage where long-term (1-2 year) returns are equally favorable. Given the current supportive regulatory environment for BTC, we expect another high-performance period to emerge, similar to the one following the 2020 US elections, when the sustained >10% funding rate drove a 260% increase over 186 days. With BTC currently trading around $90,000, our $180,000 target price remains viable, reflecting a potential cycle return of around 1,000% from the cycle low to the peak.
Higher 30-day moving average (DMA) relative unrealized profit (RUP) levels (>0.60 and 0.70) have historically often signaled BTC price tops.
BTC Average Realized Gain vs. 30-day Moving Average Relative Unrealized Profit (RUP) (November 13, 2016 - November 13, 2024)
Source: glassnode, as of November 13, 2024
BTC Average Realized Gain vs. 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 the Relative Unrealized Profit (RUP), another important metric for assessing whether the BTC market is overheated. RUP measures the proportion of the total BTC market capitalization that is comprised of unrealized gains (i.e., paper profits that have not yet been realized through selling). As BTC prices rise above the average purchase price of most holders, this metric increases, reflecting more of the market being in a profitable position and thus exhibiting bullish sentiment.
Historically, high 30-day moving average (DMA) RUP levels (especially above 0.60 and 0.70) have often signaled strong and potentially overheated market sentiment. As shown by the red zones in the charts, when the 30-day DMA RUP exceeds 0.70, it often coincides with market tops, as the high proportion of unrealized profits triggers more profit-taking. Conversely, when the RUP level falls below 0.60, it indicates more favorable market conditions for long-term buying, with historical data showing higher 1-year and 2-year returns for purchases made below this threshold.
Analysis of the past two market cycles suggests that 30-day DMA RUP levels between 0.60 and 0.70 typically offer the highest short-term to medium-term returns (7 days to 180 days). This range often reflects the mid-stage of a bull market, where bullish sentiment is rising but has not yet reached excessive levels. In contrast, when the RUP exceeds 0.70, returns across all time frames exhibit a negative correlation, reinforcing its role as a strong sell signal.
As of November 13, BTC's 30-day DMA RUP is around 0.54, but the daily value has exceeded 0.60 since November 11. According to our detailed data, risks start to rise as RUP approaches 0.70, emphasizing the importance of short-term trading within the 0.60 to 0.70 range. However, if the 30-day DMA RUP rises closer to 0.70, it may signal market overheating, warranting caution on long-term positions.
US "Cryptocurrency" Search Trends
Source: Google Trends, as of November 18, 2024
The search interest for "cryptocurrency" as a Google search term is an important indicator of retail investor interest and market momentum. Historical data shows that peaks in search interest have typically coincided with peaks in the overall cryptocurrency market capitalization. For example, the search interest peaks in May and November 2021 were followed by significant market declines: a roughly 55% correction over about two months after the May peak, and a bear market of around 12 months and 75% total decline after the November peak.
Currently, the search interest is only 34% of the May 2021 peak, slightly lower than the 37% local peak observed in March 2024 when BTC reached the highest price of this cycle. This relatively low search interest suggests that BTC and the broader crypto market have not yet entered a speculative frenzy stage, 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 the Google search interest for "cryptocurrency," the Coinbase app store ranking is another important indicator of retail investment interest. On March 5th, as BTC price surged around 34% in 9 days and retested the 2021 all-time high of around $69,000, Coinbase re-entered the top 50 app store rankings. Although BTC reached a new high of around $74,000 later that month, with price volatility subsiding into the summer doldrums and public attention shifting to the presidential election, retail interest waned. However, BTC's breakout on election night reignited retail interest, with Coinbase's app store ranking soaring from #412 on November 5th to #9 on November 14th. The surge in engagement drove further price appreciation and set a new record for BTC ETF inflows.
BTC Network Activity, Adoption, and Fees
Daily trading volume: The 7-day moving average of daily trading volume is around 543,000 transactions, down 15% month-over-month. Although it has declined, activity remains strong, at the 96th percentile of Bitcoin's historical levels. While the number of transactions has decreased, the increase in transaction value has offset this impact, as can be seen from the rise in transfer amounts.
Ordinals inscriptions: Daily inscriptions (NFTs and meme coins on the Bitcoin blockchain) trading volume grew 404% month-over-month, reflecting a resurgence of speculative enthusiasm driven by price increases and favorable regulatory developments.
Total transfer volume: Bitcoin transfer volume grew 118% month-over-month, with a 7-day moving average of around $85 billion.
Average transaction fee: Bitcoin transaction fees decreased 5% month-over-month, with an average fee of $3.58, and an average transaction value of around $157,000, corresponding to a transaction fee rate of approximately 0.0023%.
Bitcoin market health and profitability
Profitable address ratio: With Bitcoin price reaching new all-time highs, currently around 99% of Bitcoin addresses are in a state of profit.
Unrealized net profit/loss: This ratio has increased by 21% over the past month, reaching 0.61, indicating a significant improvement in the relative proportion of unrealized profits and unrealized losses. As a market sentiment indicator, 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 and crypto market capitalization
Mining difficulty (T):
Bitcoin's block difficulty has increased from 92 T to 102 T, reflecting miners expanding and upgrading their equipment fleets. The Bitcoin network automatically adjusts the difficulty every 2,016 blocks (approximately two weeks) to ensure that each block is mined in around 10 minutes. The increase in difficulty indicates intensified competition among miners, and also represents a strong and secure network.
Miners' daily total revenue:
Miners' daily revenue grew 30% month-over-month, benefiting from the increase in BTC price, but BTC-denominated transaction fees decreased by 30%, impacting total revenue to some extent.
Miners' transfers to exchanges:
On November 18th, miners transferred approximately $181 million worth of BTC to exchanges, around 50 times the previous 30-day average, driving a 803% month-over-month increase in the 7-day moving average. This extreme movement is the highest level since March, similar to the period before the last Bitcoin halving. While the sustained high miner-to-exchange transfer volume may indicate an overheated market, this peak occurred after the summer miner sell-off at lower levels, suggesting it is for operational and growth purposes, rather than a signal of a market top.
Crypto stock market capitalization:
The 30-day moving average of the MarketVector Digital Assets Stock Index (MVDAPP) increased 47% month-over-month, outperforming Bitcoin. Major index constituents like MicroStrategy and Bitcoin mining companies, through their Bitcoin holdings or mining operations, directly benefit from the increase in Bitcoin price. Meanwhile, companies like Coinbase are also able to capitalize on the broader crypto market gains, as the price appreciation drives expectations for increased trading fees and other revenue sources.
Source farside.co.uk, as of November 18, 2024
