Bitcoin has been hovering in the range of $60,000 to $70,000 for almost 4 months now. Although surprising, this is not uncommon. We usually see a period of calm after halving events. If we look at the prices after the 2016/2020 halving cycles, we also experienced similar consolidation before entering the parabolic rise.
But we shouldn’t just be satisfied with “this is how it happened in the past,” but rather try to analyze what’s happening here so that we can learn from it.
“What about altcoins? Airdrops? What about ETH ETF?” These topics will be covered in future articles – hoping to provide some specific thoughts on Bitcoin.
If we try to answer the question of why we have a lot of supply around $70,000 on the surface, the naive (and more obvious) answer is:
– Many dollars leading up to the halving event
– Miners’ income halving and being forced to sell
– US taxes
We can go on and on as there are countless reasons, but it makes sense to consider more objective indicators.
If we look at the Market Value to Realized Value (MVRV) ratio – which is the ratio between the weighted average purchase price of Bitcoin (marked as the price when the Bitcoin last moved) and the current market price – we can get an idea of the unrealized profit being focused on Bitcoin.
MVRV peaked in March, with a ratio of 2.75, meaning the average purchase price of Bitcoin at $73.1 was $26.58. This indicator is not entirely accurate (for example, CEX may not move tokens, but only update their database entries), but it usually peaks with the market price. Sometimes people need to take profits, right?
Another interesting indicator is the change in long-term holder positions – which defines long-term holders as any wallet holding Bitcoin for more than 155 days. Tops are usually formed when these holders complete their selling, and bottoms are formed when they start buying again. You can clearly see a sharp increase in selling from late January to late March. More importantly, they are also starting to buy again.
Lastly, considering that the supply of dollars is the basis for pricing Bitcoin, it is important to pay attention to the supply of dollars. How much “money” is flowing? But more importantly, is the quantity increasing or decreasing? And at what pace? Is it accelerating or decelerating?
I think this chart says it all – the pace of the increase in global M2 (an important factor of global liquidity) has slowed since the end of March/beginning of April. The market is forward-looking, and if the forward-looking prediction of M2 slows down, the pricing of the market will be a stronger dollar relative to our cryptocurrencies (all else being equal).
There are many other signals as well:
– Coinbase jumped 106 places in one day (their app store downloads were high)
– BTC ETF flows reached a peak of $1.045 billion and then sharply slowed down
– A lot of very positive regulatory news, while the subsequent price action has been weaker
Miners selling heavily after the halving.
Selling tops (and local tops too) are always difficult because they usually last longer (or shorter) than we expect, and emotions make it hard for us to be objective. Additionally, the market conditions also set us up – we stay cautious during the initial breakout, then envy those who make more money than us (buying memes, increasing leverage), and finally try to mimic and “catch up” at the end.
The good news is, I don’t think this is the cycle top (if we consider factors like ETF, the concept of a cycle top still exists). As I mentioned at the beginning, I think this is quite typical in the weeks and months after the halving. Each cycle is obviously different, but I think the principles are roughly the same:
– There can only be so much unrealized profit in the system
– Long-term holders sell to create tops (buy to create bottoms)
– The speed at which the supply of dollars increases/decreases
– These will manifest in different ways depending on the positioning of participants
This is unlikely to be the cycle top. Although it’s hard to say exactly *when* we will start rising again, I think we are much closer to the end of breaking out of this range than the beginning (fingers crossed upward).