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Several Metrics Show Another Crypto Bull Market Is Underway
In crypto, it’s not enough to merely recognize that the market is going up, and to throw your cash in with every other investor. No, what’s more important is acquiring a sense of for how long a price (or market-wide) movement is likely to last, and for whether a trend is likely to be short-term or long-term.
In other words, the trick is learning the difference between a momentary jump in prices and a full-fledged bull market. While this is more of an art than a science, the recent upswing in the bitcoin and wider cryptocurrency market provides a good case study for this, since a number of metrics and indicators are now pointing to a likely bull market.
Culled from the likes of glassnode and CryptoQuant, these variously indicate a steep reduction in selling pressure and a steady accumulation of bitcoins, meaning that a reduction in circulating supply should result in increased demand (and price) over time.
Of course, not everything is quite as it seems in crypto, with critics suggesting that a recent increase in the tether (USDT) supply is one of the chief causes of the recent surge, and that therefore the latter may not be as sustainable as some would have you believe.
Definitions of a Bitcoin and Crypto Bull Market
While definitions of a bull market vary, there are two general features common to most descriptions of bull markets. First, an asset or market must rise by 20% or more, with the SEC suggesting that this should usually be “over at least a two-month period.” Secondly, this 20% rise tends to come after a fall of 20% or more, and may on occasion precede a later 20%-plus drop.
Looking at bitcoin, it has risen by nearly 50% since a low of $29,500 on July 20, although this increase hasn’t been sustained for at least two months. As such, it may be slightly premature to label it as having already begun a bull market. However, a wide assortment of data suggests that it will continue to rise for at least another month, and that crypto may indeed have a more formal bull market on its hands.
One of the strongest signs of an incipient bull market is the occurrence of a ‘golden cross.’ This happens when a short-term moving average for an asset’s price surges above a long-term average. And in the particular case of bitcoin, its 30-day average passed its 100- and 200-day moving averages over the weekend, indicating that its price is breaking away from longer term trends.
Bitcoin’s 30-day MA (blue) overtook its 100-day (red) and 200-day (yellow) on August 22. Source: TradingView
This overtake occurred just after bitcoin’s current price cleared its 200-day average, as pointed out by CryptoQuant.
Source: Twitter
Another significant piece of data comes from analytics firm glassnode. It recently noted the occurrence of another golden cross, this time in its Hash-Ribbons metric, which measures the average BTC earned per hash of mining power. Basically, bitcoin miners have been earning more from mining over the past 30 days than they had over the previous 60 (and over other longer timeframes). This is very bullish for bitcoin and for the wider market, since as glassnode writes, it has already resulted in “a net reduction in compulsory sell-side pressure sourced from miners.”
Miners have been accumulating (rather than selling) bitcoin since July. Source: glassnode
More encouraging data comes in the form of net exchange outflows, with glassnode also revealing that trading platforms are now seeing bitcoin leave them at a rate of around 50,000 to 100,000 BTC per month. This exodus has also been underway since July, again suggesting that an increase in accumulation is setting the stage for a more prolonged bull market in the weeks to come.
The red bars indicate bitcoin leaving exchanges, and not being sold. Source: glassnode
On top of this, the recent uptick in prices now means that around 20% of the circulating supply of bitcoin has returned to profit, having been held at a loss up until the rises of the past couple of weeks. From having only 66% of the supply in profit in early July, 86% is now up.
Such data goes hand-in-hand with an increase in the long-term holder supply ratio, which has risen to 82.6%, an all-time high. As with other metrics, this highlights a reduction in selling pressure, and a parallel increase in relative demand (and by extension price).
Source: Glassnode
Interest, Tether, Uninterest
This bullish data comes amid a continued stream of new bitcoin and cryptocurrency services from major financial institutions.
For example, JPMorgan and Wells Fargo both registered their own respective bitcoin funds with the SEC last week, potentially opening the floodgates to new institutional investors. Likewise, major crypto-exchange Coinbase has just announced that it will add $500 million in various cryptocurrencies to its balance sheet, while also investing 10% of its profits in the market.
Combined with news that the world’s largest asset manager — BlackRock — has taken stakes in two mining companies, this indicates that the market and wider industry is primed for continued growth in the coming months.
That said, before we get too carried away, it’s worth noting a couple of objections. For one, prominent critics have noted that the recent upsurge rather conveniently occurred just when Tether minted two billion USDT.
Source: Twitter
Programmer/cryptographer/
Tether — or rather, its chief technical officer — has stated that 50% of the 2 billion USDT issuance is for “inventory replenish,” meaning that it won’t actually be deployed straight away, and will instead be kept in reserve to meet issuance requests as and when they arrive.
Whether you believe suspicions over Tether are fully warranted or merely FUD, it’s worth noting that institutional purchases of bitcoin actually seem relatively low at the moment.
For instance, London-based analytics company skew noted that shares in the Grayscale Bitcoin Fund continue to trade below the value of the actual bitcoin Grayscale holds, indicating an unwillingness of institutions to get involved in the market (at least via Grayscale). At the same time, leveraged funds are increasingly net short of CME bitcoin futures, suggesting that institutions think bitcoin is more likely to go down rather than up in the coming weeks.
These are curious signs, and seemingly support the view that much of the recent rally is being driven by USDT printing rather than an influx of new institutional interest. However, they provide only a partial snapshot of the overall market, with other metrics (as summarised above) drawing a more positive picture. As is always the case with investing only time will tell which account of the crypto market is more accurate.
