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In the latest edition of Capriole Investments’ “Bitcoin Update,” Charles Edwards, founder and CEO, examines the current state of Bitcoin through a detailed analysis of thirteen on-chain indicators to address the critical question: Is the Bitcoin cycle top in?
A month after a promising technical breakout above $65.5K, which briefly touched $70K, Bitcoin experienced a sharp reversal, suggesting a possible cycle top. Edwards notes, “Never before has Bitcoin broken a new all-time high and had two retests instead of printing new highs.” This pattern, according to him, indicates a potential size-related consolidation but is generally a sign of market weakness.
#1 Supply Delta + 90 Day CDD: These metrics provide a strong indication of cycle tops by displaying supply movements and coin destruction days. The recent data formed a rounded top after a vertical increase in both metrics, which historically corresponds with market peaks. Edwards rates this as bearish, implying that the supply dynamics are signaling a downturn.
#2 Long-term Holder Inflation Rate: Historically, a threshold of 2.0 in this metric has been a reliable predictor of cycle tops. The rate has escalated from 0.5 in April to 1.9, now teetering close to this critical level. This proximity suggests that long-term holders are becoming increasingly likely to sell, marking another bearish indicator.
#3 Hodler Growth Rate (HGR): This measures the net growth of long-term holders. A decline or plateau in this rate often precedes market tops, as it indicates long-term investors cashing out. Currently, the HGR has not made new highs in over six months, aligning with historical precedents of cycle tops and thus is scored bearish.
#4 Bitcoin Heater: Analyzing extreme readings in funding, basis, and options, this metric stands neutral in the current cycle, indicating no significant market exuberance that typically precedes market tops. Furthermore, the absence of new leverage in the market contributes to this neutral stance.
#5 Dynamic Range NVT: This valuation metric compares on-chain transaction volume to market cap, recently moving out of the value zone due to increased on-chain activity from innovations like Ordinals and Runes. Despite this increase, it remains neutral, suggesting a balanced market valuation.
#6 On-chain Transaction Fees: Elevated transaction fees typically indicate high network demand, which can point to cycle peaks when followed by a sharp decline. Current fees have shown some spikes but largely mirror the decline noted in April. This metric remains neutral but is something Edwards advises to watch closely.
#7 Net Unrealized Profit/Loss (NUPL): Positioned just below the euphoria zone at 74%, the NUPL suggests that most market participants are in profit, but not excessively so. This delicate balance leaves the metric in a neutral state, reflecting potential caution but not outright exuberance.
#8 Spent Volume 7-10 years: A significant increase in spent volume from older coins typically suggests selling by long-term holders or “whales,” which can precede a market top. The massive transaction on May 28, involving 138,000 Bitcoin, primarily from Mt. Gox distributions, marks this as bearish, indicating potential market pressure from large-scale sell-offs.
#9 SLRV Ribbons: This metric, which looks at short and long revert ribbons, shows a bearish crossover for the first time this year. While it hasn’t reached an elevated point suggesting a cycle top, the recent trend is concerning and contributes to the bearish outlook.
#10 Dormancy Flow: With dormancy flow peaking significantly this year, the average age of spent coins is higher, similar to peaks seen in 2017 and 2021. This continuation of a high dormancy flow rate is bearish, suggesting a potential cycle top is near.
#11 Percent Addresses in Profit: Over 95% of addresses being in profit usually precedes a cycle top. With the recent high and subsequent decline, this indicator turns bearish, signaling that many investors might be taking profits, which could lead to a price drop.
#12 Mayer Multiple: Despite a peak at 1.9 in March, the Mayer Multiple remains below the 2.5 threshold that has historically indicated major cycle tops. Currently at 1.0, this metric is neutral, indicating that while the market is heated, it hasn’t reached the extremes of previous cycle peaks.
#13 US Liquidity: The correlation between liquidity and Bitcoin’s price is strong, and recent trends show a persistent downtrend in liquidity, which Edwards finds concerning. This negative liquidity growth aligns with a bearish outlook for Bitcoin.
Out of thirteen metrics analyzed, eight are currently bearish, five remain neutral, and none are bullish. This predominance of bearish indicators suggests that the cycle top could very well be in, marking a potential pivot point for Bitcoin. “I won’t lie, I find this on-chain data hard to believe. I am surprised by the count of Bearish signals for being just two months post halving,” Edwards noted.
Despite the bearish lean in on-chain metrics, he highlights the importance of considering technical patterns and broader market behavior. Bitcoin’s price is currently above the $58K support level, and the potential formation of a Wyckoff Accumulation pattern on the daily chart suggests that the market could still hold bullish potential.
However, the mixed signals necessitate cautious optimism and vigilant risk management. “Fundamentals look bearish, but technicals are still bullishly skewed. That leaves ambiguity here. All of the bearish Top Signals could be the result of typical summer months inactivity. Or perhaps this cycle will be a bit more like 2013 with a double top, or some hybrid mid-cycle grind that we must go through now given we are playing in the big league with the TradFi today,” Edwards remarked.
However, he also concluded, “My gut tells me this is just an exceptionally bad summer period for Bitcoin on-chain activity, and we will see what is usually the best 12 month window for Bitcoin risk-adjusted returns post-Halving resume in Q4 and beyond.”
At press time, BTC traded at $62,747.
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A month after a promising technical breakout above $65.5K, which briefly touched $70K, Bitcoin experienced a sharp reversal, suggesting a possible cycle top. Edwards notes, “Never before has Bitcoin broken a new all-time high and had two retests instead of printing new highs.” This pattern, according to him, indicates a potential size-related consolidation but is generally a sign of market weakness.
Bitcoin On-Chain Data Analysis
#1 Supply Delta + 90 Day CDD: These metrics provide a strong indication of cycle tops by displaying supply movements and coin destruction days. The recent data formed a rounded top after a vertical increase in both metrics, which historically corresponds with market peaks. Edwards rates this as bearish, implying that the supply dynamics are signaling a downturn.
#2 Long-term Holder Inflation Rate: Historically, a threshold of 2.0 in this metric has been a reliable predictor of cycle tops. The rate has escalated from 0.5 in April to 1.9, now teetering close to this critical level. This proximity suggests that long-term holders are becoming increasingly likely to sell, marking another bearish indicator.
#3 Hodler Growth Rate (HGR): This measures the net growth of long-term holders. A decline or plateau in this rate often precedes market tops, as it indicates long-term investors cashing out. Currently, the HGR has not made new highs in over six months, aligning with historical precedents of cycle tops and thus is scored bearish.
#4 Bitcoin Heater: Analyzing extreme readings in funding, basis, and options, this metric stands neutral in the current cycle, indicating no significant market exuberance that typically precedes market tops. Furthermore, the absence of new leverage in the market contributes to this neutral stance.
#5 Dynamic Range NVT: This valuation metric compares on-chain transaction volume to market cap, recently moving out of the value zone due to increased on-chain activity from innovations like Ordinals and Runes. Despite this increase, it remains neutral, suggesting a balanced market valuation.
#6 On-chain Transaction Fees: Elevated transaction fees typically indicate high network demand, which can point to cycle peaks when followed by a sharp decline. Current fees have shown some spikes but largely mirror the decline noted in April. This metric remains neutral but is something Edwards advises to watch closely.
#7 Net Unrealized Profit/Loss (NUPL): Positioned just below the euphoria zone at 74%, the NUPL suggests that most market participants are in profit, but not excessively so. This delicate balance leaves the metric in a neutral state, reflecting potential caution but not outright exuberance.
#8 Spent Volume 7-10 years: A significant increase in spent volume from older coins typically suggests selling by long-term holders or “whales,” which can precede a market top. The massive transaction on May 28, involving 138,000 Bitcoin, primarily from Mt. Gox distributions, marks this as bearish, indicating potential market pressure from large-scale sell-offs.
#9 SLRV Ribbons: This metric, which looks at short and long revert ribbons, shows a bearish crossover for the first time this year. While it hasn’t reached an elevated point suggesting a cycle top, the recent trend is concerning and contributes to the bearish outlook.
#10 Dormancy Flow: With dormancy flow peaking significantly this year, the average age of spent coins is higher, similar to peaks seen in 2017 and 2021. This continuation of a high dormancy flow rate is bearish, suggesting a potential cycle top is near.
#11 Percent Addresses in Profit: Over 95% of addresses being in profit usually precedes a cycle top. With the recent high and subsequent decline, this indicator turns bearish, signaling that many investors might be taking profits, which could lead to a price drop.
#12 Mayer Multiple: Despite a peak at 1.9 in March, the Mayer Multiple remains below the 2.5 threshold that has historically indicated major cycle tops. Currently at 1.0, this metric is neutral, indicating that while the market is heated, it hasn’t reached the extremes of previous cycle peaks.
#13 US Liquidity: The correlation between liquidity and Bitcoin’s price is strong, and recent trends show a persistent downtrend in liquidity, which Edwards finds concerning. This negative liquidity growth aligns with a bearish outlook for Bitcoin.
What Does This Mean For The Bitcoin Cycle?
Out of thirteen metrics analyzed, eight are currently bearish, five remain neutral, and none are bullish. This predominance of bearish indicators suggests that the cycle top could very well be in, marking a potential pivot point for Bitcoin. “I won’t lie, I find this on-chain data hard to believe. I am surprised by the count of Bearish signals for being just two months post halving,” Edwards noted.
Despite the bearish lean in on-chain metrics, he highlights the importance of considering technical patterns and broader market behavior. Bitcoin’s price is currently above the $58K support level, and the potential formation of a Wyckoff Accumulation pattern on the daily chart suggests that the market could still hold bullish potential.
However, the mixed signals necessitate cautious optimism and vigilant risk management. “Fundamentals look bearish, but technicals are still bullishly skewed. That leaves ambiguity here. All of the bearish Top Signals could be the result of typical summer months inactivity. Or perhaps this cycle will be a bit more like 2013 with a double top, or some hybrid mid-cycle grind that we must go through now given we are playing in the big league with the TradFi today,” Edwards remarked.
However, he also concluded, “My gut tells me this is just an exceptionally bad summer period for Bitcoin on-chain activity, and we will see what is usually the best 12 month window for Bitcoin risk-adjusted returns post-Halving resume in Q4 and beyond.”
At press time, BTC traded at $62,747.
Continue reading...