Digital Assets Comeback: Is the Bull Market Continuing?

In this week's crypto market analysis, we explore the remarkable resurgence of Bitcoin, its growing correlation with Gold, and the evolving dynamics of Long-Term and Short-Term Holders. Delving into the nuances of investor acquisition prices and market cycles, we examine whether the bear market is finally behind us…

Bitcoin's Impressive Comeback

Bitcoin has recently experienced its strongest price performance since reaching its all-time high. The market has surpassed $30k, with impressive quarterly returns of +70%. This marks the second time for weekly returns to reach +36%, making Bitcoin the best-performing asset class year-to-date (YTD). This performance presents a significant contrast between the 2023 and 2022 market performances and suggests a potential favourable regime shift. Analysing several on-chain indicators supports the hypothesis of a robust recovery. The big question remains: is the Bitcoin bear market finally behind us?

Bitcoin and Gold: A Growing Correlation

Over the last 12 months, there has been an increased correlation between Bitcoin (BTC) prices and Gold. This strongly positive correlation is observed on a 30-day, 90-day, and 365-day basis. The correlation remained elevated during the recent US banking crisis, which suggests a growing appreciation for sound money among investors. It seems that investors are becoming increasingly aware of counter-party risk.

Intriguing Market Dynamics: Long-Term vs. Short-Term Holders

The Bitcoin market is at an intriguing point with Long-Term and Short-Term Holder thresholds around the FTX implosion date. Long-Term Holders, who acquired coins before the FTX failure, hold 14.161 million BTC, which is near the all-time high. On the other hand, Short-Term Holders, who acquired coins after the FTX failure, maintain a steady supply of 2.914 million BTC in 2023.

Clustering Supply by Acquisition Prices

The distribution chart of investor acquisition prices reveals three distinct supply clusters. The Bottom Formation Cluster includes investors who acquired BTC at prices below $25k between June 2022 and January 2023. This cluster has a balanced mix of Long-Term Holders (pre-FTX) and Short-Term Holders (post-FTX) buyers. The Recent Acquisition cluster represents 7.25% of the supply, with acquisition prices between $25k and $30k. This cluster is mostly comprised of Short-Term Holders, indicating profit-taking and coins sold to break-out buyers. Lastly, the Cycle Survivors cluster includes Long-Term Holders from the 2021-22 cycle who acquired BTC at prices above $30k. This cluster accounts for 22.2% of the supply, indicating resilience to volatility and market chaos.

Understanding Market Cycles through Long-Term Holder Behaviour

The market cycle can be analysed through Long-Term Holder (LTH) behaviour, consisting of three key phases: Plateau of Patience, Peak HODL, and Distribution upon Breaking ATH. The market is currently in the Plateau of Patience, with over 23.3% of the supply held outside exchanges owned by underwater LTHs. The current supply structure is similar to early 2016 and early 2019.

Year-to-Date Market Strength Fuelled by Coins Held at a Profit

YTD market strength is fuelled by a significant increase in coins held at a profit. Bear market floors are marked by wide-scale capitulation, balanced by equal demand inflow. Price rallies from the bottom formation zone lead to coins returning to profit. In 2023, 6.2 million BTC (32.3% of the supply) returned to profit, showcasing a strong cost basis foundation below $30k.

Unrealised Profit Incentivises Spending and Selling

Many coins show an unrealised profit, increasing spending and selling incentives. The Net Unrealised Profit/Loss (NUPL) metric measures the Bitcoin market cap held as unrealised profit. The current NUPL reading is 0.36, indicating a neutral market level. This reading coincides with past bear-to-bull market transitions, suggesting that the market is neither heavily discounted (e.g., $16k) nor overvalued (e.g., $60k+ peak). With 55.8% of days having higher readings and 44.2% having lower readings, the market appears to be at a turning point.

In Conclusion: A Promising Outlook for Bitcoin

Market volatility remains high for Bitcoin and other digital assets. However, on-chain indicators show consistent human decision patterns that suggest bear market conditions could be subsiding. Bitcoin is currently in neutral territory, with a strong foundation supported by a significant volume of coins trading between $16k and $25k.

As the market continues to evolve, investors should remain vigilant and adapt to changing dynamics. With a growing correlation between Bitcoin and Gold, a potential shift in market cycles, and an increase in coins held at a profit, the future of Bitcoin appears promising. While it's too early to declare the bear market officially over, the signs of a robust recovery are becoming increasingly evident.

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