EMC Labs December Newsletter: January BTC price may experience severe fluctuations, calm holding in anticipation of the fifth bull market

Author: 0xWeilan, EMC Labs

Like a bold battle, the fifth round of the cryptocurrency bull market is gradually approaching.

In April, we released the report “The Big Picture is Set, Looking for Clues to the Bull Market Start”, emphasizing that the bear market has ended and the market has entered a recovery period;

In July, we released the report “Short-Selling Whales Fail to Rebound, On-Chain Data Supports Regaining Momentum”, pointing out that the box pressure does not change the essence of recovery;

In September, we released the report “BTC Q4 May Challenge the Yearly High of $32,000 Again”, accurately predicting a counterattack in October amidst a bleak market;

In October, we released the report “As Expected, BTC Likely to Continue Upward Channel Fluctuations”, clearly stating that stablecoins are entering a bull market, and after the counteraction, the market will continue to rise;

In November, we released the report “Internal and External Factors, the Fifth Round of Cryptocurrency Bull Market is Imminent”, indicating that the market is beginning to transition from a recovery period to an upward phase (bull market).

Whether in the bright spring of April or the bleak autumn of August and September, EMC Labs has firmly maintained a bullish outlook and actively participated in the market, accurately predicting in September that BTC would break through the yearly high.

Ultimately, the market broke free from the shadow of interest rate hikes, dispelling fears of another collapse, and set sail towards the vast sea of the fifth cryptocurrency bull market!

This is the exuberance of industrial thinking, and this is the victory of will.

The year 2024 will be a magnificent year, a year of expanding applications for blockchain technology, a year for cryptocurrency to take the stage on a larger platform, and a year for builders to reap the rewards of their labor.

As the new year begins, I wish everyone lofty aspirations and a natural path.

Macroeconomic Market

In December, the Federal Reserve ended interest rate hikes as expected. This round of rate hikes began in April 2022 and ended in October 2023, lasting 19 months with a total increase of 5.25%.

U.S. Benchmark Interest Rate

As 2023 came to a close, major global financial markets, except for China, recorded gains. The Nasdaq, commonly used for comparisons in the crypto market, continued to rise by 5.52% in December, closing at 15,011.35, with an annual increase of 43.42%.

NASDAQ Index Annual Line

This shows that after experiencing deflation and fear in 2022, global capital actively went long in 2023 in anticipation of a return to a rate-cutting cycle in 2024.

At the same time, gold prices also continued to rise, closing at $2,062.94, indicating that some capital lacking confidence in economic recovery chose safe-haven assets against the backdrop of rate-cutting expectations and a booming stock market.

In contrast, the U.S. dollar index remained stable throughout the year and began to decline rapidly after the expectation of rate cuts was initiated in November and December. The market is expected to continue this downward trend.

U.S. Dollar Index

In comparison to global financial markets, BTC achieved a significant increase of 155.82% throughout the year, recovering 87% of the decline from 2022, demonstrating immense elasticity and resilience.

BTC Price Monthly Line Trend

According to Emergence Engine, BTC is expected to soon exit the recovery period and enter the upward phase (i.e., the bull market stage).

Cryptocurrency Market

For BTC, December was a month of firm upward movement, achieving an annual breakthrough. Starting at $37,732 and closing at $42,288, the month saw an increase of $4,556, or 12.07%, with a volatility of 19.56%, marking a continuous rise since April.

The new round of increases that began in mid-October pulled BTC back into the upward channel of the recovery period (green section in the chart below), probing the midline of the upward channel, breaking through the midline in November, and surging through the upper boundary of the upward channel in December.

BTC Price Daily Line Trend

From the perspective of the box, November effectively broke through the $25,000~$32,000 box (purple section in the chart above). This box had suppressed BTC prices for 8 months in 2023 and was the main area for implementing wash trading during the recovery period. Within this range, millions of chips changed hands.

Currently, BTC prices have entered the $32,000~$48,000 box space, and breaking through this box will signify the opening of the bull market and the establishment of the upward channel.

Capital Supply

Stablecoins provide a channel for monitoring the overall inflow and outflow of market funds.

In 2023, stablecoin outflows reached $9 billion, with USDT recording 11 net inflow months over the year, totaling an inflow of $25.4 billion. USDC saw an outflow of $19.9 billion for the year, with only $200 million flowing in during December, while the other 11 months recorded net outflows. The remaining outflow gap primarily came from BUSD, which is about to cease circulation.

Major Stablecoin Inflow and Outflow Statistics

The turning point for stablecoin inflows occurred in October. During that month, USDT saw significant inflows, directly prompting BTC to break free from box pressure and return to the upward channel of the recovery period. Following continued inflows in November and December, BTC ultimately broke through the upper boundary of the upward channel of the recovery period, showing a trend of breaking out of the recovery period.

Throughout the year, USDT was the main channel for capital inflow, totaling $25.4 billion, with strong continuity, especially accelerating inflows in Q4, particularly in November. It can be inferred that the Asian community, which primarily uses USDT, is both the driver and the beneficiary. Of course, the U.S. community and institutions have also entered the market on a large scale using USD. This portion of funds is currently difficult to quantify.

Supply Trends

Stablecoins provide a channel for monitoring the overall inflow and outflow of market funds.

With the rapid rise in BTC prices in early December, the market's profit ratio increased from 1.79 at the end of November to 1.92, with long-term investors' ratio rising from 1.8 to 2.0, while short-term investors' ratio fell from 1.2 to 1.18.

These numbers present typical characteristics of the recovery period: long-term investors continue to accumulate floating profits, while short-term investors are keen to cash out profits. The continuously revised floating profits of short-term investors have, in fact, eliminated the momentum for significant short-term declines in the market. EMC Labs believes that from the perspective of holding structure and profit pressure, although BTC prices have experienced significant increases, there is not much downward momentum within the market.

Now looking at BTC cost distribution------

BTC Cost Distribution

Compared to November, the market's maximum defense line has been raised to around $34,000, and above this, the $41,000~$44,000 range has accumulated as much as 1.05 million chips. EMC Labs believes that there is only one truly threatening pressure point ahead, which is the turning point between the recovery period and the upward phase at $48,000. Once it surpasses $48,000, it will be the magnificent fifth round of the cryptocurrency bull market.

Long-Short Game

We believe that market cycles are formed by the changes in trading behaviors of long-term investors (longs) and short-term investors (shorts). Through data analysis, EMC Labs has discovered that in December, a historic change in positions between longs and shorts is occurring------

Longs, Shorts, Miners, CEX BTC Position Changes (Monthly)

From January to November, longs were accumulating while shorts were continuously selling. During these 11 months, longs collected 800,000 BTC, while shorts reduced their holdings by 560,000 BTC, with CEX seeing an outflow of 20,000 BTC and miners increasing their holdings by 10,000 BTC.

This is a typical characteristic of the recovery period------ transitioning from shorts to longs, forcing short-term investors to relinquish their chips through price fluctuations, squeezing liquidity to push the increasingly dry market out of the recovery period and into a bull market.

However, in December, a historic turning point occurred------longs reduced their holdings by 50,000 BTC, while shorts increased their holdings by 100,000 BTC. Although a "transition from longs to shorts" also occurred in March, the scale in December was significantly larger, possibly indicating a trend change in the behavior of market participants. EMC Labs believes that "transitioning from longs to shorts" is a signal of the market's transition from the "recovery period" to the "upward phase." Once the market enters the upward phase, the long group will enter a new round of historic selling.

On-Chain Data

The behavior of the holding groups behind on-chain data is both a fundamental support for the BTC bull market and an important representation of the bull market.

In 2023, the rise of the Ordinals protocol brought a wave of irrational trading to the long-dormant Bitcoin ecosystem.

This wave, primarily stirred in China, reached its peak twice with the involvement of two centralized exchanges, OKX and Binance, which have significant influence among Chinese traders, once in May and again in December.

The irrational competition for block space driven by Ordinals (mainly BRC20 MEME tokens) has made the on-chain data of the Bitcoin network chaotic.

Bitcoin Network Daily Fees Revenue

From the perspective of Bitcoin network miner revenue, December's income far exceeded that of the previous recovery period.

May 8 and December 16 became the third and fourth largest revenue days in the history of the Bitcoin network. The first and second largest revenue days occurred during the ICO frenzy in 2017.

This surge in miner revenue is not sustainable and has already disrupted the normal operation of the Bitcoin network for payments and value transfers. This is specifically reflected in the daily new entities and daily active entities data------

Bitcoin Network Daily New Entities

Bitcoin Network Daily Active Entities

During the BRC20 MEME frenzy in December, irrational traders eagerly engaged in Ordinals inscriptions, driving up the usage costs of the Bitcoin network and suppressing the generation and activity of new users (entities).

This is also why the Bitcoin Core team has stepped forward to criticize Ordinals participants for consuming the BTC brand and abusing block space, and proposed developing a new version of the client to expel the Ordinals group from abusing block space.

According to historical data, the transition from the recovery period to the upward phase must be accompanied by growth in Bitcoin network users and the prosperity of on-chain behaviors. Due to the Ordinals BRC20 MEME token frenzy, the data has been polluted, and user behavior has been affected, making our observations more challenging.

In 2023, overall on-chain data was on the rise, but there was indeed a significant pullback in December, which made BTC's rise in this month seem less convincing. Moving forward, we will continue to monitor the evolution of on-chain behavior through data, which is fundamental to the initiation of the bull market. This decline in this dimension of data is unsustainable for the market.

BTC ETF

As a new type of digital asset, BTC has gradually gained the attention and involvement of mainstream financial institutions globally, especially in the United States, since the last bull market.

Since the approval of BTC futures ETFs in 2017, applications for BTC spot ETFs have gradually gained momentum. Because the participation costs and scales of spot ETFs are generally more favorable than those of futures ETFs, the application and approval status of BTC ETFs has drawn deep attention from the cryptocurrency market. Each move, whether approval or denial, directly impacts BTC prices.

Currently, applicants include traditional asset management giants like BlackRock and FTSE, as well as new crypto investment management firms like Valkyrie Investments. The market generally believes that these approved BTC ETFs will bring hundreds of billions of dollars in capital inflows over the next few years.

The imminent approval of these BTC ETFs (with the latest expectation point being mid-January) is also one of the driving forces behind the recent rise in BTC prices.

EMC Labs believes that the gradual unfolding of the current BTC or the entire crypto bull market is a high-probability event driven by industrial and cyclical changes, rather than being triggered by the expectations surrounding BTC ETFs. In 2023, the anticipation of BTC ETF applications and approvals attracted a certain volume of speculative capital into the market, and the current BTC price has already reflected this. In January, regardless of whether BTC ETF approvals are granted, there will be significant fluctuations in BTC prices. This may be due to old speculators exiting, new speculators entering, or manipulation by contract controllers.

EMC Labs believes that the transition from the recovery period to the upward phase is already occurring, and the inflow and outflow of speculative capital triggered by BTC ETF approvals may extend this transition process, but cannot change the trend of the bull market gradually starting.

Conclusion

With stablecoins seeing net inflows for three consecutive months, the holding structure is beginning to "transition from longs to shorts," BTC has exited the upward channel of the recovery period, and is attempting to establish a new upward channel.

These signs indicate that the unfolding of the bull market has already been scripted. The transition is merely a matter of time, expected to complete by January at the earliest, and no later than June.

In January, regardless of whether BTC ETF approvals are granted, there will be significant fluctuations in BTC prices.

If you, like us, believe in long-termism, then you can abandon your worries and calmly hold on to await the arrival of the fifth round of the cryptocurrency bull market!