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

Author: EMC Labs

The information, opinions, and judgments regarding the market, projects, cryptocurrencies, etc., mentioned in this report are for reference only and do not constitute any investment advice.

Like a grand battle of realization, 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's Start," emphasizing that the bear market has ended and the market has entered a recovery phase;

In July, we released the report "Short-Handed Whales Fail to Rebound, On-Chain Data Supports Resuming Uptrend," 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 10-point counterattack in a bleak market;

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

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

Whether in the bright spring of April or the desolate autumn of September, EMC Labs firmly holds a bullish and proactive stance on the market, predicting in September's difficult moments that BTC would break through the yearly high.

Ultimately, the market broke free from the shadow of interest rate hikes, shedding the fear of another collapse, and set sail towards the vast ocean 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 for the expansion of blockchain technology applications, a year for cryptocurrencies 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, may everyone aspire high and act in accordance with nature.

Macro 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 an increase of 5.25%.

U.S. Benchmark Interest Rate

As 2023 comes to a close, major global financial markets, except for China, recorded gains. The Nasdaq, often used for comparison 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 the end of deflation, preparing for the expected return to a rate-cutting cycle in 2024.

During the same period, 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 cut expectations and a booming stock market.

In contrast, the U.S. dollar index consolidated throughout the year and began to decline sharply after the expectation of rate cuts was triggered in November and December following the halt of interest rate hikes, and it is expected to continue to decline.

U.S. Dollar Index

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

BTC Price Monthly Trend

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

Crypto Market

For BTC, December was a month of steadfast upward movement, achieving an annual breakthrough. It opened at $37,732 and closed at $42,288, with a monthly increase of $4,556, or 12.07%, and a volatility of 19.56%, marking a continuous rise since April.

The new round of increases that started in mid-October pulled BTC back into the upward channel of the recovery phase (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 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 a long 8 months in 2023 and was the main area for washing out during the recovery phase. During this period, 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 to monitor the overall inflow and outflow of market funds.

In 2023, stablecoin outflows reached a staggering $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 throughout the year, with only $200 million flowing in during December, while all other 11 months recorded net outflows. The remaining outflow gap mainly came from the soon-to-be-discontinued BUSD.

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 phase. Following this, with continued inflows in November and December, BTC ultimately broke through the upper boundary of the upward channel of the recovery phase, showing a trend of breaking out of the recovery phase.

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

Supply Trends

With the rapid rise in BTC prices at the beginning of December, the market profit ratio increased from 1.79 at the end of November to 1.92, with long-handed (long-term investors) rising from 1.8 to 2.0, while short-term investors dropped from 1.2 to 1.18.

These numbers exhibit typical characteristics of the recovery phase: long-term investors continue to accumulate floating profits, while short-term investors are keen on realizing profits.

The ongoing revision of short-term investors' floating profits has, in fact, cleared the market of the momentum for a significant short-term decline. EMC Labs believes that from the perspective of holding structure and profit pressure, although BTC prices have experienced a significant rise, there is not much downward momentum within the market.

Looking at the BTC cost distribution------

BTC Cost Distribution

Compared to November, the market's maximum defense line has been raised to around $34,000, with an accumulation of up to 1.05 million chips above the $41,000~$44,000 range. EMC Labs believes that there is only one truly threatening pressure point ahead, which is the turning point between the recovery phase and the upward phase at $48,000. Once it surpasses $48,000, it will mark the beginning of 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 (long hands) and short-term investors (short hands).

Through data analysis, EMC Labs has discovered that in December, there was a historic change in the positions of long and short hands------

Long Hands, Short Hands, Miners, CEX BTC Position Changes (Monthly)

From January to November, long hands were accumulating while short hands were continuously selling. During these 11 months, long hands collected 800,000 BTC, while short hands 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 phase------transitioning from short to long, forcing short-term investors to relinquish their chips through price fluctuations, squeezing liquidity to push the increasingly dry market out of the recovery phase and into a bull market.

However, in December, a historic turning point occurred------long hands reduced their holdings by 50,000 BTC, while short hands increased their holdings by 100,000 BTC. Although there was a previous instance of "transitioning from long to short" 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 long to short" is a signal of the market's transition from the "recovery phase" to the "upward phase." Once the market enters the upward phase, the long hands will enter a new round of historic sell-offs.

On-Chain Data

The behavior of the holding groups behind on-chain data is not only the fundamental support for the BTC bull market but also 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 up in China, reached two peaks in May and December with the involvement of two centralized exchanges, OKX and Binance, which have significant influence in the Chinese trader community.

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

Bitcoin Network Daily Fees Revenue

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

December 8 and December 16 became the third and fourth highest revenue days in the history of the Bitcoin network. The first and second highest 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 the reason why the Bitcoin Core team has stepped forward to criticize Ordinals participants for consuming the BTC brand and abusing block space, proposing the development of a new version of the client to expel the Ordinals group from abusing block space.

According to historical data, the transition from the recovery phase to the upward phase is inevitably accompanied by user growth and the prosperity of on-chain behavior in the Bitcoin network. Due to the Ordinals BRC20 MEME coin frenzy, the data has been polluted, user behavior has been affected, and our observation difficulty has increased.

Overall, on-chain data has been improving in 2023, but there was indeed a significant pullback in December, making BTC's rise in that month seem less convincing. Moving forward, we will continue to monitor the evolution of on-chain behavior through data, as this is fundamental to the bull market's initiation. The 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 U.S., since the last bull market.

Since the approval of BTC futures ETFs in 2017, applications for BTC spot ETFs have been gradually heating up. Because the participation costs and scales of spot ETFs are generally superior to those of futures ETFs, the application and approval status of BTC ETFs has garnered deep attention from the crypto asset market. Each decision will have a direct impact on BTC prices.

Among the applicants are 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 (the latest anticipation point is 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 amount of speculative capital into the market, and the current BTC prices already reflect this. In January, regardless of whether the BTC ETF approval goes through, it will cause significant fluctuations in BTC prices. The reason may be that old speculators exit while new speculators enter, or due to manipulation by contract controllers.

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

Conclusion

With stablecoins experiencing net inflows for three consecutive months, the holding structure beginning to "transition from long to short," and BTC breaking free from the recovery phase upward channel, attempting to establish a new upward phase 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 the BTC ETF approval goes through, it will cause 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!

EMC Labs was founded in April 2023 by cryptocurrency investors and data scientists. It focuses on blockchain industry research and crypto secondary market investment, with industry foresight, insights, and data mining as its core competitiveness, dedicated to participating in the thriving blockchain industry through research and investment, promoting the benefits of blockchain and crypto assets for humanity.

For more information, please visit: https://www.emc.fund