Under the wide fluctuations, looking at the current situation of Bitcoin from a long-term data perspective

Author: Chandler, Foresight News

In 2024, the cryptocurrency market experienced extremely volatile fluctuations, particularly with Bitcoin's price oscillating between $50,000 and $70,000 for several months. This volatility was not only frequent but also unpredictable, showing neither the trends typical of traditional markets nor adhering to the usual cycles of bull or bear markets, forcing us to reassess the inherent logic and operational mechanisms of the market.

A notable feature of the current market is the clear divergence in investor strategies, with long-term holders and short-term traders adopting vastly different responses to this significant volatility. Long-term holders typically choose to maintain stable positions during fluctuations to cope with market uncertainty, while short-term traders more frequently capitalize on volatility to seek short-term gains. Particularly noteworthy are institutional investors, led by Bitcoin spot ETF investments, whose strategies appear especially complex in the current market. On one hand, these institutions need to reassess their holding structures amid widespread market fluctuations, especially shifting from the high management fee Grayscale Bitcoin Trust (GBTC) to other Bitcoin spot ETFs; on the other hand, they must carefully evaluate potential risks in the market to ensure their investment strategies align with market dynamics.

In this context, on-chain indicators have become key tools for understanding the current market situation. By deeply analyzing on-chain data, we can capture subtle changes in market sentiment, gain insights into the evolution of investor behavior, and summarize potential market trends. By combining on-chain indicator data from previous bull markets, we attempt to outline the current state of the Bitcoin market and provide a scientific basis for possible future market directions.

Bitcoin MVRV Z Score: Still Less Than Half of Previous Bull Markets

MVRV (Market Value to Realized Value) is an important indicator in the Bitcoin and other cryptocurrency markets, used to gauge market sentiment and price trends. This indicator provides information about whether the current price of an asset is overvalued or undervalued by comparing market value (Market Value) and realized value (Realized Value). Market value is the current market capitalization of Bitcoin, calculated as the current price multiplied by the total circulating supply of Bitcoin; realized value is the realized market capitalization of Bitcoin, determined by calculating the price at which each Bitcoin was last transferred. Realized value reflects the total price paid by each holder in the Bitcoin market, effectively filtering out short-term market sentiment from the market value indicator.

The MVRV Z score is a standard deviation test used to reveal extreme cases in the data between market value and realized value. This indicator is represented by an orange line and can effectively identify periods when market value is abnormally high relative to realized value. When the Z score enters the pink zone, it typically indicates the top of a market cycle; conversely, when the Z score enters the green zone, it suggests that Bitcoin's price is severely undervalued.

Analysis of historical data shows that when the MVRV Z score is at extreme highs or lows, it often corresponds to market turning points. For instance, the peak of the Bitcoin bull market at the end of 2017, as well as the bear market bottoms in 2018 and 2022, can all be found in this indicator. Although the peak of the 2021 bull market did not reach the heights of previous years, it still briefly touched the pink zone representing market tops. In 2024, despite Bitcoin's price surpassing the previous bull market high, its MVRV Z score is still less than half of the previous peaks.

Puell Multiplier: Current High Only 2.4

The Puell multiplier is another indicator consistent with cycle peaks, calculating the ratio of "current miner revenue to the average over the past 365 days," where miner revenue primarily consists of the market value of newly issued Bitcoins (new Bitcoin supply obtained by miners) and related transaction fees, which can be used to estimate miner profitability. The formula is: Puell Multiplier = Miner Revenue (Market Value of Newly Issued Bitcoins) / 365-Day Moving Average of Miner Revenue.

The Puell multiplier is of significant reference value when determining whether Bitcoin's price is deviating from a reasonable range. Selling mined Bitcoins is the primary source of revenue for miners, used to cover capital investments in mining equipment and electricity costs; thus, the average miner revenue over the past period can be indirectly viewed as the minimum threshold for maintaining miner operational opportunity costs. When the Puell multiplier enters the green zone, it indicates that the daily issuance value of Bitcoin is abnormally low, typically presenting a good buying opportunity, as investors who bought during these periods historically achieved excess returns. Conversely, when the Puell multiplier enters the red zone, it indicates that miner income is significantly above historical standards, at which point Bitcoin prices often reach their peaks, making it a favorable time to take profits.

During the price increase in March 2024, the Puell multiplier only reached 2.4, which is still insufficient to indicate that the market has peaked. With the occurrence of the Bitcoin halving event, the reduction in mining rewards further compresses miners' profit margins. According to the financial performance disclosed by Bitcoin mining company BitFuFu for Q2 2024, the cost of self-mining BTC (including all direct costs such as electricity, hosting fees, and purchasing hash rate costs, but excluding depreciation) averaged $51,887 per BTC, compared to $19,344 per BTC in the same period of 2023. In this context, miners' mining costs have approached or even exceeded Bitcoin's market price, putting them under significant operational pressure.

The sharp decline in the Puell multiplier reflects the market's response to this rising cost. Although Bitcoin prices have risen before and after the halving, the Puell multiplier has not yet reached historical highs, indicating that the market has not fully absorbed these changes and that the anticipated price surge has not occurred. This phenomenon may suggest that the Bitcoin market has entered a new phase, where miners must face higher costs and lower profit margins. At the same time, this may lead to a reduction in the supply of Bitcoin in the market, which could provide some support for prices in the medium to long term.

PlanB's 200-Week Moving Average Heatmap: The Pullback is Coming to an End

PlanB's 200-week moving average (200WMA) is a key indicator used to analyze Bitcoin's long-term trends, often regarded as an important support and resistance level in the market, as well as an effective tool for measuring changes in market sentiment. During the bear market of 2018-2019 and the market fluctuations caused by COVID-19 in 2020, the 200WMA demonstrated its significant role as an important support line. Even during the bull market of 2021, although Bitcoin prices experienced multiple pullbacks, they were effectively supported whenever prices approached the 200WMA, allowing them to re-enter an upward channel.

Historical data shows that when orange and red dots appear on the price chart, it usually indicates that the market is overheated, making it a good time to sell Bitcoin. Recently, PlanB also indicated that according to the 200WMA heatmap, Bitcoin has increased fourfold from its 2022 low to the current price, while historically, a 7-10x increase typically begins from the current state.

RHODL Ratio: Overall Market Speculation Has Weakened

The RHODL (Realized HODL) Ratio, created by blogger Philip Swift (@positivecrypto) in June 2020, is an important indicator for assessing speculative activity and holder behavior in the Bitcoin market. It measures market activity and speculation by comparing the number of Bitcoins held over different time periods, particularly the number of short-term (1 week to 1 month) and long-term (1 year to 2 years) UTXOs (unspent transaction outputs). Specifically, the RHODL Ratio is derived by dividing the number of long-term UTXOs by the number of short-term UTXOs; a higher ratio typically indicates a larger number of short-term holders, suggesting stronger speculative behavior in the market; conversely, a lower ratio indicates a higher proportion of long-term holders, suggesting relative market stability.

In practice, the RHODL Ratio has shown excellent performance in identifying the tops of Bitcoin market cycles. When the 1-week RHODL band value is significantly higher than the 1-2 year band value, it usually signals that the market is overheated, indicating a potential price peak. In this case, when the RHODL Ratio enters the red zone, it often represents a good time for investors to take profits. Currently, the RHODL Ratio does not show signals that Bitcoin has reached the top of a bull market. Although Bitcoin prices previously experienced a relative peak after breaking through prior highs, the RHODL Ratio has shown a trend of oscillating decline over the past few months. This downward trend reflects a gradual cooling of market enthusiasm; however, due to fluctuations in market sentiment, the number of short-term holders remains high. This indicates that while overall market speculation has weakened, short-term investor activity remains active, suggesting that the market has not fully entered a cooling phase.

LTH/STH Realized Market Cap Ratio: The Main Uptrend May Not Have Arrived

On-chain analyst @Murphychen has organized the cyclical changes in the LTH/STH realized market cap ratio, providing us with a way to observe Bitcoin market trends. By analyzing the wealth distribution between long-term holders (LTH) and short-term holders (STH), we can better understand the cyclical shifts in the market.

At the lows of a bear market, long-term holders typically hold the majority of wealth in the market, with the blue line (LTH's realized market cap ratio) reaching a cyclical peak. Conversely, at the peaks of a bull market, short-term holders dominate market supply, with the red line (STH's realized market cap ratio) reaching a high, while Bitcoin prices are often at cyclical highs. Whenever the red line crosses above the blue line, it indicates that the market may enter a "main uptrend" phase, marking the beginning of a bull market; conversely, when the red line crosses below the blue line, it often signals the end of a bull market.

On March 9, 2024, the red line briefly crossed above the blue line, only to cross below the blue line again on April 15. This brief crossover may have been triggered by the significant positive news regarding ETFs, leading to short-term FOMO sentiment that allowed short-term investors to take over the positions of long-term holders. However, due to a lack of sustained capital inflow, this brief market frenzy quickly faded and could not support a longer-term upward trend. A similar phenomenon occurred between July and November 2016, when the market trend was interrupted for about four months. Although the current market has experienced short-term fluctuations, this brief breakout does not yet confirm that the "main uptrend" phase of this cycle has begun.

Overall, despite Bitcoin's price experiencing dramatic fluctuations in 2024 and surpassing previous highs, several key on-chain indicators suggest that the market has not yet reached the heights of previous bull market tops. Both the MVRV Z score and the Puell multiplier indicate that while the market has risen, it has not yet reached historical highs, while the 200-week moving average continues to provide strong support for prices, suggesting that the market pullback may be nearing its end. Additionally, the downward trend of the RHODL Ratio and the complex crossover signals of the LTH/STH realized market cap ratio further imply that market enthusiasm is gradually waning but has not completely cooled, and fluctuations may still occur in the short term.

These indicators suggest that the current market is still in an adjustment phase and has not entered a typical bull market "main uptrend." However, on the other hand, in the current complex and uncertain market environment, we seem to be welcoming a new bull market that cannot be fully "carved in stone," especially against the backdrop of the accelerated progress of the Bitcoin bull market due to the introduction of spot ETFs, which has brought in more institutional investment funds, enhancing market participation and liquidity, while also introducing new complexities to the market. As market sentiment shifts and capital is reallocated, new upward cycles may emerge in the future.