Is The Bitcoin Bull Cycle Over?

After hitting new all-time highs earlier this year, Bitcoin has entered a multi-month period of choppy price action, leading many to wonder if the bull cycle is over. In this article, we take an in-depth look at key metrics and trends to understand if the market is just cooling off or if we’ve already seen the top for this cycle.

Fundamentally overrated?

One of the most reliable tools for measuring Bitcoin market cycles is the MVRV Z-Score. This metric measures the difference between Bitcoin’s market cap and its realized cap, or the cost base for all circulating BTC, helping investors determine whether Bitcoin is overvalued or undervalued based on this “fundamental” cost of BTC.

Recent data shows that the MVRV Z-Score has shown sustained downward movement, which could suggest that Bitcoin’s upward trajectory has ended. However, a historical analysis tells a different story. During previous bull cycles, including those of 2016-2017 and 2019-2020, similar declines in MVRV Z-Score were seen. These periods of reduction were followed by significant rallies leading to new all-time highs. Thus, while the current downtrend may seem worrisome, it is not necessarily an indication that the bull cycle is over.

Figure 1: MVRV Z-Score typically experiences a sustained pullback during bull cycles. Go to live chart 🔍

The MVRV momentum indicator helps distinguish between bull and bear cycles by applying a moving average to the raw MVRV data. It recently dropped below its moving average and turned red, which may signal the beginning of a bear cycle. However, historical data shows that similar declines have occurred without resulting in a prolonged bear market.

Figure 2: MVRV is below annual average, but similar declines have occurred before significantly higher prices. Go to live chart 🔍

Struggling under resistance?

Another key metric to consider is the short-term price realized (STH), which is the average price at which recent market participants purchased their Bitcoin. Currently, STH’s realized price is around $63,000, slightly above the current market price. This means that many new investors are holding Bitcoin at a loss.

However, during previous cycles, the price of Bitcoin fell below the STH realized price several times, without signaling the end of the bull market. These declines often presented opportunities for investors to accumulate Bitcoin at reduced prices before the next stage.

Figure 3: STH cost base price showing accumulation opportunities. Go to the live chart 🔍

Investors capitulating?

The Spent Output Profit Ratio (SOPR) assesses whether Bitcoin holders are selling at a profit or a loss. When SOPR is below 0, it suggests that more holders are selling at a loss, which may signal the market is capitulating. However, recent SOPR data shows only a few instances of short selling. This implies that there is no widespread panic among Bitcoin holders, usually seen in the early stages of a bear market.

In the past, short periods of short selling during a bull cycle have been followed by significant price increases, as seen in 2020-2021. Therefore, the lack of sustained losses and capitulation in the SOPR data supports the view that the bull cycle is still intact.

Figure 4: Low realized losses indicate that investors are willing to wait for higher prices before selling. Go to the live chart 🔍

Diminishing returns?

There is a theory that each Bitcoin cycle has diminishing returns, with smaller percentage gains than the previous cycle. If we compare the current cycle with the previous cycle, it is clear that Bitcoin has already surpassed both the 2015-2018 and 2018-2022 cycles in terms of percentage gains. This outperformance could suggest that Bitcoin has gotten ahead of itself, requiring a cooling off period.

However, it is also important to remember that this cooling off period does not mean the end of the bull market. Historically, Bitcoin has experienced similar pauses before resuming its upward trajectory. Thus, while we may see more sideways or even bearish price action in the short term, this does not necessarily indicate that the bull market is over.

Figure 5: Bitcoin continues to outperform the previous two cycles. Go to the live chart 🔍

Hash Ribbons Buy Signal

One of the most promising indicators for future Bitcoin price action is the Hash Ribbons Buy Signal. This signal occurs when the 30-day moving average of Bitcoin’s hashrate crosses above the 60-day moving average, indicating that miners are recovering from a period of capitulation. The Hash Ribbons buy signal has historically been a reliable indicator of bullish price action in the coming months.

Bitcoin recently showed this buy signal for the first time since the halving event earlier this year, suggesting that Bitcoin could see some positive price action in the coming weeks and months.

Figure 6: A recent hash ribbon buy signal. Go to the live chart 🔍

Conclusion

In short, although there are signs of weakness in the Bitcoin market, such as falling MVRV Z-Score and STH Realized Price, these metrics have shown similar behavior in previous bull cycles without signaling the end of the market. The lack of widespread capitulation, as indicated by SOPR and the recent Hash Ribbons Buy Signal, provides more confidence that the bull cycle is still intact.

For a more in-depth look at this topic, check out a recent YouTube video here: