Author: Zach·Pandl, Michael·Zhao, Grayscale Rresearch; Compiler: 0xjs@金财经

●From a historical perspective, cryptocurrency performance There is an obvious four-year cycle, with continuous price rises and falls. Grayscale Research believes that investors can monitor a variety of blockchain-based indicators and other measurements to track crypto cycles and provide a basis for risk management decisions.

●Cryptocurrency is developing into a mature asset class: new Bitcoin and Ethereum spot ETPs have expanded market access, and the incoming U.S. Congress may bring clearer regulation to the industry. Given the above factors, cryptocurrencies may finally break out of the four-year cycle that characterized the early market.

●Nevertheless, Grayscale Research determines that the current indicator combination fits the mid-term stage of the cycle. As long as the fundamentals are solid, if applications are popularized and the macro market environment improves, the bull market is expected to continue until 2025 and beyond.

Similar to many physical commodities, Bitcoin prices do not follow a strict "random walk" pattern. In fact, there are signs of statistical momentum in its price: when it rises, it tends to keep rising, but when it falls, it often keeps falling. Looking over a longer time span, Bitcoin’s ebb and flow cycles fluctuate around the historical upward trend line (Figure 1).

Figure 1: Bitcoin price shows cyclical fluctuation characteristics around an upward trend

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The driving factors of each price cycle in the past have been different, and future price returns may not replicate past experience. As Bitcoin matures, is accepted by more traditional investors, and the supply impact of the four-year halving event fades, its price cycle may be reshaped or even disappear. However, studying past cycles can help investors gain insight into the typical statistical characteristics of Bitcoin and assist risk management.

Figure 2 shows the price performance of Bitcoin during the rising phase of previous cycles. The price is based on the cycle low set at 100 (marking the beginning of the appreciation phase of the cycle) and tracks to the peak (marking the end of the appreciation phase). Figure 3 presents the same information in tabular form.

Bitcoin had a short early cycle and a rapid rise: the first cycle was less than one year, and the second cycle was about two years. Both surged more than 500-fold from their previous cycle lows. The latter two cycles last nearly three years each. In the cycle from January 2015 to December 2017, the value of Bitcoin increased by more than 100 times; in the cycle from December 2018 to November 2021, an increase of about 20 times.

Figure 2: The trend of Bitcoin in this cycle is very similar to the trajectory of the previous two market cycles

After reaching the top in November 2021, the price of Bitcoin fell to a cycle low of approximately US$16,000 in November 2022, which started the current cycle. It's been over two years. As shown in Figure 2, this round of price rise is similar to the previous two Bitcoin cycle trajectories, which both took one year to reach the price peak. In terms of magnitude, the increase in this cycle is about 6 times, which is also impressive, but far inferior to the past four rounds. In short, although it cannot be determined that future price trends will conform to past cycles, history shows that there is room for expansion in the length and magnitude of this bull market.

Figure 3: Four unique cycles in Bitcoin price history

In addition to analyzing price trends in past cycles, investors can use a variety of blockchain indicators to measure the progress of the Bitcoin bull market. Common indicators include the appreciation of Bitcoin buyer costs, the scale of new capital inflows, the relative level of price and Bitcoin miners’ earnings, etc.

The most popular indicators are Bitcoin market capitalization (MV, calculated as the secondary market price per coin) and realized value (RV, calculated as the latest price on the chain) The ratio of transaction price per coin), that is, the MVRV ratio, can be regarded as the extent to which the market value of Bitcoin exceeds the total market cost. Over the past four cycles, the ratio has reached at least 4 (Figure 4). The current MVRV ratio is 2.6, indicating that there may be follow-up markets in this cycle. However, the ratio peaks gradually lower in each cycle, and the price may not reach 4 before reaching a peak. Figure 4: MVRV ratio is in the middle of the pack

Other on-chain metrics consider new funds injected into Bitcoin The degree of currency ecology is often called "HODL Waves" by senior cryptocurrency investors. The price increase may be due to new capital purchasing coins from long-term holders at a higher price. There are many indicators, and grayscale research tends to select the ratio of the amount of coins transferred on the chain to the total circulating supply of Bitcoin in the past year (Figure 5). In the past four cycles, this indicator has reached at least 60%, which means that during the appreciation stage, at least 60% of the circulating supply has changed hands within a year. It is currently around 54%, suggesting that we may see further increases in the on-chain turnover rate before the price reaches a peak.

Figure 5: The activity of Bitcoin circulation in the past year was less than 60%

There are also periodic indicators focusing on Bitcoin miners, that is, professional service providers who maintain the Bitcoin network. Such as the commonly used miner market capitalization (MC, the dollar value of miners’ currency holdings) and the “thermal cap” (TC, miners are rewarded through blocks (to the cumulative value of Bitcoins earned from transaction fees). The principle is that miners may take profits when their assets reach a certain threshold. Historical data shows that after the MCTC ratio exceeds 10, the price tends to peak during the cycle (Figure 6). Indicates that it is in the middle stage of the cycle but with MVRV. The ratio is similar. The peak value of this indicator declines in each cycle, and the price may reach the top before it reaches 10.

Figure 6: The indicator based on Bitcoin miners is also lower than 10. Past threshold

There are many indicators on the chain, and there may be differences between different data sources. Moreover, these tools can only roughly judge the similarities and differences between the current price appreciation stage and the past, and cannot ensure a constant relationship between indicators and future price returns. Generally speaking, common indicators of the Bitcoin cycle are still Lower than past price peak levels, if fundamental support is solid, the current bull market may continue.

The crypto market goes far beyond Bitcoin, and signals from other areas of the industry can also guide market cycle trends. Given the relative performance of Bitcoin and other crypto assets, such indicators are particularly critical in the next year. In the past two market cycles, Bitcoin Dominance (share of the total market capitalization of the crypto market) peaked around two years into the bull market (Figure 7). Its recent decline in dominance coincides with the two-year node of this market cycle. If this trend continues, investors should consider more indicators. Determine whether crypto valuations are approaching cycle highs

Figure 7: Bitcoin dominance began to decline in the third year of the first two cycles

For example, investors can monitor the funding rate, which is the cost of holding a long position in a perpetual futures contract. When the leverage demand of speculative traders is high, the funding rate rises in the market. Levels provide a measure of overall speculative bullishness Figure 8. Showing the weighted average funding rate for the top ten crypto assets outside of Bitcoin (the largest “altcoins”), the current rate is significantly positive, indicating strong demand from leveraged investors, despite falling sharply from last week’s market rout. It is also lower than the peak at the beginning of this year and the previous round.From this point of view, the current level is consistent with the market's moderate speculative long position and is still far from the peak of the market cycle.

Figure 8: Altcoin funding rates indicate moderate speculative longs

In contrast, altcoin perpetual futures open interest (OI) rose to highs. Before the large-scale liquidation on Monday, December 9, altcoin OI on the three major perpetual futures exchanges was nearly $54 billion (Figure 9), highlighting the high speculative long positions in the market. OI is down about $10 billion but remains elevated following massive liquidations earlier this week. Highly speculative long positions are consistent with late market cycle characteristics and require continued monitoring.

Figure 9: The open interest volume of altcoins before the recent liquidation was at a high level

Since the birth of Bitcoin in 2009, the digital asset market has made great strides in development. This crypto bull market is different from the past in many aspects. Crucially, U.S. market Bitcoin and Ethereum spot ETPs were approved to bring in $36.7 billion in net inflows, driving their integration into traditional investment portfolios. In addition, the recent elections in the United States are expected to increase the transparency of market supervision and consolidate the status of digital assets in the world's largest economy. This change is of far-reaching significance. In the past, the long-term prospects of crypto assets have been repeatedly questioned. Therefore, the valuation of Bitcoin and other crypto assets may not necessarily repeat the mistakes of the earlier four-year cycle.

At the same time, cryptoassets such as Bitcoin are similar to digital commodities, and their prices may have momentum characteristics. Therefore, analyzing on-chain indicators and altcoin holding data can contribute to investors’ risk management decisions.

Grayscale Research determines that the current indicator combination is in line with the mid-term of the crypto market cycle: the MVRV ratio is higher than the cycle low and is still far from the previous market top. As long as the fundamentals are solid, such as the popularity of applications and the improvement of the macro environment, there is no reason why the crypto bull market cannot continue until 2025 and beyond.