In the latest edition of Capriole Investments’ “Bitcoin Update,” Charles Edwards, founder and CEO, examines the current state of Bitcoin with a detailed analysis of thirteen indicators available on the chain to address the key question: Is the Bitcoin cycle over?
A month after a promising technical break above $65.5K, which briefly touched $70K, Bitcoin experienced a sharp pullback, suggesting a possible cyclical top. Edwards notes, “Never before has Bitcoin broken a high and had two tests instead of a new high print.” This pattern, according to him, shows possible consolidation related to size but is usually a sign of market weakness.
Bitcoin On-Chain Data Analysis
#1 Supply Delta + 90 Day CDD: These metrics provide a solid indication of cycle peaks by showing supply movements and coin destruction dates. The latest data made a round high after a straight rise in both metrics, which historically coincide with market peaks. Edwards rates this as bearish, which means the supply side is showing a downside.
#2 Rate of Long-Term Capital Inflation: Historically, a 2.0 threshold in this metric has been a reliable predictor of cycle peaks. The rate has risen from 0.5 in April to 1.9, now approaching this critical level. This close suggests that long-term holders are increasingly likely to sell, marking another bearish indicator.
#3 Hodler Growth Rate (HGR): This measures the overall growth of long-term owners. A decline or plateau in this ratio often precedes the markets, as it indicates that long-term investors are withdrawing money. Currently, HGR has not made a new high in more than six months, aligned with historical precedents for cycle peaks and thus scored.
#4 Bitcoin Heater: Analyzing the extreme readings of currencies, fundamentals, and options, this metric is neutral in the current cycle, reflecting the lack of excitement in the markets that often precedes bullish markets. In addition, the lack of new profits in the market contributes to this neutrality.
#5 Dynamic Range NVT: This measurement metric compares the volume of on-chain transactions to the market cap, which has recently moved out of the value space due to the increase in on-chain activity from strategies such as Ordinals and Runes. Despite this increase, it remains neutral, suggesting a moderate market valuation.
#6 Cryptocurrencies: High transaction fees usually indicate high demand for the network, which can point to peaks in the cycle followed by significant declines. Fees now show some increase but reflect the decline noted in April. This metric remains neutral but something Edwards advises to watch closely.
#7 Unrealized Profit/Loss (NUPL): Placed just below the euphoria zone at 74%, NUPL suggests that most market participants are profitable, but not overly so. This delicate balance leaves the metric in a neutral position, indicating potential caution but not outright euphoria.
#8 Dosage Spent 7-10 years: A significant increase in volume spent from older coins often suggests selling by long-term holders or “whales,” which precedes a market high. The largest transaction on May 28, which includes 138,000 Bitcoin, mainly from the distribution of Mt. Gox, notes this as a null, indicating potential market pressure from a large selloff.
#9 SLRV Ribbons: This metric, which looks at the short and long ribbons going back, is showing a bearish crossover for the first time this year. Although it has not yet reached a high that suggests a cyclical high, the recent trend is concerning and contributes to a bearish outlook.
#10 Dormancy Flow: As the dormancy flow increases this year, the average age of spent coins is high, matching the peaks seen in 2017 and 2021. This continuation of the high dormancy flow rate is bearish, suggesting that the top of the cycle is near.
#11 Percentage of Profit Addresses: More than 95% of profitable addresses usually precede the top cycle. With the recent high and subsequent declines, this indicator turns bearish, indicating that many investors may take profits, which can lead to a drop in prices.
#12 Mayer Multiple: Despite peaking at 1.9 in March, the Mayer Multiple remains below the 2.5 threshold that has historically marked major cycle peaks. Currently at 1.0, this metric is neutral, indicating that while the market is hot, it has not yet reached the heights of the previous cycle’s peaks.
#13 US Liquidity: The correlation between liquidity and the price of Bitcoin is strong, and the latest trends show a continuous decline in liquidity, Edwards found out. This negative liquidity growth is consistent with the bearish view of Bitcoin.
What Does This Mean for the Bitcoin Cycle?
Of the thirteen metrics analyzed, eight are currently poor, five remain neutral, and none are effective. This burst of bearish indicators suggests that an upper cycle may be in the middle, marking a potential pivot point for Bitcoin. “I’m not going to lie, I find it hard to believe this on-chain data. I am surprised that the number of Bearish signs has been reduced by half in just two months,” Edwards commented.
Besides relying on on-chain metrics, he highlights the importance of considering technical patterns and broader market behavior. Bitcoin price is currently above the $58K support level, and the possible formation of a Wyckoff Accumulation pattern on the daily chart suggests that the market may still hold bullish potential.
However, mixed signals require cautious optimism and careful risk management. “The fundamentals look bearish, but the technology is still tilted. That leaves some ambiguity here. All Bearish Top Signals can be a result of the normal summer months’ inactivity. Or maybe this cycle will be similar to 2013 by having a double top, or something mixed between the cycle that we have to go through as we are playing in the big stage with TradFi today,” commented Edwards.
However, he also concluded, “My gut tells me that this is the worst summer time for Bitcoin on-chain activity, and we will see what is usually the best 12-month window for Bitcoin’s risk-adjusted returns after the Halving in -Q4. and beyond that.”
At press time, BTC traded at $62,747.
The featured image was created with DALL·E, a chart from TradingView.com
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