Grayscale Report Dissects Current Bitcoin Cycle, Says It’s the Middle of a Bull Run

A new extensive report from Grayscale provides an analysis of the current bitcoin bull market cycle, concluding that while various signals indicate we are in the “fifth inning” or midpoint phase, a convergence of strong technical, fundamental, and sentiment data suggests there is likely still further upside remaining before this run potentially reaches a peak.

The report begins by outlining the typical precursors and patterns that have historically preceded sustained crypto bull markets.

According to Grayscale’s examination, these previous cycles kicked off with a pronounced surge in Bitcoin’s dominance over the wider crypto market as capital first flowed into the leading cryptocurrency. As the report states, “This trend emphasizes Bitcoin’s role as a leading indicator for the broader crypto market.”

Historically, the beginning of bull markets has often been marked by a surge in #Bitcoin's market value relative to the total cryptocurrency market. This makes sense, given Bitcoin’s unique vanguard status. (2/6) pic.twitter.com/2i8fSyWXst

— Grayscale (@Grayscale) March 26, 2024

Altcoin Rallies Follow Bitcoin’s Lead

Once Bitcoin starts rallying and gains market share, the report notes the tendency for money to then rotate into alternative cryptocurrencies or “altcoins” in the next phase, as investors “venture into higher-risk cryptocurrencies in search of greater returns” after capturing gains from their initial Bitcoin investments.

Grayscale analyst Michael Zhao points to the 2021-2022 bull run as a prime example, describing it as “a period where Bitcoin’s gains were swiftly followed by a significant uptick in altcoin valuations” after BTC’s dominance spiked higher.

Grayscale Highlights Three Unique Catalysts Driving This Cycle

While this basic blueprint of Bitcoin leading the way before altcoin season is a familiar pattern, the report highlights three unique catalysts that have turbo-charged the current cycle’s upward trajectory compared to prior ones.

• The first is the rapid pace of inflows into newly launched spot Bitcoin ETFs, which Grayscale’s data shows have been consistently exceeding the rate of new Bitcoin issuance “by a magnitude of more than 3 times as of mid-March.” This relentless exchange-traded product buying has put substantial upward pressure on Bitcoin’s price according to the analysis.

• A second key driver cited is the surge in stablecoin liquidity available on crypto exchange platforms. The report includes a chart showing growth in the total supply of stablecoins like USDC on exchanges, “indicating the availability of more capital for trading, mainly to buy cryptocurrencies.” As the report bluntly states, “This influx of stablecoin capital, as indicated by rising stablecoin reserves on exchanges, typically fuels the momentum of bull markets.”

• The third unique factor detailed is a significant supply squeeze taking shape, manifested in decreasing Bitcoin balances held on exchange wallets versus past cycles.

Data from on-chain analytics firm Glassnode reveals

“the total number of BTC held in known exchange wallets has declined to about 12% of the total supply, marking its lowest level in five years.” Grayscale’s own data shows Bitcoin held on exchanges fell 7% “since the local peak of Bitcoin supply in May 2023.”

This supply dynamic is “partly driven by spot Bitcoin ETFs transferring BTC into custodian cold wallets for long-term storage as investors expect price growth in the future” according to the report.

Read Also: Matrixport Predicts a Bullish Run, Aims for $125,000 by December 2024

“Fifth Inning” Stage Based on NUPL Profit Indicator

After detailing these precursors and unique catalysts, Grayscale sets out to decipher where the market currently stands within the larger context of the bull cycle.

Using the well-known Net Unrealized Profit/Loss (NUPL) indicator, which quantifies overall investor profitability by calculating “the percentage profit/loss by dividing the difference between market value and realized value by the market cap,” the analysts determine we are likely around the “mid-phase.

Specifically, the report states “We are currently navigating the ‘mid-phase’ or the ‘fifth inning’ of the current bull,” using a baseball analogy.

It cites the NUPL ratio recently measuring around 60% after rising in sync with Bitcoin’s price increases, “indicating investors who bought at lower prices still hang on to their coins.

“However, the NUPL remains below the 70%+ levels seen at peaks of past cycles according to the analysis. As such, Grayscale concludes “it appears we may be approaching a cycle high on this measure” but have not breached a potential cycle top yet based on this key indicator.

Mixed Signals on Retail FOMO

Of course, one of the hallmark characteristics that has fueled the wildest crypto bull market frenzies of the past is the phenomenon of spiking retail investor interest, fear of missing out (FOMO), and speculative trading mania.

To gauge the current state of this underlying psychology, the report examines various sentiment and interest indicators tracking retail market participation.

On one hand, data sources like Google Trends revealing relatively muted search interest for the term “crypto” suggests the broader mainstream public’s curiosity about cryptocurrencies “might not have fully rebounded” to prior peaks yet.

The report cites Google Trends showing search interest below 40 currently versus a peak of 99 during the 2021 bull market blow-off top.

Similarly, data from crypto analytics firm Santiment “revealed that retail investor interest is still substantially lower than the levels witnessed during the 2021 bull market” based on their metrics and algorithms aimed at identifying retail trading behaviors.

However, contrasting with these quelled retail interest signals is data from Alternative.io showing overall market sentiment is already approaching the speculative “greed” levels witnessed at the height of the prior 2021 cycle when Bitcoin hit its $69,000 all-time high before crashing.

“Bull Run Will Persist” But Monitor Closely

Weighing the full scope of evidence detailed in the report, Grayscale concludes that despite the varied indications placing the market around the midpoint of the cycle currently, the overall trajectory remains bullish as the report states “the bull run will persist” from these levels

However, the firm recommends investors remain vigilant, “cautiously monitoring flows into spot Bitcoin ETFs and other macroeconomic factors for signs of market shifts” that could indicate the euphoric bull cycle is starting to pivot or roll over.

Summarizing Grayscale’s overall assessment, analyst Michael Zhao states: “While progress has been made, we believe there is still room left to run” before this bitcoin bull cycle reaches its ultimate peak based on the firm’s analysis.