Bitcoin has been consolidating around the $ 1 trillion market cap threshold for nearly three months, which is a very healthy development during a Bitcoin bull market. So what is going on behind the scenes and how should investors feel about recent Bitcoin price movements?
Let’s dig in.
Long-term trend still clear: the bull market is far from over
While it’s true that, at the time of writing, BTC is trading at a price it first saw 75 days ago, there is absolutely no need to worry about the fundamentals and long-term outlook for money value. Many market watchers have been quick to refer to it as the “top” due to speculation in the illiquid altcoin markets, but this is a short-sighted consideration that ignores the empirical data. New entrants and capital come into the market every day, and Bitcoin’s fixed monetary policy remains consistent.
Long-term HODLers accumulate
HODLer’s long-term net position change, which measures the 30-day change in supply from long-term Bitcoin holders, recently turned positive, and Glassnode’s data shows that HODLer’s more than 93,638 BTC in the past 30 days. have accumulated they have sold. This shows that the Bitcoiners’ belief in the turbulent price development has not been shaken in the least and sees the consolidation phase as a buying opportunity.
Miners pile up
Not only the long-term HODLers have net accumulated in the last month, but also the miners. Over the past 30 days, miners have built a net position of 5,459 BTC, a bullish development as miners are the only natural sellers in the market as capital and operating costs force the operation to occasionally liquidate some of their government coffers.
With the hash rate lagging far behind the price trend over the past year and a global semiconductor shortage at the same time, it is expected that miners will continue to be net accumulators of BTC as profit margins remain large across the industry.
Another fascinating metric is the Puell Multiple, which measures the dollar value of Bitcoin issued to miners relative to its 365-day moving average. The Puell Multiple measures too quickly when the market has gone too far.
Obviously, the market value of new bitcoins rises sharply in a bull market, and this can be seen not only in the most recent attempt but also in the past bull market cycles after the halving. The Puell Multiple is currently 2.5, after a healthy 75-day consolidation. When compared to previous bull markets, a similar pattern occurred around the $ 100 mark in 2012 and around the $ 3,000 to $ 4,000 mark in 2017.
Another promising metric that puts the exponential growth around Bitcoin and the Bitcoin network into context is realized market capitalization. The realized market capitalization shows the total market capitalization of Bitcoin, but takes into account the time at which each UTXO was last postponed in the calculation.
This metric can be considered a more reliable way to measure the real economic worth of the Bitcoin network. The realized cap is $ 370 billion at the time of writing and has increased about $ 250 billion since November. To put this move in context, Bitcoin’s realized capitalization at the height of the previous bull market was $ 90 billion. The recent parabolic surge in realized capitalization can be viewed as an immense flow of capital into the network.
A very meaningful metric in determining how “overheated” the Bitcoin price is, MVRV is the ratio between market capitalization and realized capitalization. Bitcoin experiences short-term price fluctuations as the price is fixed on the margin, and especially with the increasing prevalence of derivatives and leverage in the ecosystem, total market capitalization can experience explosive growth if actual capital inflows and economic activity remain somewhat subdued. This is not what we are seeing at all and is a major reason to be optimistic right now.
The recent drop in MVRV, or rather the increase in realized capitalization as market capitalization consolidates, is a very optimistic sign and should give investors confidence that this bull market has a long way to go.
The macroeconomic backdrop remains extremely favorable for Bitcoin
One of the main reasons behind the surge in interest in Bitcoin over the past 12 months is the still extremely favorable macroeconomic backdrop, and you shouldn’t expect this to change anytime soon.
The debt burden across the global economic system is at an all-time high, and central banks have cornered themselves on policy choice. The only thing that the markets know is ever higher injections of liquidity, in a competition that has almost become a competition between nation states and their respective central banks, which can devalue more quickly against all others.
A rate hike cannot be ruled out, but it would be crippling for a global economy that has got used to negative real interest rates over the past ten years. In general, in this macroeconomic environment, investors should have two different intentions in order to grow and maintain their capital:
- How do I protect myself from the risk of devaluation / dilution?
- How do I protect myself from counterparty / contagion risks?
The market outcomes that can appear at this point are somewhat binary. Either central banks continue to inject liquidity into the financial markets and the risk continues with each rally, as debt gets cheaper in real terms and discounted valuations of every asset class skyrocket, or together they take away the punch, the loan agreements and the markets witness one deflationary event similar to March 2020. While this second possibility may not occur immediately, the reality is that the domestic (US) and global economies are far too indebted together.
In this deflationary scenario, you should handle anything with counterparty risk (any asset in the extremely leveraged banking system) with extreme caution. The interconnectedness of the financial markets ensures that the contagion spreads quickly and the default / credit risk of a market participant should worry everyone.
Without going too much deeper on this matter, Bitcoin is the solution to both of these market outcomes. With Bitcoin, you are isolated from the record breaking devaluation that is occurring in the old financial markets, but you are also protected from a deflationary scenario where you are not exposed to systematic risk in the banking system due to the intrinsic self-custody nature of the network.
Conclusion: stay bullish
The fundamentals of Bitcoin and the Bitcoin network remain as strong as ever, and in hindsight, the myopia of many prominent Bitcoin skeptics will again prove to be sheer folly. The reasons to be bullish are bigger than ever, and one should expect that once Bitcoin breaks out of recent range, the monetary asset will be back in the running as the global FOMO pulls up in an unprecedented way.