In the latest edition of Capriole Investments’ “Bitcoin Update,” Charles Edwards, Founder and CEO, I am researching the current state of Bitcoin by detailed analysis of thirteen on-chain metrics to answer the key question: Has the Bitcoin cycle peaked yet?
A month after a promising technical breakout above $65.5k that briefly touched $70k, Bitcoin has experienced a acute reversal, suggesting a possible cycle top. Edwards notes, “Never before has Bitcoin broken a new all-time high and had two retests instead of printing new highs.” This pattern, he says, indicates potential consolidation related to size, but is generally a sign of market weakness.
Bitcoin Chain Data Analysis
#1 Delta Delivery + 90 Days CDD: These indicators provide a robust indication of cycle peaks by displaying supply movements and coin destruction days. The latest data formed a rounded top after a vertical rally in both indicators, which historically corresponds to market peaks. Edwards rates this as bearish, meaning that supply dynamics are signaling a decline.
#2 Inflation Rate for Long-Term Holders: Historically, the 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, currently teetering near that critical level. This proximity suggests that long-term holders are becoming more inclined to sell, marking another bearish indicator.
#3 Hodler Growth Rate (HGR): It measures the net gain of long-term holders. A decline or plateau in this rate often precedes market tops because it indicates that long-term investors are cashing out. Currently, HGR has not made up-to-date highs in over six months, which is in line with historical precedents for cycle tops and is therefore rated as bearish.
#4 Bitcoin Heater: Looking at extreme readings in Funding, Basis, and Options, this metric remains neutral in the current cycle, indicating a lack of significant market enthusiasm that typically precedes market tops. Additionally, the lack of up-to-date leverage in the market contributes to this neutral stance.
#5 NVT Active Range: This valuation metric compares on-chain transaction volume to market capitalization, which has recently moved out of the value zone due to increased on-chain activity from innovations like Ordinals and Runes. Despite this growth, it remains neutral, suggesting a balanced market valuation.
#6 On-chain transaction fees: Increased transaction fees typically indicate high network demand, which can indicate peaks in the cycle followed by a acute decline. Current fees have shown some spikes, but largely reflect the decline seen in April. This metric remains neutral, but Edwards advises watching it closely.
#7 Unrealized Net Profit/Loss (NUPL): Positioned just below the 74% euphoria zone, NUPL suggests that most market participants are taking profits, but not excessively. This fine balance leaves the indicator in a neutral state, reflecting potential caution but not total euphoria.
#8 Volume Expenditure 7-10 Years: A significant escalate in the volume issued from older coins typically suggests selling by long-term holders or “whales,” which may precede a market top. A massive transaction on May 28 involving 138,000 Bitcoin, mostly from the Mt. Gox distribution, marks this as bearish, indicating potential market pressure from a large-scale sell-off.
#9 SLRV Tapes: This metric, which takes into account miniature and long retracement bands, is showing a bearish crossover for the first time this year. While it has not reached an elevated point suggesting a cycle top, the recent trend is concerning and contributes to the bearish outlook.
#10 Sleep Flow: With dormant coin flows having significantly peaked this year, the average age of coins issued is higher, similar to 2017 and 2021. This continued high rate of dormant coin flows is bearish, suggesting that a potential cycle peak is near.
Addresses with #11 percent profit: More than 95% of addresses that are in profits usually precede the top of the cycle. With the recent top and subsequent decline, this indicator becomes bearish, signaling that many investors may be taking profits, which could lead to lower prices.
#12 Mayer Multiple: Despite peaking at 1.9 in March, the Mayer multiple remains below the 2.5 threshold that has historically indicated major cycle tops. Currently at 1.0, the metric is neutral, indicating that while the market is warming up, it has not yet reached the extremes of previous cycle tops.
#13 US Liquidity: The correlation between liquidity and Bitcoin price is robust, and recent trends have shown a steady downward trend in liquidity, which Edwards finds worrying. This negative escalate in liquidity is consistent with a bearish outlook for Bitcoin.
What does this mean for the bitcoin cycle?
Of the thirteen indicators analyzed, eight are currently bearish, five remain neutral, and none are bullish. This predominance of bearish indicators suggests that the peak of the cycle may already be underway, marking a potential turning point for Bitcoin. “I won’t lie, I have a hard time believing this on-chain data. I’m surprised by the number of bearish signals that have emerged just two months after the halving,” Edwards noted.
Despite the bearish tilt in on-chain metrics, it highlights the importance of considering technical patterns and broader market behavior. Bitcoin price is currently above the $58k support level, and the potential formation of a Wyckoff accumulation pattern on the daily chart suggests the market could still have upside potential.
However, mixed signals call for cautious optimism and vigilant risk management. “The fundamentals look bearish, but the technicals are still bullish. That leaves some ambiguity here. All the bearish top signals could be the result of typical summer inactivity. Or maybe this cycle will be a bit more like 2013 with a double top or a hybrid grind in the middle of the cycle that we have to go through now, given that we are playing in the big leagues with TradFi today,” Edwards noted.
However, he also concluded, “My intuition tells me that this is simply an unusually bad summer for on-chain activity for Bitcoin, and we’ll see what is typically the best 12-month window for risk-adjusted Bitcoin returns post-Halving in Q4 and beyond.”
At the time of going to press, the BTC price was $62,747.
Featured image created with DALL E, chart from TradingView.com
