This is an opinion editorial by Mike Ermolaev, public relations manager at ChangeNOW exchange and contributor for Bitcoin Magazine.
A much-anticipated recovery rally has occurred for bitcoin prices after a month of consolidation around $20,000. Interestingly, this coincides with the peak of the previous cycle in 2017.
Short-term momentum remains supportive, while longer-term macro indicators suggest that a firmer foundation may take time.
Bitcoin’s 66% decline from its all-time high has largely kicked out speculators, leaving only whales and those with strong convictions to hold back.
However, a recent trend has seen short-term holders flock to the $20,000 region, where ownership is shifting from capitulating sellers to more optimistic buyers.
At the same time, holders who have accumulated coins over the past six months are refusing to liquidate their positions despite heavy unrealized losses, suggesting that they are less sensitive to market fluctuations.
The Mayer multiple – a multiple of bitcoin’s current price on the 200-day moving average – fell below 0.55 at the extreme of this price correction, indicating that the market was trading at a discount of 45. % against the 200-day moving average. Bitcoin prices have historically formed cyclical lows below this level, but this has been rare, occurring less than 3% of the time.
Right now, bitcoin appears to be eclipsing that level after being below it for a while. This means that the worst of the bitcoin bear market is likely over, if history is any guide.
There is also an interesting interaction when the cost basis for long-term holders exceeds the overall cost basis for the broader market (the realized price). For the price realized by long-term holders, long-term holders must either buy coins above their base cost or wait for coins with higher base costs to mature beyond 155 days. This is rare during a bear market.
The realized price climbs above the price realized by long-term holders during times of market bottoming, sustained strength, and sufficient demand to offset profit taking. Historically, low bear market divergences have lasted between 248 days and 575 days. A period of 17 days has been in effect for the current cycle, a relatively short period of time.
BTC price is determined by macro
Although we want bitcoin to be independent of traditional markets and macroeconomic indicators, this is currently not the case. With the arrival of major institutional players and their significant liquidity, this dependence has intensified. Therefore, the behavior of digital assets is influenced by global liquidity flows.
This is why the M2 money supply, which includes physical silver, deposits, and less liquid money, including bank savings accounts, can be a leading indicator of bitcoin price movement.
Additionally, as we can often see at ChangeNOW, the prices of the S&P 500 and bitcoin are highly correlated. From a broader perspective, the S&P is driven by the consolidated balance sheets of major central banks. In general, a rise in the S&P 500 is associated with the expansion of central bank balance sheets and the same is true for bitcoin.
So, you can get an idea of bitcoin’s future by watching the aggregate central bank balance sheet chart.
By analyzing bitcoin’s on-chain activity, at ChangeNOW we can see that long-term holders, who are less affected by bitcoin price volatility, have never left the market, while short-term speculators slipped away in the recent sale, allowing for more optimistic buyers. walk in. Meanwhile, by looking at global liquidity flows from major central banks, we can get an idea of what’s going on with bitcoin’s price, as well as what’s to come in the near future. It doesn’t matter if you’re a strong long-term bull, a capitulating seller, a new buyer, or just watching from afar, we all need to understand the logical side of this seemingly chaotic bitcoin market.
This is a guest post by Mike Ermolaev. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.