Macro Research Bites #3: Where Are We in the Bitcoin Cycle?
This post is the third in our Macro Research Bites series, which breaks down evolving macroeconomic trends into short, digestible pieces. Each post will also exist in thread form, shared on Twitter/X. As always, we’d love to hear your feedback — and, remember, none of this is financial advice. All data courtesy of Glassnode. Originally published on Medium here.
Bitcoin Cycles
Instead of the planned inflation deep dive, we decided to shift our focus this week from gold to digital gold. With BTC up nearly 25% MoM, now seems like an appropriate time to take a step back and try to quantitatively evaluate where we’re at in the cycle — before it gets too far along. In this post, we look at metrics like the ratio of short- to long-term holders, momentum moving averages, and average cost basis to compare historical market peaks and troughs to today’s metrics.
Even accounting for this month’s rally, we appear to be very early in the cycle. More below.
Holder Behavior & Accumulation Patterns
On-chain data allows us to paint a far clearer picture of stocks and flows than we could for any other asset class.
First off: the number of bitcoin addresses with balances above a certain threshold. This first chart below shows the number of holders of 0.1+ BTC (~$3,500) more or less monotonically increasing since inception and continuing to reach new highs, albeit more slowly than e.g. 2021.
This second chart paints a slightly different picture; wallets with holdings of 10k+ BTC (~$350m) have grown steadily in number through the bear, with aggressive buying around the $20k mark. The last year in particular clearly shows strategic accumulation by large holders.
Next, the realized HODL ratio. Created by Philip Swift, it uses on-chain data about how long wallets have been holding their Bitcoin to calculate the ratio between 1 week holders and 1 or 2 year holders. This helps paint a picture of market dominance, be it by long-term or short-term holders.
Areas dominated by long-term holders (green) have coincided with market bottoms. Those dominated by short-term holders (red) have historically been tops.
The RHODL has climbed steadily this year, shooting up in particular this fall, but remains substantially below prior market peaks — again pointing to the market remaining in the early innings of the cycle.
The long/short-term holder threshold is a visual representation of prices at which short-term and long-term holders accumulated their Bitcoin. Focusing in on the chart’s red line, it’s clear to see that shorter term holders (red) are the biggest buyers at the top of each cycle, while longer term holders (blue) sell into these these shorter term holders, buying when they sell.
Once again, the data suggests skittish short-term holding patterns have reached their cyclical lows. Long-term holders, on the other hand, are accumulating.
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Market Valuation & Cycle Analysis
Let’s now turn our focus to market valuation.
The chart below shows the average acquisition price for short-term holders (chart below, red line) vs. long-term holders (blue line) to arrive at a realised price (orange line).
Areas shaded purple (where spot BTC price falls below all cost basis) have proven excellent accumulation prices in the past.
The MVRV Z-Score compares market value to realized value. Realized value is calculated taking the average price of when Bitcoin was moved between wallets. It does this to try to remove short-term sentiment and thus create a ‘fair’ reference price.
When market price is much higher than realized price (red), it has often been a top sign. The inverse is also true. Judging by this metric, now remains an excellent time to accumulate (NFA!).
Our last chart is another of Philip Swift’s creations: the Pi Cycle Top Indicator. This metric is a momentum moving average indicator that has historically proven effective at identifying — you guessed it! — market tops and bottoms.
It compares the 111 SMA with the 2 * 350 SMA of Bitcoin’s Price. These two moving averages were selected as 350 / 111 = 3.153 — hence the name “Pi.”
Now What?
To return to our original question — where are we in the cycle?
To summarize holder behavior, the ratio of short- to long-term holders is on the upswing but remains near historical lows. “Committed” investors have accumulated heavily in the past year while flightier investors only just seem to be rediscovering the asset. So by all accounts, early.
On the valuation side, prices have climbed somewhat beyond historical indicators of prime accumulation periods, but remain low relative to the current cycle. Beyond the market trough, but with plenty more room to run. (NFA!)
So, early or missed the boat? Whatever your view, Ostium’s here for you. (Yes, we’re poets and we know it).
Inflation deep dive next!
Read the original version of this post, published on our Medium blog Nov 17th, 2023, here.
