Bitcoin is up (YTD), banks are collapsing, and the Federal Reserve seems to be approaching the end of its monetary tightening mission. Does that mean the bull market is back in action?
CryptoPotato spoke with crypto market analytics firm CryptoQuant at Consensus 2023 to discuss all things related to Bitcoin’s price – including its place in the market cycle, its correlation to gold, and its role during the ongoing US banking crisis.
Bullish Times Ahead for Bitcoin
When asked about whether the bull market had returned, CryptoQuant’s Head of BD & Strategy Benjamin Brannan told CryptoPotato that Bitcoin appears to be “out of the depths of the bear market.”
Though he personally views corrections as “always on the table,” the business development head said he’s received word from institutional clients intending to invest in Bitcoin and crypto in Q3 and Q4 2023.
“These are from conversations that I’ve been having mainly with institutional allocators and also people who are fundraising core funds as well,” said Brannan during an interview. “They’ve been speaking with various institutions or high net worth individuals.”
Brannan added that institutions are waiting for the latter half of the year for confirmation that Bitcoin has exited the bear market, which so far is “looking to be the case.”
Bitcoin and Gold
Trading at roughly $16,500 at the start of the year, Bitcoin has rapidly appreciated to over $27,000 in response to this year’s US banking crisis, which has seen the likes of Silicon Valley Bank, Silvergate, First Republic, and other banking institutions fall between the cracks.
The event has coincided with a falling correlation between Bitcoin and stocks, and a rising correlation with gold. This phenomenon is especially apparent in Bitcoin’s newfound resilience to Federal Reserve interest rate hikes, which pummeled stocks and crypto alike last year.
Bitcoin's correlation to Gold is the highest that its been in years, surpassing its correlation to the S&P
— Will Clemente (@WClementeIII) April 3, 2023
Branaan said the “rush to Bitcoin” was a sign that the market was, at least for the moment, viewing the digital currency as a “safe haven asset.” In the long term, he predicted it will behave like a mixture of stocks and gold.
Meanwhile, Cryptoquant’s Head of Marketing, Ho Chan Chung surmised that Bitcoin is viewed as a commodity that performs well when the fiat system is not doing well. Unlike other cryptocurrencies, regulators in the United States are only in agreement that Bitcoin is a commodity, while altcoins may be securities.
The 4-Year Market Cycle
Bitcoin is notorious for moving cyclically between bull and bears markets every four years, based on its supply issuance schedule that reduces its inflation rate within the same time intervals. While the general pattern is predictable, getting the exact timing of crypto market tops and bottoms can be tricky business.
According to Brannan, there are some reliable indicators to identify bottoms from an on-chain perspective. One of them is Market-Value to Realized-Value ratio (MVRV), which divides an asset’s market capitalization by its realized capitalization (which values all Bitcoin based on the price each coin was last moved, and presumably sold.)
“When coins are being held at a very high unrealized loss, then I think it’s a good time to buy,” said Brannan. “If a lot of the participants are holding their coins at unrealized gains, very high unrealized gains, you can think that a lot of people are looking to sell, realize some profits.”
Derivations of MVRV, including Spent Output Profit Ratio (SOPR) and net unrealized profit and loss (NUPL), can also help in identifying market tops and bottoms – especially when they pass key threshold ratios.
CryptoQuant tracks MVRV ratios based on different age bands for when coin movements took place – including one day, one week, one month, and so on.
When asked about price predictions for the near future, both Brannan and Chung agreed that Bitcoin likely won’t retest its $16,000 lows.
“If there are no such black swan events such as Russia blowing a nuclear weapon into Ukraine, or Binance is blowing up …then we should be pretty stable in terms of meeting the low lows,” said Chung.
Chung added that Bitcoin may even surpass its previous all-time high by Q2 2024 – right around the time the next Bitcoin halving takes place.
In the long term, Brannan said Bitcoin could realistically reach $1 million by the year 2030. Even the tightening regulatory situation in the United States could serve to benefit the asset, in his view.
“I think Bitcoin is difficult to regulate, compared to “crypto.” I think it can benefit,” he said.