Will Bitcoin’s Rally Continue? One key sign that the bear market is over.
Bitcoin
has started a new bull market, reversing course after more than a year of relentless declines across the cryptocurrency landscape, according to digital asset data and analytics firm CryptoQuant.
In fact, Bitcoin has been on the run. The biggest digital asset has climbed almost 40% since the start of the year, hitting previous levels not seen since the bankruptcy of crypto exchange FTX in November rocked the market and sent it down to two-year lows. Now the owner is shifting to $23,000 and the asset has returned to six-month highs.
The recent gains belie what a brutal bear market and “crypto winter” it has been. At $23,000, Bitcoin is still at a third of its all-time high around $69,000 from just over a year ago. Steep falls have come at the hands of the Federal Reserve, whose anti-inflationary monetary policy and dramatic rate hikes also sent
Dow Jones Industrial Average
and
S&P 500
into a spin last year. Allegations of fraud and a series of bankruptcies across the crypto industry only made matters worse.
2023 has ushered in a change in sentiment. Investors are optimistic that inflation is cooling and that interest rates may even begin to fall this year, with traders bidding up risk-sensitive assets such as crypto and stocks.
This optimistic attitude has now translated into tech in the bull market, according to CryptoQuant. The telling is in the group’s proprietary PnL index, which combines three different metrics into a single indicator of Bitcoin’s market value. This figure has now climbed above its 365-day moving average.
“While it is still possible for the index to fall back below, the CryptoQuant PnL Index has provided a definite buy signal for Bitcoin,” CryptoQuant said in a note late Wednesday. “Historically, the index crossing has signaled the beginning of bull markets.”
For those interested in the details, the PnL index combines the MVRV ratio, NUPL and LTH/STH SOPR into a single indicator. These are all different chain metrics for profitability, and refer to metrics based on the blockchain data that underpins Bitcoin.
Market Value-to-Realized Value (MVRV) is a ratio of the market value of Bitcoin to its realized capitalization, or the price at which it last moved, and is used for changes in market profitability.
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Net Unrealized Profit/Loss (NUPL) looks at the difference between how many investors have unrealized profits versus those with unrealized losses, and is used to determine how profitable or unprofitable the Bitcoin network as a whole is.
Used output profit ratio (SOPR) for both long-term holders (LTH) and short-term holders (STH) reflects realized profit or loss for when Bitcoin is transacted on the blockchain over a specific time period, and reflects corresponding profitability.
The confluence of these indicators in PnL’s gains confirms an early bull market “for now,” according to CryptoQuant.
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But there are still a few signs of bearishness, the data and analytics team noted. This includes muted inflows of Bitcoin into exchanges and a lack of significant trading by the major market players.
Still, the start of a new Bitcoin bull market may be underway. That is, until it isn’t – with several technical calculations and macro analysis suggesting that this rally may be overblown and vulnerable. But with Bitcoin prices rising again on Thursday, crypto traders will surely look on the bright side.
Write to Jack Denton at [email protected]
