In the latest edition of Capriole Investments’ “Bitcoin Update,” Charles Edwards, Founder and CEO, examined the current state of Bitcoin through a detailed analysis of thirteen on-chain indicators to answer the crucial question: is the Bitcoin cycle at the top?
A month after a promising technical break above $65,500, which briefly touched $70,000, Bitcoin has reversed sharply, suggesting a possible cycle top. Edwards notes, “Never before has Bitcoin made a new all-time high and retested twice instead of printing new highs.” This pattern, he says, indicates potential consolidation driven by size, but is generally a sign of market weakness.
Bitcoin On-Chain Data Analysis
#1 Supply Delta + 90-day fixed-term contract: These indicators provide a good indication of cycle tops by displaying supply movements and coin destruction days. Recent data has formed a rounded top after a vertical increase in both indicators, which historically corresponds to market peaks. Edwards views this as bearish, implying that supply dynamics are signaling a slowdown.
#2 Long-term holder inflation rate: Historically, a 2.0 threshold in this measure has been a reliable indicator of cycle tops. The rate has risen from 0.5 in April to 1.9, now sitting near that critical level. This proximity suggests that long-term holders are increasingly likely to sell, which is another bearish indicator.
#3 Hodler Growth Rate (HGR): This rate measures the net growth of long-term holders. A decline or plateau in this rate often precedes market highs, as it indicates that long-term investors are cashing in on their gains. Currently, HGR has not made new highs in over six months, which is in line with historical precedents for cycle highs and is therefore considered bearish.
#4 Bitcoin Heating: Analyzing the extremes of funding, basis and options, this measure is neutral in the current cycle, indicating the absence of significant market exuberance that typically precedes market tops. Additionally, the absence of new leverage in the market contributes to this neutral stance.
#5 NVT Dynamic Range: This valuation metric compares on-chain transaction volume to market capitalization, recently moving out of the value zone due to increased on-chain activity driven by innovations such as Ordinals And The RunesDespite this increase, it remains neutral, suggesting a balanced market valuation.
#6 On-chain transaction fees: High transaction fees typically indicate high demand on the network, which can indicate cycle spikes when followed by a sharp drop. Current fees have seen some spikes, but largely reflect the drop seen in April. This metric remains neutral, but it’s something Edwards advises keeping a close eye on.
#7 Unrealized Net Profit/Loss (NUPL): Sitting just below the euphoria zone at 74%, the NUPL suggests that most market participants are in profit, but not excessively so. This delicate balance leaves the indicator in a neutral state, reflecting potential caution but not outright exuberance.
#8 Volume spent 7 to 10 years: A significant increase in spent volume from older coins typically suggests a sell-off by long-term holders or “whales,” which may precede a market top. The massive transaction on May 28, involving 138,000 Bitcoins, mostly from Mt. Gox Distributionsmarks this as bearish, indicating potential market pressure from large-scale selling.
#9 SLRV Ribbons: This measure, which looks at both the short and long return ribbons, shows a bearish crossover for the first time this year. While it has not reached a high point suggesting a cycle top, the recent trend is concerning and contributes to the bearish outlook.
#10 Dormant Flow: With dormancy flow reaching a significant peak this year, the average age of coins spent is higher, similar to the peaks seen in 2017 and 2021. This continuation of a high dormancy flow rate is bearish, suggesting that a potential cycle top is near.
#11 Addresses in percentage of profit: Having over 95% of addresses in profit usually precedes a cycle top. With the recent top and subsequent decline, this indicator is turning bearish, signaling that many investors may be taking profits, which could lead to a price decline.
#12 Mayer Multiple: Despite a peak at 1.9 in March, the Mayer multiple The market remains below the 2.5 threshold that has historically indicated major cycle tops. Currently at 1.0, this indicator is neutral, indicating that while the market is in turmoil, it has not reached the extremes of previous cycle peaks.
#13 US Liquidity: The correlation between liquidity and Bitcoin price is strong, and recent trends show a persistent bearish trend in liquidity, which is concerning to Edwards. This negative growth in liquidity aligns 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 cycle top may very well be reached, marking a potential pivot point for Bitcoin. “I’m not going to lie, I have a hard time believing this on-chain data. I’m surprised by the number of bearish signals when it’s only two months after the halving,” Edwards noted.
Despite the bearish trend in on-chain indicators, he highlights the importance of considering technical patterns and broader market behavior. Bitcoin price is currently above the $58,000 support level, and the potential formation of a Wyckoff accumulation pattern on the daily chart suggests that the market may still have some upside potential.
However, the mixed signals call for cautious optimism and vigilant risk management. “The fundamentals look bearish, but the technicals are still trending higher. That leaves some ambiguity here. Any bearish topping signals could be a result of the typical summer inactivity. Or maybe this cycle will look a bit more like 2013 with a double top, or some sort of hybrid mid-cycle that we need to get through now given that we’re in the big leagues with TradFi today,” Edwards noted.
However, he also concluded: “My gut tells me that this is simply an exceptionally bad summer period for on-chain Bitcoin activity, and we will see what is typically the best 12-month window for Bitcoin’s risk-adjusted returns to recover post-halving in Q4 and beyond.”
At press time, BTC was trading at $62,747.
Featured image created with DALL·E, chart by TradingView.com
