In the latest edition of Capriole Investments’ “bitcoin Update,” Founder and CEO Charles Edwards, examines the current state of bitcoin through a detailed analysis of thirteen on-chain indicators to address the critical question: Has the bitcoin cycle top arrived?
A month after a promising technical break above $65,500, which briefly touched $70,000, bitcoin experienced a sharp reversal, suggesting a potential cycle top. Edwards notes: “Never before has bitcoin broken a new all-time high and had two retests rather than printing new highs.” This pattern, he says, indicates potential size-related consolidation, but is generally a sign of market weakness.
bitcoin On-Chain Data Analysis
#1 Delta + CDD 90-day supply: These metrics provide a solid indication of cycle peaks by showing supply movements and coin destruction days. Recent data formed a rounded peak after a vertical rise in both metrics, which historically corresponds with market peaks. Edwards rates this as bearish, implying that supply dynamics are signaling a downturn.
#2 Long-term holder inflation rate: Historically, a threshold of 2.0 on this metric has been a reliable predictor of cycle tops. The rate has risen from 0.5 in April to 1.9, and is now close to this critical level. This proximity suggests that long-term holders are increasingly likely to sell, marking another bearish indicator.
#3 Hodler Growth Rate (HGR): This rate measures the net growth of long-term holders. A drop or plateau in this rate typically precedes market highs, as it indicates that long-term investors are pulling their money out. Currently, the 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 Heater: Looking at the extreme readings of funding, basis, and options, this metric remains neutral in the current cycle, indicating that there is no significant market exuberance that typically precedes market highs. Furthermore, 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, and it recently broke out of the value zone due to increased on-chain activity from innovations like Ordinals and Runes. Despite this increase, it remains neutral, suggesting a balanced market valuation.
#6 On-chain transaction fees: High transaction fees typically indicate high network demand, which can signal cycle peaks when followed by a sharp drop. Current fees have seen some spikes, but they largely reflect the drop seen in April. This metric remains neutral, but is something Edwards recommends keeping a close eye on.
#7 Net unrealized gain/loss (NUPL): The NUPL, sitting just below the euphoria zone at 74%, suggests that most market participants are taking profits, but not excessively so. This delicate balance leaves the metric in a neutral state, reflecting possible caution, but not outright exuberance.
#8 Volume spent 7-10 years: A significant increase in the spent volume of old coins typically suggests selling by long-term holders or “whales,” which can precede a market top. The massive transaction on May 28, involving 138,000 bitcoin, mostly from Mt. Gox distributions, marks this as bearish, indicating potential market pressure from large-scale selling.
SLRV Tapes #9: This metric, which looks at short and long reversal ribbons, is showing a bearish crossover for the first time this year. While it has not reached a high point that would suggest a cycle top, the recent trend is worrying and contributes to the bearish outlook.
#10 Latency Flow: As idle flow reached a significant peak this year, the average age of spent coins is higher, similar to the peaks seen in 2017 and 2021. This continuation of a high rate of idle flow is bearish, suggesting that a potential cycle peak is near.
#11 Percentage of addresses in earnings: The fact that more than 95% of addresses are in profit usually precedes a cycle top. With the recent high and subsequent drop, this indicator turns bearish, indicating that many investors may be taking profits, which could lead to a price drop.
#12 Mayer multiple: Despite peaking at 1.9 in March, the Mayer Multiple remains below the 2.5 threshold that has historically indicated major cycle highs. Currently at 1.0, this metric is neutral, indicating that while the market is up, it has not reached the extremes of previous cycle highs.
#13 Liquidity in the US: The correlation between liquidity and bitcoin price is strong, and recent trends show a persistent downward trend in liquidity, something Edwards finds worrying. This negative growth in liquidity aligns with a bearish outlook for bitcoin.
What does this mean for the bitcoin cycle?
Of the thirteen metrics analyzed, eight are currently bearish, five remain neutral, and none are bullish. This predominance of bearish indicators suggests that the cycle peak could very well be here, marking a potential turning point for bitcoin. “I’m not going to lie, I find this on-chain data hard to believe. I’m surprised by the count of bearish signals for just two months after the halving,” Edwards noted.
Despite the bearish trend in on-chain metrics, it highlights the importance of considering technical patterns and broader market behavior. bitcoin price is currently above the $58K support level, and the possible formation of a Wyckoff accumulation pattern on the daily chart suggests that the market could still have upside potential.
However, the mixed signals call for cautious optimism and vigilant risk management. “Fundamentals look bearish, but technicals remain biased to the upside. That leaves an ambiguity here. All the major bearish signals could be a result of the typical summer months’ inactivity. Or perhaps this cycle will be a bit more like 2013 with a double top, or some sort of hybrid mid-cycle rut that we need to get through now given that we’re playing in the big leagues with TradFi today,” Edwards commented.
However, he also concluded: “My gut tells me that this is simply an exceptionally bad summer period for bitcoin on-chain activity, and we will see what is typically the best 12-month window for bitcoin’s risk-adjusted returns to resume post-halving in Q4 and beyond.”
At the time of writing, btc was trading at $62,747.
Featured image created with DALL·E, chart from TradingView.com
