Hello readers,
It’s been 3 + months since our last Bitcoin Onchain Data/Cycle Awareness update.
These are some of our highest-signal reports as they combine macro, onchain data, and other investor sentiment/anecdotal information that can inform where we are in the current cycle.
Remember, we are not traders. We are long-term investors seeking to trade the 4-year cycles within what we believe is a long-term secular bull market on our way to 1 billion + crypto users.
Finally, we use Bitcoin data only in these reports because Bitcoin is still the granddaddy that moves the rest of the crypto market.
Let’s go.
Macro is crypto. Crypto is macro. The most important KPI for crypto is liquidity.
When liquidity is rising, Bitcoin is rising. When liquidity is falling, Bitcoin is falling.
Data: Global Macro Investor
We believe liquidity bottomed in October of ‘22 (which happened to coincide with the demise of FTX and several “CeFi” crypto banks). Later, we saw the demise of 5 TradFi banks, starting with Silicon Valley Bank in March of ‘23.
Since that time liquidity has been on the rise. Bitcoin and other risk assets started front-running this last year. But in our opinion, we’re still just getting warmed up.
Below is the exponential trend in liquidity since 2008 — driven by debt and monetary debasement (which is papering over major demographic shifts, falling labor force participation rates, and lower productivity).
Data: Global Macro Investor
The Fed recently cut QT from $60b to $25b — adding $35b/month of liquidity to the system. And the Treasury is now doing $2b/month in buybacks.
But there is much more to come:
The TGA account has nearly $1b that legally must be spent ahead of the next budget meeting.
The commercial real estate industry needs to be re-capitalized.
Election stimulus is likely to come.
Europe and Canada are now cutting rates (in addition to 15% of the rest of the world’s central banks)
Meanwhile, the Fed has indicated it wants to cut rates. But it needs to see clear signals in the (lagging) data to do so.
In particular, we need to see 1) unemployment rise, and 2) inflation continue to cool.
We’re making progress on both fronts.
Data: US Bureau of Labor Statistics
Unemployment is now at 4%.
Data: Truflation
Therefore, it’s our view that rate cuts could be closer than the market currently projects (possibly in July, more likely in September).
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While the inflows into the new Bitcoin ETF products tapered in April through mid-May, we’ve seen a recent uptick with over $2.7b of inflows over the last few weeks. In total, the Bitcoin ETFs have now seen over $14.3b of net inflows.
Blackrock’s IBIT is dominating the field and recently overtook Grayscale with over 302k BTC under management (34% of total AUM across all 10 BTC ETF products).
In total, the Bitcoin ETFs have 4.4% of the total circulating supply already.
If you listen to the ETF experts (e.g. Eric Balchunas from Bloomberg), the Bitcoin ETF product has been arguably the most successful financial product in history.
A few stats to back that up:
Blackrock’s IBIT saw 72 straight days of inflows — something that has never happened for a new ETF product before (including blue chip ETFs that provide broad access to the S&P 500).
Blackrock’s IBIT hit $47b in inflows in 47 days. This was the fastest ETF to hit $10b in history. The second fastest? 647 days 🤯
Blackrock’s IBIT is #2 behind only Vanguard in terms of ETF inflows this year.
Blackrock’s IBIT already has over $17.2 of net flows this year. To put this into perspective, $100m of net flows is considered a success for a new ETF product.
The stigma around Bitcoin and crypto is clearly on its way out. With this, the days of being “early” to the space are over.
An asset manager sticking their neck out to diversify with some BTC is no longer potentially “career suicide.” It’s more risky today to be anti-Bitcoin/crypto (see Vanguard, the Democratic Party).
Pensions move in herds. The State of Wisconsin was the first mover into BTC with a $160m investment.
As 1-5% allocations into Bitcoin become the norm, we should expect BTC volatility to taper.
Salespeople on Wall Street are the new “Bitcoin evangelists.”
A lot of the flows moving into the Bitcoin ETFs are coming from hedge funds that are running basis trades (buying spot, shorting futures to collect the carry) — which is neutral for price action.
The off-chain data is strong. Now let’s hop onchain to find some more signal.
Data: Glassnode
The red zones above indicate more BTC moving away from exchanges into self-custody. When we see a lot of green, it indicates coins are moving onto exchanges (likely to sell).
Takeaway: Coins are mostly moving away from exchanges — consistent with early to mid-cycle dynamics.
Data: Glassnode
On April 29th, Bitcoin hit $58k while correcting to its short-term holder cost basis (box above).
Takeaway: The Bitcoin price rebounded nicely off the short-term holder cost basis — something we typically see in generally bullish conditions. Short-term holder cost basis is currently $62.7k. Therefore, this cohort of holders is currently up 9.2% on average. We are looking to see this number jump into the 40-50% range as a sign that the market is overheating.
[short-term holders = wallet addresses that have been holding BTC for less than 155 days]
Shifting to long-term holders…
Data: Glassnode
Market Value to Realized Value for Bitcoin’s “smart money” currently sits at 3.1x (220% gains on average) for the long-term holder cohort.
For reference, this figure peaked at 10.4x (900% + gains on average) in the last cycle and 27.6x (2,600% + gains on average) in the 2017 cycle.
Takeaway: Most long-term holders are not content with 220% gains. We’re looking to see long-term holder MVRV jump to 6 or 7 as a sign that the market is overheating.
Data: Glassnode
Long-term holder supply currently rests at 71.4%. When the market topped in ‘21 (first peak), long-term holders had 58% of the supply. They had 51% of the supply at the ‘17 peak.
Takeaway: Historically, the market cycle peaks when Long-term holders (smart money) have unloaded about half their stack to short-term holders. We’re not there yet. In fact, we’re seeing a recent uptick with long-term holders stepping back into the market as buyers — after a brief period of selling activity as the price ran from $35k to $70k.
If you’re curious, here’s what the short-term holder supply chart looks like:
Short-term holders control 16.8% of the circulating supply today. They had 26% when the cycle peaked in ‘21 and 37% in ‘17.
Takeaway: Retail has yet to enter the market in force.
In summary, from a macro/liquidity perspective, it looks like the cycle is just getting warmed up.
And it appears that Bitcoin/crypto is front-running the liquidity cycle as the onchain data indicates we are closer to mid-cycle.
Given the strength of the onchain data and new ETF products, one might be wondering why we’re having such a hard time firmly breaking through all-time highs.
Someone has to be selling, right?
Data: Glassnode
Miners have been selling consistently since November of last year. We’d have to go back to 2017 to find a similar period of sustained selling from miners.
We’re not surprised to see this. We believe many miners were shoring up their balance sheets ahead of the halving. Furthermore, miner revenue is currently near all-time highs due to increased fees (via Ordinals, Runes, etc). Given the trauma many miners experienced in the last crypto winter, we can’t blame them for taking profit and ensuring long-term survival.
With that said, miner holdings are now at their lowest point since 2018. We think it’s just a matter of time before the trend reverses.
A few musings on what we’re seeing in the market:
Celebrity Memecoins: It’s common to see celebrities enter the mid-to-late stages of crypto cycles. Does everyone remember Tom Brady’s laser eyes last cycle? We think this is the precursor to more retail traders entering the market.
The Return of “Roaring Kitty:” The mastermind behind the Gamestop short squeeze in ‘21 is back. And with it, there is more speculation around meme stocks — a sign that the animal spirits are starting to come back into the market.
Crypto Twitter: Crypto natives are getting antsy, impatient, and bearish. We’re looking to see more of this before the next move higher.
VC Funding & Token Launches: We’ve seen over $1b raised for the last 3 months now — the first time since ‘22.
Anecdotal: I spent some time over Memorial Day Weekend and at recent social gatherings chatting with folks who pay attention to markets/politics/news but are not in crypto. Nobody I spoke with was aware of the recent progress made in Washington DC or the politics surrounding the ETH ETF approval. This is bullish in my opinion.
The macro/liquidity cycle is just getting warmed up. The big question is when (not if) the Fed will cut rates. With that said, it’s hard to imagine rates being cut without some real pain first. We’re looking to see some volatility (and possibly a buying opportunity) before rate cuts (or possibly as they are happening).
The crypto markets and other risk assets appear to be front-running the liquidity cycle.
Liquidity came all at once in the last cycle due to Covid. We think this cycle will be more drawn out, with things getting interesting in the fall and into next year.
Bitcoin dominance is still at 54%. We expect to see ETH and altcoins outperform after Bitcoin firmly breaks through all-time highs.
We continue to project $10 trillion for the total crypto market cap this cycle. At 40% market dominance, this puts BTC at $200k/coin. Remember, the big moves happen after BTC breaks through all-time highs.
Thanks for reading and please do your own research.
We’ll have more updates for you as the cycle continues to progress.
Take a Report.
And Stay Curious.
Disclaimer: Individuals have unique circumstances, goals, and risk tolerances, so you should consult a certified investment professional and/or do your own diligence before making investment decisions. The author is not an investment advisor and may hold positions in the assets covered. Certified professionals can provide individualized investment advice tailored to your unique situation. This research report is for general educational purposes only, is not individualized, and as such should not be construed as investment advice. The content contained in the report is derived from both publicly available information as well as proprietary data sources. All information presented and sources are believed to be reliable as of the date first published. Any opinions expressed in the report are based on the information cited herein as of the date of the publication. Although The DeFi Report and the author believe the information presented is substantially accurate in all material respects and does not omit to state material facts necessary to make the statements herein not misleading, all information and materials in the report are provided on an “as is” and “as available” basis, without warranty or condition of any kind either expressed or implied.