Is a Bitcoin Bull Run on the Horizon? Unraveling Market Trends
Published On: 7/6/2023
Bitcoin’s recent rally above $30,000 has reignited debates surrounding where we’re positioned in the current market cycle. Are we witnessing a sustainable rebound, or are these trends merely a precursor to another downturn?
This article aims to determine where we are in the current market cycle based on data from a range of indicators and statistics, including the MVRV Z-Score, BTC exchange flows and hash rates. We'll also explore the implications of Blackrock's ETF application and take a look at how the Bitcoin halving event has affected prices during previous cycles.
Market Value – Realized Value
A primary indicator worth examining is the Market Value to Realized Value Z-Score (MVRV Z-Score), which gauges whether Bitcoin is over or undervalued.
Historically, the Z-Score falls into the green zone during bearish market phases, indicating that Bitcoin is trading at a low value and the bottom of the cycle is forming. But as the chart shows, each time the metric exceeded the 0.5 to 1 range (exited the green zone), the price of BTC experienced a significant increase, signaling the start of a bull market.
As of June 2023, the Z-Score for Bitcoin is approximately 0.7, with a total marketcap of $595 billion. Based on historical data, this suggests the BTC is in a state of accumulation and that a distribution phase may be around the corner.
To put things in perspective, in late 2020, Bitcoin's Z-Score broke and held above 1 before peaking at around 7. During this time, the price of BTC skyrocketed from $12,000 to over $60,000 – a rise of +420%.
Similar price rallies were witnessed after a Z-Score breakout in the 2013 and 2017 bull runs.
Exchanges Reserves
Another significant indicator to observe is Bitcoin exchange reserves. Over the past year, a significant amount of BTC has been withdrawn from exchanges. This increase suggests a greater tendency among investors to hold rather than trade, anticipating a future price rise.
According to data from CryptoQuant, the amount of BTC held in exchanges has fallen from over 2.5 million in mid-2022, to less than 2.2 million in mid-2023.
Historically, significant price rallies have been observed following periods of high net outflows.
The Impact of Hash Rate on Bitcoin's Value
The hash rate reflects the computational power used to secure the Bitcoin network. In the past, a strong correlation has existed between Bitcoin's price and its hash rate.
As of June 2023, the hash rate stands at 289 EH/s, up from 212 EH/s this time last year. This uptrend suggests increased miner activity, reflecting confidence in the network's future profitability and hinting at potential upward price movement.
The Halvening
The analysis of Bitcoin's current market phase would be incomplete without considering the upcoming Bitcoin halving event, or, as it’s colloquially known, ‘The Halvening’, which is set to occur in April 2024.
Approximately every four years (210,000 blocks), Bitcoin undergoes a halving, which cuts the reward for mining new blocks in half. Following each of the past three halvings (in 2012, 2016, and 2020), the price of Bitcoin increased significantly.
For example, in the year following the 2016 halving, Bitcoin’s price appreciated by over 2,800%, and in the year following the 2020 halving, Bitcoin’s price surged by approximately 450%.
Will the upcoming halving in 2024 catalyze another considerable price surge?
BlackRock's ETF Application: Institutional Recognition in Sight?
BlackRock, the world's largest asset manager, recently applied for a Bitcoin Exchange Traded Fund (ETF), which, if approved, would play as a major bullish catalyst.
While the ETF would likely lead to substantial institutional investment, opinions are torn regarding BTC’s worth at an institutional level.
Bitcoin is still in the early stages of achieving full recognition as an institutional asset class. Although it has been coined ‘Digital Gold’, comparing the two assets underscores this point.
Gold’s marketcap sits around $12.65 trillion, dwarfing BTC, which is about $585 billion. Bitcoin's marketcap would have to grow over 20-fold to match that of Gold.
In the 20 years since a Gold ETF was first released in March 2003, its price has risen from less than $400/oz to current levels of close to $2,000/oz.
Would an approved BlackRock ETF have a similar effect and act as the catalyst that pushes BTC mainstream?
What’s Next for the World’s Largest Crypto?
The blend of Bitcoin's current undervalued MVRV Z-Score, promising exchange outflows, recent price surges and the looming halving event indicate strong market confidence and suggest a positive price trajectory.
However, as we've seen time and time again in the crypto space, anything can happen, and past performance does not necessarily guarantee future results.
Also, Bitcoin's journey toward institutional recognition is far from over. Its $585 billion marketcap is less than 5% of that of Gold, demonstrating it has a long way to go before it's considered a 'mainstream' asset class.
Regulatory compliance, increased market stability and institutional recognition, such as the BlackRock ETF, will most certainly be required to take BTC to the next level and to reach such a status.
Thanks for tuning in, ZERO Heroes! Stay updated with the latest developments by following the zeroDAO Twitter Page and joining the Discord Channel — we'd love to get your opinions on the state of BTC and what to expect leading into the second half of 2023.
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