As the second quarter of 2024 progresses, Bitcoin remains in the spotlight, with an impressive 69% price increase in the first quarter alone. This rally, driven mainly by the debut of exchange-traded funds (ETF) Bitcoin spot and the expectation of the halving, highlights a phase of transformation in the cryptocurrency market.
However, this rise in the price of BTC has triggered a surge in euphoria, suggesting possible caution in the market. Historically, after phases of euphoria, corrections or setbacks usually occur in the market.
According to the “Q2 2024 Guide to Cryptocurrency Markets” report by Coinbase Institutional and Glassnode, there are some warning signs amid Bitcoin’s spectacular price performance. Market sentiment, measured by the Net Unrealized Profit/Loss (NUPL) indicator, evaluates unrealized gains and losses across the entire coin supply. This indicator signaled a state of euphoria at the market peaks in mid-2011, 2013 and briefly in 2017.
However, it did not indicate euphoria during the 2021 market peak. Instead, the market moved out of the “belief-denial” phase. This same “belief-denial” phase was also reached during the March 2024 local peak.
Furthermore, the cyclical nature of the Bitcoin market is evident in its supply profitability analysis, which distinguishes phases such as “bottom discovery,” “euphoria,” and “bullish/bearish transition.” These phases reflect underlying market sentiments and potential changes in investor behavior.
Bitcoin and euphoria
In particular, the current phase, indicated by a high bid-to-earnings ratio, suggests the proximity of a market top as long-term holders (LTH) begin to contemplate taking profits.
The MVRV ratio (market value/realized value), particularly for LTH, offers a nuanced view of market conditions. An MVRV greater than 3.5, like that observed in the first quarterusually heralds the euphoria phase of a bull market.
This means that LTHs could soon begin to liquidate part of their holdings. In fact, during the first quarter of 2024, the supply in the hands of long-term holders fell below the long-term trend line.
However, it is important to highlight that Bitcoin has gone from being a volatile asset to one of the most profitable. Over the last decade, Bitcoin has been the best-performing asset in eight out of eleven years. It gave an annualized return of 124% from 2013 to 2023.
The introduction of Bitcoin spot ETFs has significantly influenced this trajectory. By facilitating direct investment in Bitcointhese ETFs have attracted a flood of new investors, increasing demand.
Source: Ambito
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