Does the on-chain data release a peak signal?

In this article, we will focus on the crypto market and aim to provide a more convincing basis for market research through the organic combination of a dual analysis framework.

1. Market sentiment analysis

Crypto native investors remained optimistic in the week or so after the election until Trump’s inauguration. However, as the president launched a memecoin, market liquidity was almost sucked away by the single memecoin, and a series of negative events followed:

• Statements/commitments related to strategic Bitcoin reserves are considered by the market to lack substance

• "Deepseek/AI panic on Monday" breaks out

• The "Tariff Panic Weekend" in early February was reported to be the largest liquidation event in history ($2.2 billion forced liquidation, some estimates are higher)

Although Bitcoin has performed relatively well in the $90,000 to $108,000 range over the past three months, market sentiment has clearly deteriorated, exposing the impatience, inexperience and emotionality that are prevalent in the retail-dominated crypto market.

From the data, we can observe the following phenomena: Less than a year ago, when the BTC price was $70,000, the market sentiment was in a state of "extreme greed". Now that the BTC price has reached $95,000, the market sentiment has turned to "fear". The last time a similar level of sentiment appeared was in early October last year, when the BTC price was $62,000.

The data below shows the trend of the funding rate, which measures the holding fee paid by longs to shorts every 8 hours. This data provides us with an important window into traders' willingness to use leverage, and is an excellent indicator of market sentiment and momentum.

The data shows that the trend of the fear/greed index is consistent with each other. So why are investors so panicked?

The main reason is that market funds are mainly concentrated in altcoins and meme coins - these currencies have fallen 50-75% as the Bitcoin Dominance Index has returned to above 60%. As the market is at the bottom of the range, investors are beginning to question whether there can still be a real "altcoin season".

*The above data looks at the top 200 assets by market cap that have a higher 90-day return than Bitcoin.

Bottom line, when the market is volatile, you always want to stay volatile.

We think now is the right time to consider picking up altcoins again (we’ll share some of the hottest altcoins later).

2. BTC on-chain data analysis

If you plan to invest in altcoins, we think you need to have a view on the direction Bitcoin is heading in. That’s why we’re focusing on Bitcoin in our on-chain data updates.

In this section, we’ll look at some of our favorite “cycle” indicators and share where we are today relative to past cycle peaks.

● MVRV - Long-term holders

MVRV (market value to realized value ratio) helps us understand the relationship between the current market value and the “cost basis” (realized value) of Bitcoin in circulation.

Glassnode calculates the cost basis of all Bitcoin on the network by calculating the price of each UTXO’s most recent move on-chain.

It does not take into account Bitcoin held on exchanges or in ETFs (about 18% of the supply).

For this analysis, we separated long-term holders (wallets that have not moved BTC in at least 155 days) from short-term holders (wallets that have moved BTC within 155 days).

Summary : The MVRV for long term holders reached a high of 4.4 on December 17th and is 3.96 today. This tells us that on average, long term holders are sitting on a 296% gain. In the last cycle, this group was up 1,150%, and in the 2017 cycle, it was up 34,800%.

● MVRV - Short-term holders

Something to note: Short-term holders tend to chase the market. They enter the game late and tend to buy tokens from long-term holders.

summary:

*The MVRV (market value to realized value ratio) for short-term holders is currently 1.06, meaning they are almost at the break-even point, compared to a high of 1.45 last March.

*Looking back at the last cycle, when the market peaked, short-term holders had unrealized gains of 74%.

*20% of circulating supply is currently in the hands of short-term holders (compared to 16.4% last year), not including exchange or ETF holdings. It is worth noting that at the peak of the last cycle, short-term holders controlled 24% of supply (before ETFs existed). This is revealing, as it shows that there is more new money flowing into the market today than a year ago, and that we are getting closer to the peak of the last cycle in percentage terms.

● Long-term holder supply

summary:

*At the beginning of this cycle, 73.3% of the tokens in circulation were held by long-term holders. Today, this proportion has dropped to 66.1%, a decrease of 7.2%.

*Looking back at the last cycle, 67.2% of supply was initially held by long-term holders. When the market peaked, this percentage dropped to 59.4%, a decrease of 7.8%.

*If the trend of the previous cycle is followed, data from both short-term and long-term holders suggest that we are currently in the late stages of the cycle.

● BTC quantity on exchanges

summary:

*There are fewer Bitcoins on exchanges today than at the end of 2018, but the market is much larger today — most institutions are now able to purchase Bitcoin.

*We typically see the yellow line rise at the end of a cycle as investors send their Bitcoin back to exchanges to cash out. We are not seeing any strong signs of this at the moment. ETFs may be playing a role in this.

● Pi cycle top indicator

The Pi Cycle Top indicator has historically been an accurate tool for identifying Bitcoin market peaks. It is constructed from the 111-day moving average and 2 times the 350-day moving average.

When the market gets overheated, the shorter 111-day moving average crosses above the longer 350-day moving average.

We can see above that there is still a healthy gap between the two moving averages – a sign that the market has not yet reached extreme levels.

● Stablecoins

summary:

*Tether supply grew by over $20 billion between the day of the U.S. presidential election and the end of the year. It has stagnated since then (zero growth in the past two months).

*USDC is now the leader (mostly on Solana). Up 22% in the last two months (over $7 billion).

*We are watching the growth of stablecoins closely as on-chain liquidity is correlated to crypto prices. A new stablecoin bill (which would likely be the first legislation we see) could radically change the dynamics of this chart.

● ETF

summary:

* Bitcoin net flows have actually been negative over the past two weeks, suggesting investors are taking profits. Despite this, ETFs saw an increase of over $3.6 billion in net flows last month. For those who are curious, ETH ETFs have added $735 million over the past month, outperforming BTC over the past two weeks.

* Bitcoin ETFs have been trading for more than a year and have accumulated nearly $38 billion in net flows. Together, they hold more than $114 billion in AUM.

*Bitwise's ETF experts will tell you that we are more likely to see more inflows into ETFs this year than last year. Why? ETFs tend to have a pattern where flows grow in year 2, year 3, etc. as liquidity generates more liquidity. Also, there are still large institutions that have yet to get the green light to start allocating Bitcoin.

3. New buyers in the market

In addition to the on-chain data, we have to mention that several large new buyers have appeared in the market. For example:

* Abu Dhabi sovereign wealth fund Mubadala, which manages more than $1 trillion in assets, recently announced a $436 million investment in Bitcoin.

* According to Matthew Sigel of VanEck, there are currently 20 state-level Bitcoin reserve bills. If these bills pass, they could drive $23 billion in purchases.

*The repeal of SAB121 means banks can now custody crypto assets.

* New FASB rules state that companies can now hold Bitcoin on their books at fair value, marking the value of their holdings as unrealized gains for the first time. Previously, Bitcoin was recorded as an intangible asset and only subject to impairment.

We haven’t even mentioned the strategic Bitcoin reserve. A newly formed committee plans to make a decision by July. We think other central banks may already be jumping on the bandwagon.

What is the conclusion? Bitcoin has now matured. It has been trading like a risk asset driven by retail FOMO. This is changing. Investors should expect that if central banks start holding this asset, it could transform into a “safe haven” asset with less volatility over time. We believe we are already seeing the effects of this, with more stable demand from ETF buyers.

4. Final Thoughts and Portfolio Management

Combining our past and current analysis, we conclude that Bitcoin (and the entire crypto market) has some room to run. But this does not mean that there are no risks. Some on-chain indicators suggest that caution is needed. Not to mention, we have seen a lot of "top" behavior in this cycle. At the same time, from a macro and on-chain data perspective, it is difficult for us to align with the bearish view. Don't forget that the biggest moves in the crypto market often occur at the end of the cycle.

As for portfolio management? In this current cycle, we like to adopt a barbell strategy. This means that we hold core assets such as BTC, ETH, SOL, and other projects with strong fundamentals (cash flow and buybacks). These include HYPE and Raydium. We also like TIA and SUI as other L1 options. This is one end of the barbell (we think it should be more inclined towards BTC/ETH/SOL). We then pair these core assets with a small allocation to blue chip meme coins with high beta and ample liquidity. SPX6900, GIGA, PEPE, and BONK are our favorites - as of this writing, they are all down more than 50% from their highs.