Bitcoin is “stable” at $30,000. Is the bull market signal coming?

Since 2023, the Bitcoin market has maintained a sustained growth momentum, rebounding above $31,000 in recent weeks and consolidating around this price.

The current Bitcoin price is at the "midpoint" of the 2021-2022 cycle - $30,000. Many Bitcoin indicators are also close to the "re-accumulation period" level in the previous cycle. Although the popularity of Inscriptions is cooling down recently, the Bitcoin trading market has become active again.

summary

• The price of Bitcoin is consolidating around $30,000, the midpoint of the 2021-2023 cycle, and its price performance so far this year remains strong.

• Inscriptions have cooled down significantly, and Bitcoin network congestion has begun to ease. However, we can see that Bitcoin transaction volume has begun to increase, and it has increased by 75% since the low point in November.

• Bitcoin prices are at the breakeven point, which is the months-long "re-accumulation period" in past cycles.

Bitcoin Remains Strong

Since 2023, the Bitcoin market has maintained a continuous growth momentum, rebounding above $31,000 in recent weeks and consolidating around this price. If we assume that the low point in November 2022 is the bottom of the cycle, we can compare the magnitude of the "pullback" from then to now. Next, we will compare this price performance with previous cycles from the perspective of "highs" and "lows".

Compared to the high point in 2023, the maximum price drop this year is only -18%, which is very shallow compared to all previous cycles. This may indicate the strong demand for Bitcoin in the current market.

 Figure 1: Retracement Range

Looking at the lows again, the strong rebound from the November low has risen 91%, which is very similar to the rebounds in previous cycles.

Except for 2019, all previous cycles that have experienced similar bottoming out and rebounding are actually the starting point of the upward trend of a new cycle.

 Figure 2: Rebound performance

Inscriptions slow down, Bitcoin recovers

One of the most surprising events in 2023 was the emergence of Ordinals and Inscriptions on Bitcoin. There were two different Inscriptions booms:

• The first type: mainly image-based Inscriptions, which gave birth to NFTs in the Bitcoin ecosystem. So far, a total of 1.08 million images have been engraved;

• The second type: mainly text inscriptions related to the "BRC-20" token. Bitcoin currently has 14.8 million text-based inscriptions.

In terms of the number of Inscriptions, the second type is orders of magnitude larger, but activity has been declining since May. This week, there was a brief rebound in text Inscriptions, and the number of unconfirmed transactions in the Bitcoin memory pool began to decrease.

 Figure 3: Inscriptions data

At the same time, we also found a very interesting phenomenon in the on-chain activity indicators. Generally speaking, an increase in Bitcoin's on-chain activity indicators is a sign of increased usage and network health (that is, an increase is usually a good sign).

However, at the same time, a large number of addresses are reused, and the transaction amount related to Inscriptions is very small (~10k sats). These phenomena will reduce the demand for block space dominated by Inscriptions.

Therefore, we need a more detailed explanation for the high demand for Bitcoin blocks as a whole. The summary is shown in the following table:

 Table 1: On-chain activity indicators rise

It can be seen that as the popularity of Inscriptions cools down, the current momentum of active Bitcoin addresses has begun to rise again. Some people may think that this is due to the decline in Bitcoin network activity in the previous 2-3 months, but in fact, it was just that Inscriptions traders used a large number of duplicate addresses at that time, and network activity was actually booming, and block space was also crowded.

 Figure 4: Growth momentum of new Bitcoin addresses

The number of Bitcoin transactions has also hit a new high due to the application of SegWit, which means that miners can pack more transaction data into each block, and some blocks are even close to the theoretical upper limit of 4MB.

Bitcoin daily transaction volume has also been noticeably lower in recent weeks, in line with the slowing trend in Inscriptions activity.

 Figure 5: Bitcoin transaction activity

After months of network congestion, the Bitcoin memory pool is slowly emptying and on-chain transaction fees are starting to fall. Since the BRC-20 explosion in May, Bitcoin transaction fees denominated in US dollars have fallen by more than 96%, with the average fee currently at $1.33 and the median fee falling to $0.16.

Fee indicators show that on-chain transaction activity is currently slowing down across the board.

 Figure 6: Mean and median transaction fees (USD)

While on-chain trading activity has slowed, the amount of BTC traded has increased. The current BTC trading volume has increased by 75% from the low point during the FTX crash, and the total settlement volume has reached $4.2 billion per day.

 Figure 7: Total settlement amount (USD)

If we only observe the inflow and outflow of trading platforms, we will find that the Bitcoin network is entering a period of vigorous development. The current monthly average of trading platform traffic is steadily higher than the annual average, which is a good phenomenon from the perspective of assets, indicating that more and more people are using Bitcoin.

While some other on-chain activity indicators are still cooling, this one is enough to suggest that Bitcoin’s dominance is returning.

 Figure 8: Trading platform traffic

From this trading platform-related activity, we can build an NVT price model. This model aims to provide a "fair value" for a given on-chain transaction volume settlement.

The NVT price model short-term (28-day) indicates a "fair value" of $35,900, which is above the spot price for the first time since November 2022. The 90-day model has also turned sharply higher, rising sharply from the $24,700 level.

 Figure 9: NVT price model for exchange inflows

Solid foundation

Through the above, we have determined that the recovery of the Bitcoin market in 2023 is very strong, both in terms of price performance and network usage. The following figure can help us better understand this, which shows the approximate situation of buying Bitcoin at a price below $30,000.

We can see that a considerable amount of Bitcoin was bought between $15,000 and $30,000, indicating that a large amount of Bitcoin transactions occurred in the past 12 months. Conversely, only 25% of the Bitcoin supply was acquired at prices above $30,000, and transactions took place in 2021-2022.

 Figure 10: Realized price distribution

We can introduce long-term and short-term holders into the realized price distribution chart and draw the following conclusions:

• Blue: A large number of Bitcoins in the hands of long-term holders were bought between $15,000 and $25,000 (thus profitable) and have not been sold despite the price reaching $31,000.

• Blue: Almost all Bitcoin bought above $30,000 is held by long-term holders. These investors are either survivors of the 2021-2022 bear market, battle-hardened HODLers, or those who are ready to sell when prices rebound.

• Red: Despite aggressive U.S. regulation, Bitcoin transactions between $20,000 and $30,000 have continued to increase since February.

Overall, Bitcoin supply distribution is fairly stable, and holders’ “basis cost” is relatively low, averaging less than $30,000.

 Figure 11: Realized price distribution (long/short term holders)

According to the figure below, the price of Bitcoin has recently adjusted to $25,000. During this period, we can see that the supply of Bitcoin has changed from a "loss" state to a "profit" state. About 2.47 million Bitcoins are equivalent to 12.7% of the total supply.

Conversely, the number of bitcoins in a “loss” state has fallen to 4.79 million, similar to the numbers in July 2021 ($30,000), July 2020 ($9,200), April 2016 ($6,500), and March 2016 ($425).

 Figure 12: Bitcoin in “profit” and “loss” states

History always repeats itself

In various cycles, Bitcoin's data always appears surprisingly similar. In the 2021-2022 cycle, the price level of $30,000 can be regarded as the "midpoint" to some extent, and it fluctuates up and down from this point.

$425 was also a very similar “midpoint” in the 2013-2016 cycle, as was $6,500 in 2018-2019. The amount of “losing” supply at these price levels is highly similar.

 Figure 13: Cycle midpoint comparison

As the market price consolidates below the $30,000 “midpoint,” we can see that around 75% of the total Bitcoin supply is in profit and 25% is in the red. This is the same ratio as in 2016 and 2019 when the price reached the midpoint.

This 75:25 breakeven can also be seen as the overall balance point of Bitcoin. On all trading days, 50% of the trading days have a breakeven point above this point, and 50% of the trading days have a breakeven point below this point.

 Figure 14: Profitable Supply Percentage (7D)

Historically, this equilibrium point lasts for a period of time, which many Bitcoin analysts refer to as a “re-accumulation period.”

We can get a visual understanding of this by looking at the market cap percentage of unrealized losses (purchases above market price, but not currently sold). In the early days of the bear market, the market fell into losses and investors gradually exited. Then the market rebounded from the lows and profitability rebounded sharply to levels similar to today.

Previous "re-accumulation periods" were characterized by a lack of macro market direction, often lasting for months at this point. Whether it will take a long and bumpy process like this to break this equilibrium point remains to be seen.

 Figure 15: Unrealized losses

Summarize

Bitcoin price is currently consolidating below the 2021-2022 cycle "midpoint" of $30,000, while several indicators have reached a relative equilibrium point at the "midpoint". This is the same "re-accumulation period" in past cycles, which is characterized by almost no macro direction for several months.

However, year-to-date price performance has been relatively strong, with the largest decline to date being only -18%. Bitcoin's on-chain activity has declined, mainly due to the decline in inscriptions. However, Bitcoin transaction volumes have begun to recover, and the liquidity and usage situation is gradually showing positive trends.