Multiple similar signals, can Bitcoin repeat the bull market of 2019?

Over the past weekend, Bitcoin continued its upward trend and reached $23,900 at one point. It fell back to around $22,700 during U.S. stock trading on Monday. Since the beginning of the year, Bitcoin has risen 40%.

The rebound comes after a year-long bear market consolidation, with the local bottom last year at around $15,000-16,000.

Some analysts believe that based on on-chain data and the macro context, this rebound is very similar to the situation before the bull market recovery in the second quarter of 2019, when the BTC price soared nearly 250% to $13,800.

Is the “Goldilocks Economy” back?

Wall Street analysts use the term "Goldilocks economy" to describe the U.S. economic macroeconomic environment, which is "neither too hot nor too cold, just right."

The 2019 rally coincided with a gold environment of slowing U.S. economic growth and slowing inflation, following a three-year Federal Reserve tightening cycle that began around December 2015 and ended in December 2018.

The current market expects the Fed to slow the pace of rate hikes to 25 basis points in February and March after massive quantitative easing, and then pause the rate hike cycle. And US employment data is not bad. Although wage growth has slowed, recent reports show that the unemployment rate remains at a historic low of 3.5%.

Some investors believe that slowing inflation coupled with stable employment data could pave the way for a "Goldilocks" economy that is favorable to market asset prices, that is, the Federal Reserve is able to keep inflation down without seriously harming economic growth. In the optimistic scenario, the market recreates the gold environment of 2019.

On-chain data shows initial similarities to the April 2019 rally

According to blockchain tracking platform IntoTheBlock, 64% of Bitcoin investors are currently in profit. Glassnode data also shows that those who first bought BTC in 2019 have also regained profits on average. The average first purchase price of BTC investors in 2019 was $21,800. Based on the intraday price of $22,781 on January 30, the average profit of these investors was about 5%.

Glassnode data shows that for the first time since the COVID-19 black swan event and the 2018-2019 bear market, BTC has broken through three investor cost base lines, namely "realized price", which can be calculated by realized capitalization.

Realized capitalization is a capitalization model for Bitcoin that assumes that each coin in the circulating supply has its actual value, which is the price at which it last moved, rather than the current BTC price (normal price is used for calculations).

From the realized market cap, the “realized price” can be obtained by dividing this metric by the total number of tokens in circulation. Since the realized market cap takes into account the price at which the investor purchased the tokens (i.e., his cost basis), the realized price can be thought of as the average acquisition price in the market.

This means that if the normal price of Bitcoin falls below this indicator, it can be assumed that the average holder has entered a loss. While this realized price is an average cost basis for the entire market, the indicator can also be defined only for a specific group of investors.

Glassnode divides the BTC market into two main groups: short-term holders (STH) and long-term holders (LTH). Investors who bought tokens in the past 155 days belong to STH, while those who held tokens before that threshold belong to LTH.

The chart below shows BTC realized price trends over the past few years for the market as a whole and for these two groups of holders:

As shown in the chart above, Bitcoin has broken through the STH/LTH cost basis and the realized price of the entire market in the recent rally, which shows that the average overall investor has made a profit. Those who bought in 2020 and 2022 are still losing money on average, and the price needs to rise above $28,000 for this group of buyers to see profits.

A similar trend formed in April 2019, when the bear cycle ended and a bull transition pattern emerged. While it is too early to draw conclusions, this similarity between the two rallies could hint that the current rally could also be similar to the 2019 bull run.

Whether to bottom out or continue to break through remains to be confirmed

CryptoQuant analysts believe that Bitcoin has just entered a long-term uptrend in a manner similar to the rebound that began in 2021, and that the Bitcoin and overall market rebound is just a warm-up for a bigger move in the future.

The analysis is mainly based on the increase in Bitcoin transaction volume and the movement of supply. After moving and bottoming in a long-term downtrend, the above chart shows an increase in activity in the supply from one week to one month, triggering the start of a sideways move. According to on-chain indicators, the market is repeating the trend we saw in 2021 and 2017. The supply at the bottom has begun to move, and Bitcoin has reversed after a long downtrend.

In addition, the 200-week moving average has been a key long-term support area in the bear market cycle. According to data from Woo Charts, BTC is approaching the key technical level of the 200-week moving average at $24,713. If it can break through, it will rise further.

However, analysts believe that an explosive upward trend is unlikely to happen immediately because there is not enough money and leveraged positions in the market to pull it, and Bitcoin may retreat at any time due to poor macroeconomic factors, including rising interest rates and the possibility of further rate hikes, which will cause investors to move further away from risky assets.

Joe Burnett, chief analyst at Bitcoin mining company Blockware, said in a tweet that Bitcoin will not hit a new all-time high before the halving in 2024. He said: "A mild macro environment and reduced selling pressure from miners will drive the next parabolic bull run."

Laurent Kssis, cryptocurrency trading advisor at CEC Capital, said in a blog post: “While this move is clearly driven by higher-than-normal Bitcoin trading volumes, the weekend rally was driven by many altcoin traders, whose trading volume is considerable. When BTC falls below $23,000, another correction and sell-off should not be ruled out.”

At press time, the Fear and Greed Index, a measure of cryptocurrency market sentiment, has shifted from “neutral” to “greed.”