Crypto Market Bull Run Continues, Driven by Strong Fundamentals: Grayscale Report
Summary:
Grayscale's recent report indicates that the cryptocurrency market is in the midst of a bull run, backed by strong fundamental and technical factors. The study underlines Bitcoin's role as a bellwether for the larger crypto market and notes three unique catalysts in the current cycle: spot Bitcoin ETF inflows, positive stablecoin inflows, and a decreasing BTC balance on exchanges. Grayscale concludes that the bull run is likely to continue but advises investors to closely monitor the movement into spot Bitcoin ETFs and other macroeconomic signs for market shifts.
Indications from Bitcoin's (BTC) historical market cycles suggest that the cryptocurrency market is amidst a bull run, propelled by a blend of robust fundamental and technical elements, as reported by Grayscale. It's often a challenging task to pinpoint precisely when a crypto bull run starts, except for the trend that shows BTC price peaking 8-11 months post the halving of Bitcoin supply. Grayscale's recent report takes an in-depth look into the integral components of a bull market, breaking it down to initial indicators and the "fifth inning" to illustrate the current market state.
Precursors of a crypto bull run tend to coincide with a spike in Bitcoin's dominance, the report writes, highlighting Bitcoin's key role as a bellwether for the broader cryptocurrency market. Normally, an altcoin rally is set in motion by a surge in BTC prices as investors explore riskier cryptocurrencies in hopes of bagging better returns, spurred by their Bitcoin earnings. Grayscale analyst Michael Zhao, observed, "This dynamic was noticeable during the 2021-2022 bull run, a period when a significant increase in altcoin valuations swiftly followed Bitcoin's gains."
After delving into Bitcoin's market value, the Grayscale team inferred a "familiar pattern" whereby a rise in BTC's dominance sets the stage for an altcoin rally. Nonetheless, there are three distinguishing catalysts in the current cycle: inflows into spot Bitcoin ETFs, positive stablecoin inflows, and a decreasing BTC balance on exchanges.
Grayscale observed that what sets the current bull market apart from the earlier ones is the quick shifting positive market dynamics, mainly driven by inflows into spot BTC ETFs. Post their approval on Jan. 10, these ETFs have consistently drawn investments surpassing BTC issuance over threefold by mid-March, creating a price hike, the report noted. Other drivers of BTC price, enabling it to break past records on March 5, include robust on-chain fundamentals, like the amount of stablecoin on exchanges.
An inflow of stablecoin capitals, as noted by increased stablecoin reserves on exchanges, typically ignites the momentum of bull markets. In parallel to an elevated buying intent, confirmed by the boosted stablecoin supply, a diminished willingness to sell, as evidenced by the dwindling supply of BTC on exchanges, lends substantial support to Bitcoin's rally. Data from Glassnode reveals a steep decline in BTC exchange wallets, thereby implying a supply squeeze. This squeeze is partly due to BTC ETFs transferring Bitcoin into custodian cold wallets in anticipation of future price growth.
Now having deciphered the drivers so far, Grayscale employed the Net Unrealized Profit/Loss (NUPL) to navigate the current market phase, stating "We are presently in the 'fifth inning' or mid-phase of this cycle." The NUPL ratio rose with the BTC price surge, indicating that investors who bought at lower values "still hold onto their coins."
Looking into retail market sentiments can reveal if the market is driven by retail investors' FOMO and euphoria, and speculative trading. Data from Santiment shows that retail investor interest isn't as high as it was during the 2021 bull market. Moreover, Google Trends data discloses that search term interest levels for "crypto" are below the 2021 peaks. This indicates that public interest in cryptocurrency might not have fully bounced back.
Nevertheless, data from Alternative which assesses the crypto market sentiments, shows a similarity to the peak of the 2021 bull market – when BTC hit its all-time high. This could imply the possible return of retail investors, and the anticipated FOMO and greed could potentially boost prices.
In the final analysis, Grayscale opines that, considering these technical and fundamental aspects, the bull run is likely to continue. However, it urges investors to keep a keen eye on flow into spot Bitcoin ETFs and other macroeconomic shifts for signs of market turnarounds. Zhao concludes, “We've made progress, but there is still more to come.”
Published At
3/27/2024 8:19:14 PM
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