Bitcoin "stable" at $30,000, has the bull market signal come?

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

Summary

• Bitcoin price consolidates near $30,000 midpoint in 2021-2023 cycle, year-to-date price performance remains strong.
• Inions have cooled down significantly, and Bitcoin network congestion has begun to ease. However, we can see that Bitcoin transaction volume is starting to increase and is currently up 75% from November lows.
• Bitcoin price is at the break-even point, the months-long "re-accumulation period" in past cycles.

Bitcoin remains strong

From 2023 to the present, the Bitcoin market has maintained a momentum of continuous growth, rebounding to above $31,000 in recent weeks, and consolidating around this price. If we assume the November 2022 low was the bottom of the cycle, we can compare the magnitude of the "pullback" since then to date. Next we compare this price performance to the previous cycle in terms of "highs" and "lows".

Compared to the 2023 high, the maximum price decline during the 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: Pullback magnitude

Look low again. The strong rally from the November lows has rallied 91%, remarkably similar to previous cycles' rallies.

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

Figure 2: Bounce Performance

Inions slow down, Bitcoin recovers

One of the most surprising events of 2023 is the appearance of Ordinals and Inions on Bitcoin. Brings two different Inions crazes:

• The first type: mainly image-based Inions, which gave birth to NFT in the Bitcoin ecosystem. A total of 1.08 million images have been inscribed so far;
• The second type: mainly text Inions related to "BRC-20" Token. Bitcoin currently has 14.8 million text-based inions.

From the perspective of the number of Inions, the second type is an order of magnitude larger, but since May, the activity has continued to decline. This week, text Inions saw a brief uptick, and unconfirmed transactions in the Bitcoin memory pool began to decline.

Figure 3: Inions data

At the same time, we also found a very interesting phenomenon in the on-chain activity indicators. In general, a rise in the Bitcoin on-chain activity indicator is a sign of usage growth and network health (i.e. a rise is usually a good sign).

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

Therefore, we need a more detailed explanation for the phenomenon of high demand for Bitcoin blocks as a whole. A summary is shown in the table below:

Table 1: On-chain activity metrics rising

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

Figure 4: Growth momentum of new Bitcoin addresses

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

Daily Bitcoin transaction volumes have also been significantly lower in recent weeks, consistent with a slowdown in Inions activity.

Figure 5: Bitcoin transaction activity

After months of network congestion, the Bitcoin memory pool is slowly being emptied and on-chain transaction fees are starting to drop. Since Brc-20 exploded in May, USD-denominated bitcoin transaction fees have fallen by more than 96%, with the average fee now at $1.33 and the median fee dropping to $0.16.

Fee metrics suggest that on-chain transaction activity is currently slowing across the board.

Figure 6: Average and Median Fees (USD)

While on-chain transaction activity has slowed, the amount of BTC transacted has increased. The current BTC transaction volume has increased by 75% compared to the low point during the FTX thunderstorm, and the current total settlement volume has reached 4.2 billion US dollars per day.

Figure 7: Total Settlement Amount (USD)

If we only look at the inflow and outflow of trading platforms, we can see that the Bitcoin network is entering a period of vigorous development. The current monthly average of trading platform traffic is higher than the annual average. From the perspective of assets, this is a good phenomenon, indicating that more and more people use Bitcoin.

While some other indicators of on-chain activity are cooling, this one is strong 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. The model aims to provide a "fair value" for a given settlement of on-chain transaction volume.

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

Figure 9: NVT price model for trading platform inflows

solid foundation

Through the above, we have determined that the recovery of the Bitcoin market in 2023 is very strong, whether it is price performance or network usage. The chart below can help us understand this better, it shows the approximate situation of Bitcoin bought below $30,000.

We can see that quite a lot of Bitcoin was bought between $15,000 and $30,000, indicating that a large number of Bitcoin transactions have occurred in the past 12 months. Conversely, only 25% of the Bitcoin supply was acquired at prices above $30,000, trading 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 section: A large amount of Bitcoin in the hands of long-term holders was bought between $15,000 and $25,000 (thus profitable), and has not been sold despite the price reaching $31,000. *Blue: Nearly all bitcoins purchased above $30,000 are held by long-term holders. These investors are either survivors of the 2021-2022 bear market, seasoned HODLers, or people ready to sell when prices rebound. *Red: Despite aggressive U.S. regulators, bitcoin transactions between $20,000 and $30,000 have continued to increase since February.

Overall, the Bitcoin supply distribution is fairly stable, and the "base cost" to holders is relatively low, averaging below $30,000.

Figure 11: Distribution of Realized Prices (Long/Short Holders)

According to the figure below, the price of Bitcoin has recently been adjusted to 25,000 US dollars. During this period, we can see the supply of Bitcoin. The number of Bitcoins that have changed from a "loss" state to a "profit" state is about 2.47 million, which is equivalent to the total 12.7% of supply.

On the contrary, the number of bitcoins in the "loss" state has dropped to 4.79 million, compared with July 2021 ($30,000), July 2020 ($9,200), April 2016 ($6,500) and March 2016 ( $425) for a similar amount.

Figure 12: Bitcoin in "Profit" and "Loss" states

History is always similar

In different cycles, Bitcoin's data always appears strikingly similar. In the 2021-2022 cycle, the price level of $30,000 can be regarded as a kind of "midpoint", and it will fluctuate around this point.

In the 2013-2016 cycle, $425 was also a very similar "midpoint" to that cycle, as was $6,500 in 2018-2019. The "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 around 75% of the total Bitcoin supply in a profit and 25% in a loss. This rate is the same as it was in 2016 and 2019 when prices reached the midpoint.

This 75:25 breakeven can also be seen as the balance point for Bitcoin as a whole. Across all trading days, 50% of the trading days had a break-even point above this point, and 50% of the trading days had a break-even point below this point.

Figure 14: Profit Supply Percentage (7D)

Historically, this equilibrium point has persisted for a period of time, which many Bitcoin analysts refer to as a "reaccumulation period."

We can see this intuitively by looking at the percentage of market capitalization with unrealized losses (buying above market price but not currently selling). In the early stages of a bear market, the market is in the red and investors are gradually withdrawing. The market then bounced off its lows and profitability recovered sharply to levels similar to today.

Previous "reaccumulation periods" were characterized by a lack of macro market direction and tended to last for months at this point. It remains to be seen whether it is necessary to go through a long and tortuous process like this to break this balance.

Figure 15: Unrealized losses

Summarize

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

Year-to-date price performance, however, has been relatively strong, with the biggest drop so far being just -18%. Bitcoin's on-chain activity has declined, mainly due to the reduction in the popularity of inions. However, the volume of Bitcoin transactions has started to pick up, and the liquidity and usage situation has gradually shown a positive trend.