Analyzing the current Bitcoin market cycle

Examining different metrics can help determine bitcoin’s place in the traditional market cycle and the impact of the macro economy on bitcoin’s price.

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In this episode of the “Fed Watch” podcast, Christian and I meet Dylan LeClair, Head of Market Research at Bitcoin Magazine Pro. Every week, he and Sam Rule write near-daily updates for subscribers, and once a month they release a big Bitcoin market report. Bitcoin Magazine Pros “May 2022 Report” is what we mostly cover in today’s episode.

You can find the slide deck we’re using for this episode here, or you can see all the graphics at the end of this post.

“Fed Watch” is the macro podcast for Bitcoiners. In each episode, we discuss current macroeconomic events around the world, with a focus on central banks and monetary issues.

market cycle

Before I get into the awesome charts that LeClair brought, I want to get an idea of ​​where he sees bitcoin in its market cycle. I ask, somewhat facetiously, if we’re in a bear market, because we’re certainly not in a typical 80-90% drawdown.

LeClair responds by saying we are in a classic bear market, not necessarily a classic bitcoins bear market. He points out that the recovery in this cycle didn’t have the typical parabolic top we’ve seen previously in bitcoin, as well as more technical and fundamental support between $20,000 and $30,000 – so pulling pressure will also be probably limited. LeClair also adds that the average user cost base has been wicked until recent lows. Overall, there is significant support below the current price and it remains to be seen if there is enough bearish momentum to reach new lows.

Finally, on issues of market cycle timing, LeClair points to a very underrated market development: the type of collateral on exchanges has mostly shifted from bitcoin in previous cycles to stablecoins like Tether (USDT) and USDC. In other words, the dominant trading pairs and cash deposits on exchanges have shifted from bitcoin to stablecoins. In the past, the most important trading pair for any altcoin was against BTC, which has become against a stablecoin like USDT. This is a monumental shift in market dynamics and will likely lead to much more stable prices for bitcoin as less bitcoin is forced to liquidate in hyper-speculative shitcoin bubbles.

Bitcoin Magazine Pro Charts

“It’s Coinbase’s spot volume, being the dominant US exchange, and the Perp [perpetual futures] aggregated volume across a bunch of different derivatives exchanges. What we can see are various volume spikes. Historically, when bitcoin trades in hands of this size, it signals some kind of market top or bottom, a significant change in market structure. –Dylan LeClair

Bitcoin Perpetual Futures and Coinbase Spot Volume

The following chart shows the difference in market structure due to stablecoins. LeClair says 70% of the derivatives market was still backed by bitcoin around the summer 2021 sell-off. Today it’s much smaller than that. Therefore, we should expect fewer bitcoin liquidations when shitcoin bubbles burst, and that is exactly what we are seeing.

Bitcoin Long Liquidations Decline Due to Stablecoin Collateralization

What’s great about the Bitcoin Magazine Pro The newsletters not only examine the bitcoin market, but also how the macro might affect bitcoin. The next two graphs relate to the CPI and interest rates. LeClair does a great job breaking them down during the podcast.

Year-over-year consumer price index and monthly change
Year-over-year consumer price index versus 10-year Treasury yield

I ask LeClair what he thinks of the Federal Reserve’s monetary policy, and he focuses his analysis on real interest rates. He says real rates will have to stay negative in order to erode the huge global debt burden. Therefore, if the Fed increases even as much as 3.5%, for real rates to stay negative, the CPI will have to stay above it.

Next is CK’s favorite indicator, the Mayer multiple, or the 200-day moving average price divided by the current price. When price is below the 200-day moving average, this ratio is less than 1 and has always been a good way to time the market.

Bitcoin price weighted by Mayer Multiple

One of the densest infographics on Bitcoin Magazine Pro is next, and that’s reserve risk.

“The reserve risk chart essentially weighs Hodler’s conviction, whether strong or weak, with price.”

Reserve Risk-Weighted Bitcoin Price

Our final chart of the day is realized price, and it’s LeClair’s favorite. This is a great way to remove much of the noise and volatility from bitcoin’s price and focus on the trend.

“One of the cool things about the transparency of this network is that we can see when each bitcoin has ever moved or been mined. We can also [assign each UTXO a price of when it last moved] to come up with what we call the realized price. […] We can see when everyone is underwater on average. – LeClair

Bitcoin Realized Value Ratio

Senator Lummis Bitcoin Settlement

At the end of the show, we end with a discussion of Senator Lummis’ recently proposed bill, which outlines a new framework for bitcoin and what the bill calls “digital assets.” In fact, they don’t use the terms bitcoin, Ethereum, blockchain, or even cryptocurrency at all in the draft.

Suffice it to say, we’re uncovering some opinions from LeClair and going back and forth with the live stream crew, but you’ll have to tune in to get all of this insightful discussion! We dive into the effects on the bitcoin market, exchanges, and a future bitcoin cash ETF!

That’s it for this week. Thank you readers and listeners. If you like this content, subscribe, review and share!

This is a guest post by Ansel Lindner. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.