The popularity of Bitcoin has been steadily on the rise for the last decade, but even now, many still have no idea where to start in understanding cryptocurrencies or even how to interpret the many happenings of the market. So let us catch you up on what you may have missed and what you need to know for the upcoming bull run!

Bitcoin and crypto: innovations in modern digital assets

Bitcoin is the most well-known digital currency among cryptocurrencies. First conceptualized by Satoshi Nakamoto (presumed pseudonym) in 2008, and officially deployed in 2009 through the creation of the first Bitcoin block, Bitcoin is commonly referred to as a cryptocurrency and ensures the security and safety of transactions using encrypted digital signatures. This is based on blockchain technology, a distributed ledger system not controlled by central institutions such as central banks or governments. Due to these characteristics, Bitcoin appeals to investors as a global digital asset. Particularly in recent times, Bitcoin has garnered attention by surging over 50% since the start of 2024.

The Bitcoin bull run: three key factors

The recent surge in Bitcoin was triggered by several varying factors, but we can pinpoint three big reasons as the key drivers:

First, the introduction of Bitcoin spot exchange-traded funds (ETFs) has led to increased participation from institutional investors, boosting confidence in the Bitcoin market. With major financial institutions adopting Bitcoin as part of their investment portfolios, market credibility has risen, and prices have responded accordingly.

Net inflows into 10 US spot Bitcoin ETFs have exceeded $2 billion weekly, and as of March 20th, according to Blockworks, the market capitalization of spot ETFs surpassed $65 billion.

BTC New Spot ETFs Funds — February 2024

According to JMP Securities, Bitcoin spot ETFs are predicted to attract up to $220 billion in inflows over the next three years.

For reference, in South Korea, it is still prohibited for corporations to directly purchase Bitcoin using fiat through virtual asset exchanges like Upbit. However, discussions regarding the introduction of Bitcoin ETFs are ongoing, despite the lack of swift implementation.

Second, Bitcoin’s halving is approaching. Bitcoin’s halving refers to the event where Bitcoin’s mining reward is cut in half. This occurs approximately every four years, with the halving event taking place every 210,000 blocks. Consequently, miners receive half the amount of new Bitcoins as rewards.

The upcoming halving is scheduled to occur around April 20th, 2024. When examining Bitcoin’s prices before and after previous halving cycles, there is a tendency for Bitcoin to reach its peak 12 to 19 months after the halving. However, caution should be exercised when relying on statistical evidence, as there have only been three cycles throughout the market’s lifespan.

BTC Halving — BTC Price

Third, digital assets like Bitcoin are gaining prominence as safe-haven assets for inflation hedging. Particularly amid recent global economic downturns and heightened inflation concerns, investors have shown a strong inclination toward seeking safe-haven assets.

Below is a chart comparing the value of the US dollar and Bitcoin over the past decade, from 2010 to 2020. While the US dollar can be infinitely supplied through policies, Bitcoin’s supply is finite, which positions it as an excellent asset for hedging against inflation.

2010–2020 1 USD vs 1 BTC

Furthermore, due to the decentralized nature of digital assets, Bitcoin has demonstrated itself as an alternative currency. For instance, during the Russia-Ukraine conflict, the Ukrainian government utilized Bitcoin as a means to raise funds, showcasing its role as an alternative currency.

The Ukrainian X account sharing a crypto address to receive donations.

Assessing the sustainability of bullish trends and risk indicators

The sustainability of Bitcoin’s upward trend is uncertain. The Bitcoin market is characterized by high volatility, which can lead to rapid price fluctuations. Additionally, factors such as governmental regulations or technical flaws can influence the Bitcoin market.

However, despite the uncertainty, there are several criteria used by crypto asset specialists to determine if Bitcoin is approaching the peak of its upward cycle. Some of the key indicators commonly used by professional investors in the virtual asset space include:

• MVRV (Market Value to Realized Value ratio)

The MVRV Z-score is a measure that determines whether Bitcoin’s market cap is overvalued or undervalued by dividing the difference between Bitcoin’s market cap and realized cap by the standard deviation. If the MVRV Z-score is below 0, Bitcoin can be considered to be undervalued. In the overheated market that reached an all-time high in 2021, scores of 6 or higher were seen.

As seen in the MVRV Z-Score chart below, the current value falls between 2 and 3, contrasting with the peak value of 6 recorded previously. This indicates that there is further upside potential.

MVRV Z-Score

• Market cap of stablecoins

Stablecoins are crypto assets with values that are pegged, or tied, to that of another currency, commodity, or financial instrument. The most well-known stablecoin is USDT, issued by Tether. The decrease in the market capitalization of stablecoins indicates that investors are converting stablecoins into fiat currencies such as USD, suggesting a complete market exit. Therefore, a decline in stablecoins may imply a high likelihood of the market entering a prolonged downturn. The current rapid increase in the market capitalization of stablecoins suggests that virtual assets are in the midst of an upward trend.

USDT market cap vs BTC market cap

• Inflow and outflow of Bitcoin on exchanges

Bitcoin, being a decentralized currency that anyone can keep stored in their personal wallet, prompts large-scale investors to opt for individual custody or institutional custodianship to mitigate risks like exchange hacking. However, when big investors intend to sell Bitcoin, they typically deposit it into exchange wallets. Since blockchain serves as a transparent ledger, such inflows and outflows are recorded, indirectly indicating the volume available for sale based on how much Bitcoin is being deposited into exchanges. Therefore, when Bitcoin sees significant inflows into exchanges, it often suggests the price may be nearing its peak, whereas significant outflows imply that large investors are purchasing Bitcoin from exchanges to send to external custodianships.

BTC Exchange Net Position Changes

Differences from the previous bull market and outlook

This current bull run exhibits some notable differences from the previous one, the most significant distinction being the increased participation of institutional investors. This bull run reflects broader recognition and acceptance of the digital asset market, marking a departure from previous trends.

The cryptocurrency market, centered around Bitcoin, has seen significant growth since the end of last year, showing signs of overheating. However, as observed from risk indicators, it is unlikely that the current price represents the peak of this bull cycle.

Unlike the previous cycle, this bull run has been catalyzed by external factors like ETFs, leading to a quicker ascent. Due to the unpredictable nature of subsequent movements, investors are advised to start with small-scale investments and gradually engage in the market if interested.

About League of Traders, the team behind this article

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