Bitcoin Cycles: How On-Chain Data Reveals the Start of a Bull Market

Bitcoin has been performing strongly this year, rising over 100% in 2023. Many wonder if this is the start of another Bitcoin cycle, a pattern of price movements that follows a four-year cycle. The IntoTheBlock (ITB) analyzes the supply and demand forces behind Bitcoin cycles.

ITB is a crypto analytics firm that offers in-depth dashboards on various topics, such as Bitcoin cycles, stablecoin adoption, and more. Lucas Outumuro, Head of Research at crypto analytics firm explains:

One of the main drivers of Bitcoin cycles is the halving, an event that reduces Bitcoin’s issuance to miners by 50% every four years. This lowers Bitcoin’s inflation rate and the selling pressure from miners. The last halving occurred in May 2020, and since then Bitcoin’s inflation rate has dropped to 1.8%.

Another factor that influences Bitcoin cycles is the behavior of long-term investors or hodlers. These are investors who hold Bitcoin for more than a year and tend to buy low and sell high. They support Bitcoin’s price during bear markets and take profits during bull markets.

The entry of traditional finance institutions into the Bitcoin market is also a positive demand-side catalyst. These institutions bring more capital and validation to Bitcoin as a store of value. For example, Blackrock’s CEO Larry Fink recently praised Bitcoin as a “flight to quality”.

One of the indicators that can help us identify Bitcoin cycles is the MVRV ratio, which shows the aggregate profitability of Bitcoin holders. This ratio compares Bitcoin’s market cap to its realized value, which is the average price at which Bitcoin was purchased.

When the MVRV ratio drops below 100%, it means that Bitcoin is below its average purchasing price, indicating a buying opportunity. When the MVRV ratio goes back above 100% after falling below it, it signals the beginning of a bull market. The MVRV ratio currently stands at around 120%, suggesting that Bitcoin is in the early stages of a bull market.

Of course, past patterns do not guarantee future returns, and there are many uncertainties and risks in the crypto market. However, the alignment of positive supply and demand factors increases the likelihood of another Bitcoin cycle taking place.