The cryptocurrency market is currently in the midst of a bull run, supported by a combination of strong fundamental and technical factors, according to a recent report from Grayscale. The report highlights that it is difficult to predict the start of bull runs, but historical indicators show that Bitcoin’s price tends to peak 8-11 months after the Bitcoin supply halving event. Grayscale analysts have outlined the key elements of a bull market, categorizing them as precursors and the “fifth inning” to determine the current state of the market.
The report states that previous crypto bull markets have begun with a surge in Bitcoin’s dominance, indicating its role as a leading indicator for the broader crypto market. This is followed by a rally in altcoins as investors seek higher returns with their Bitcoin profits. Grayscale analyst Michael Zhao emphasizes this trend and explains that Bitcoin’s increasing dominance sets the stage for a rally in altcoins.
However, this current cycle differs from previous ones due to three unique catalysts: spot Bitcoin ETF inflows, positive stablecoin inflows, and decreasing BTC balance on exchanges. The approval of spot Bitcoin ETFs in January 2022 has led to consistent capital inflows into these ETFs, surpassing Bitcoin issuance and putting upward pressure on the price. Additionally, the growth in stablecoin liquidity indicates an increase in available capital for trading. The report also highlights a decrease in Bitcoin held on exchanges, suggesting a supply squeeze partly driven by spot Bitcoin ETFs transferring BTC into custodian cold wallets for long-term storage.
To determine the current state of the market, Grayscale uses the Net Unrealized Profit/Loss (NUPL) metric, which shows that investors who bought Bitcoin at lower prices still hold onto their coins as the price increases. The report compares the current phase of the bull market to the “fifth inning” of a baseball game. While retail investor interest and search interest for “crypto” are lower than during the 2021 bull market, data from Alternative.me shows that market sentiments are similar to those seen at the previous all-time high. This suggests a potential return of retail investors and the associated greed and fear of missing out (FOMO) that can drive prices higher.
Overall, Grayscale concludes that the bull run will continue but advises caution in monitoring flows into spot Bitcoin ETFs and other macroeconomic factors for signs of market shifts. They highlight the importance of conducting individual research and considering the risks involved in investment and trading decisions.