Bitcoin has historically exhibited cyclical behavior, with distinct "bull" and "bear" market phases. The current Bitcoin bull cycle appears to be driven by a combination of technical catalysts, such as spot Bitcoin ETF inflows, and strong fundamental factors like stablecoin inflows and increased Total Value Locked (TVL) in DeFi applications.
On-chain indicators and sentiment data suggest we are likely in the mid-phase of the current bull cycle—analogous to the fifth inning in a baseball game—with room for continued growth based on current trends. While a range of positive fundamental developments could sustain the bull run, investors should remain vigilant by monitoring spot Bitcoin ETF flows and macroeconomic indicators for signs of market shifts.
Are We in a Bull Market?
Over the past month, Bitcoin’s price has surged rapidly in the United States, breaking multiple all-time highs and staging a swift recovery from its 2023 lows. Bitcoin has even reached new highs against more than 30 fiat currencies ahead of the dollar-denominated milestone. This rebound has captured media attention, with daily coverage of Bitcoin’s price action.
But it doesn’t stop there: traditional investment managers have begun analyzing meme coins in their research reports—a historically reliable sign of growing mainstream interest in crypto. With the total cryptocurrency market capitalization approaching its all-time high, it’s worth asking: are we witnessing the beginning of a new bull market?
What Defines a Bull Market?
Defining a bull market precisely can be challenging, but a practical approach is to view it as a cycle lasting roughly three to four years, starting from the lowest price point of the previous cycle. These cycles are typically characterized by a gradual price increase that peaks around the cycle high, followed by a period of consolidation or moderate decline.
Identifying the elements of a bull market can be equally complex: What has driven the current rally? What can we expect in terms of duration and sustainability?
Growing Bitcoin Dominance: A Familiar Prelude
Historically, the beginning of a crypto bull market is often marked by a surge in Bitcoin "dominance"—a metric that measures Bitcoin’s value relative to the entire cryptocurrency market. This trend underscores Bitcoin’s role as a leading indicator for the broader crypto market. Typically, a rise in Bitcoin precedes a broader rally in altcoins. Investors, encouraged by profits in Bitcoin, often venture into riskier cryptocurrencies in search of higher returns.
This dynamic was observable during the 2021–2022 bull market when Bitcoin’s gains were quickly followed by significant increases in altcoin valuations. While the current cycle displays this familiar pattern of growing Bitcoin dominance—paving the way for an altcoin rally—what sets this cycle apart are its unique catalysts.
As we’ve explored previously, key drivers such as spot Bitcoin ETF inflows and enhanced on-chain liquidity not only contribute to the current bull market’s momentum but also signify a departure from the traditional dynamics observed in prior cycles.
Catalyst #1: Spot Bitcoin ETF Flows
The first major differentiator of this bull market compared to previous ones is the rapid shift in market dynamics, heavily influenced by spot Bitcoin ETF inflows. Since the ETFs were approved in January, inflows have consistently exceeded Bitcoin issuance by more than three-fold as of mid-March, creating upward pressure on the price.
At a high level, when new shares of a spot Bitcoin ETF are created, the ETF must source Bitcoin from the spot market and deliver it to the fund. In other words, creation requires buying Bitcoin to match the increase in fund assets. Simply put, cash must be converted into Bitcoin based on creations in the primary market.
This dynamic is evident when analyzing the hourly premium between Coinbase BTC-USD and Binance BTC-USDT. The higher premium on Coinbase indicates increased spot buying pressure from U.S. investors, serving as an indicator of ETF influence on market dynamics.
Catalyst #2: Strong On-Chain Fundamentals
On-chain metrics also point to growing liquidity. A key indicator is the positive shift in stablecoin inflows. Stablecoins are digital currencies pegged to stable assets like the U.S. dollar and play a critical role in the crypto ecosystem. They are designed to provide a stable medium of exchange and serve as the primary base pair for trading on most centralized and decentralized exchanges.
An increase in stablecoin liquidity means more capital is available for trading, whether for buying or selling cryptocurrencies. As indicated by rising exchange stablecoin reserves, an influx of stablecoin capital often fuels bull market momentum.
Relatedly, on-chain liquidity appears to be growing substantially, as evidenced by the Total Value Locked (TVL) in decentralized finance (DeFi) applications. TVL aggregates the total value of assets deposited in various DeFi protocols and serves as another metric for assessing ecosystem liquidity. An increase in TVL not only signifies enhanced liquidity within DeFi platforms but also suggests growing user engagement with the ecosystem. Increased liquidity is vital for the vibrancy of DeFi, facilitating smoother transactions and a wider range of financial activities.
Looking back at basic on-chain activity, it’s worth noting that the TVL of decentralized applications has more than doubled since early 2023—from around $40 billion to approximately $100 billion by mid-March 2024.
Furthermore, a noticeable decrease in Bitcoin held on exchanges—down 7% since the local peak in Bitcoin supply in May 2023—indicates supply tightness, partly due to spot Bitcoin ETFs moving BTC to cold storage for long-term custody. According to Glassnode research, the total supply of BTC held on exchanges has shrunk to around 12% of the circulating supply, a five-year low.
This movement away from exchanges has traditionally been viewed as a bullish indicator, suggesting a preference for holding rather than selling and reflecting investor confidence in Bitcoin’s value. As demand gradually outstrips supply on exchanges, the resulting liquidity crunch not only highlights the impact of these spot Bitcoin ETFs but also reinforces a bullish outlook for the crypto market.
The Fifth Inning: Where We Stand
Having identified the drivers of the bull market, we need to assess where we stand. Although each cycle is inherently unique, established on-chain patterns and sentiment data lead us to believe we are currently in the "middle" or "fifth inning" of the current bull cycle. Despite the progress already made, we believe there is still room for growth.
Market Value to Realized Value (MVRV) and Net Unrealized Profit/Loss (NUPL)
The Market Value to Realized Value (MVRV) metric compares Bitcoin’s market value to its "realized value"—the price at which all Bitcoin last changed hands. Using this difference, the Net Unrealized Profit/Loss (NUPL) calculates the profit or loss percentage by dividing the difference between market value and realized value by the market value.
As Bitcoin’s price increases and investors who bought at lower costs continue to hold, the NUPL ratio rises. As of mid-March 2024, NUPL stood at around 60%. Historical peaks have occurred when the profit margin exceeded 70%, suggesting we may be approaching a cycle high for this metric.
MVRV Z-Score
Conversely, the MVRV Z-Score offers a different perspective, indicating potential for further growth. This metric calculates the difference between market cap and realized cap, adjusted for volatility using the rolling standard deviation of market value. Historically, high Z-scores reflect a significant gap between market value and realized value, marking cycle peaks. Currently, the Z-score is around 3, well below levels seen at previous cycle peaks, suggesting considerable upside potential remains.
ColinTalksCrypto Bitcoin Bull Market Index
From a broader perspective, the ColinTalksCrypto Bitcoin Bull Market Index (CBBI) offers a comprehensive view by synthesizing nine different ratios into a single number that measures progress through the bull phase. These ratios cover various values, including Bitcoin’s price relative to its historical performance, on-chain metrics indicating investor behavior, and broader market sentiment indicators.
By integrating data from sources such as the MVRV Z-Score, Puell Multiple, and RHODL Ratio, the CBBI aims to provide a snapshot of broad market conditions. As of mid-March 2024, the CBBI ranked 79 out of 100, suggesting we are approaching the cycle peak, though the market still retains potential for further upside.
Retail Market Sentiment
However, sentiment data presents a different picture. Subscription rates for cryptocurrency-related YouTube channels—which can serve as an indicator of retail investor interest—remain significantly lower than the enthusiasm seen during the 2020–2021 bull market. That said, a recent uptick in subscriber growth rates suggests retail investor interest is slowly growing.
Similarly, current Google Trends search interest levels for the term "cryptocurrency" are notably lower than the 2021 peak, indicating that broader public curiosity about crypto may not have fully rebounded. Google Trends assigns search terms a score from 1 to 100 based on popularity, with 100 representing peak popularity for the selected time and location.
This discrepancy raises questions about retail participation in the current cycle. Mobile engagement, as measured by Coinbase app downloads, appeared to show growing interest from potential investors, peaking around March 5th when it entered the top 100 rankings. However, its subsequent decline in ranking suggests a potential cooling or shift in platform usage among market participants.
To reconcile rising prices and on-chain metrics with subdued retail sentiment, one might argue that the retail investors who drove the previous cycle have not fully re-entered the market. In our view, the momentum this cycle may be driven by a different type of investor—one less visible on social media platforms like Twitter or YouTube.
The approval of spot Bitcoin ETFs likely attracted investors more comfortable with traditional investment vehicles. This shift suggests broader acceptance of Bitcoin, potentially expanding its appeal beyond typical crypto enthusiasts to include those who prefer established financial products.
Untapped Future Catalysts
The outcome of the bull market is not yet determined. That said, we maintain a cautiously optimistic view, buoyed by potential catalysts such as increased retail and institutional participation that could help propel the cycle forward.
One area of caution is the behavior of new spot Bitcoin ETF buyers. Historically, Bitcoin has experienced pullbacks in every bull cycle, so it remains uncertain how these new buyers will react faced with a downturn. Encouragingly, this cycle has so far seen relatively minor pullbacks; compared to past cycles, the drawdowns have been among the mildest.
On the other hand, we recognize that untapped demand exists. Beyond the retail investors who have yet to return to the market, some institutional investors—such as wirehouses and wealth management firms—remain on the sidelines. However, a specific segment has begun approving the inclusion of spot Bitcoin ETFs in advisor-managed portfolios.
This cautious yet hopeful endorsement signals significant untapped investment potential that we believe could sustain or accelerate the market’s upward trajectory.
Staying Focused: Key Metrics to Watch
Spot Bitcoin ETF flows and macroeconomic indicators are currently the primary forces shaping the near-term direction of Bitcoin’s bull cycle. Like two sides of a seesaw, their influence fluctuates over time. At certain moments, spot Bitcoin ETF flows dominate; at others, macroeconomic factors take precedence.
This evolving dynamic ensures that our attention remains fixed on these elements, as they are likely to continue dominating the narrative of Bitcoin’s market behavior.
Looking ahead, our conviction in Bitcoin’s performance as an asset class remains steadfast. Supported by favorable market conditions and its established role as a store of value and hard money, we believe Bitcoin is well-positioned for continued success.
Although the market has shown strong gains in early 2024, investors must remember the inherent volatility of cryptocurrencies, characterized by periodic pullbacks even within bull markets. By maintaining a long-term perspective, however, we believe Bitcoin is clearly in a position of strength.
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Frequently Asked Questions
What is driving the current Bitcoin bull market?
The current bull market is primarily driven by spot Bitcoin ETF inflows, which have created significant buying pressure, alongside strong on-chain fundamentals like increased stablecoin inflows and growing Total Value Locked (TVL) in DeFi applications.
How does Bitcoin dominance affect the crypto market?
Bitcoin dominance refers to Bitcoin’s share of the total cryptocurrency market cap. A rise in Bitcoin dominance often precedes altcoin rallies, as investors gain confidence from Bitcoin’s performance and seek higher returns in other cryptocurrencies.
What are key on-chain indicators to watch during a bull market?
Important on-chain metrics include stablecoin reserves on exchanges, DeFi TVL, exchange Bitcoin balances, and investor sentiment indicators like the MVRV Z-Score and NUPL. These help gauge market liquidity, investor behavior, and potential cycle phases.
How do spot Bitcoin ETFs influence the market?
Spot Bitcoin ETFs require market makers to buy actual Bitcoin when new shares are created. This creates consistent demand, reduces available supply, and often leads to upward price pressure, especially when inflows exceed daily Bitcoin issuance.
Is retail participation necessary for a sustained bull market?
While institutional investment has driven much of the current cycle, retail participation often contributes to latter-stage momentum. Current sentiment data suggests retail interest is growing but hasn’t yet reached previous cycle peaks, indicating potential for further growth.
What could cause a slowdown or reversal in the bull market?
Potential risks include a sustained decrease in ETF inflows, adverse macroeconomic developments, regulatory changes, or a shift in investor sentiment. Monitoring ETF flows and broader economic indicators can help identify early warning signs.