The cryptocurrency market has historically exhibited distinct four-year cycles, characterized by alternating phases of significant price appreciation and depreciation. By monitoring a variety of blockchain-based metrics and other key indicators, investors can better track the market's cyclical position and make more informed risk management decisions.
While the maturation of crypto as an asset class—marked by the introduction of Bitcoin and Ethereum spot ETPs and the potential for clearer US regulation—might eventually break this cyclical pattern, current analysis suggests the market is in a mid-cycle phase. Provided foundational strengths like adoption growth and a supportive macro environment persist, the bull market could extend well into 2025 and beyond.
Understanding Crypto Market Cycles
Unlike a purely random walk, Bitcoin's price often shows statistical momentum, where upward moves tend to be followed by further gains, and downturns by additional losses. Over the long term, its price has oscillated around a clear upward trend, forming recognizable cycles. Each past cycle has been driven by different factors, and future returns are not guaranteed to follow historical patterns. As Bitcoin matures and gains broader acceptance, the influence of its four-year "halving" events on supply may diminish, potentially altering or even eliminating these cycles. However, studying past cycles remains valuable for understanding its statistical behavior and informing investment strategy.
Tracking Momentum and Price Performance
Analyzing Bitcoin's performance during the upward phases of its previous cycles provides useful context. When each cycle's low point is indexed to 100, we can track the price increase to its subsequent peak.
Early cycles were short and explosive. The first cycle lasted less than a year, and the second lasted roughly two years, with both surging over 500x from their prior lows. The subsequent two cycles were longer, each lasting nearly three years. From January 2015 to December 2017, Bitcoin's price increased over 100-fold, and from December 2018 to November 2021, it rose approximately 20x.
The current cycle began after the price peaked in November 2021 and found a low around $16,000 in November 2022—over two years ago. The trajectory of the current price rally has closely mirrored the paths of the two previous cycles, which each took about another year to reach their zenith after a similar point. In terms of magnitude, the current cycle's roughly 6x gain is substantial but still pales in comparison to the four prior cycles. This historical precedent suggests there is potential for both the duration and magnitude of the current bull market to expand further.
Key On-Chain Metrics to Watch
Beyond analyzing price charts, several on-chain metrics can help gauge the progress of a Bitcoin bull market. These include measures of how much Bitcoin buyers are in profit, the scale of new capital entering the network, and price levels relative to miner revenue.
The MVRV Ratio
A popular metric is the Market Value to Realized Value (MVRV) ratio. This compares Bitcoin's market capitalization (the current market price) to its realized capitalization (the aggregate value of all coins based on the price at which they were last moved on-chain). It effectively measures how far the market price exceeds the aggregate cost basis of holders.
In past cycles, this ratio has reached at least 4 near market tops. The current MVRV ratio sits around 2.6, indicating the market may not yet be at a peak. However, it's noteworthy that the peak MVRV ratio has declined in each successive cycle, suggesting the market may not need to reach 4 again before a top is formed.
HODL Waves and Supply Activity
Another set of indicators analyzes the degree of new money entering the Bitcoin ecosystem, often visualized through "HODL Waves," which track the age of coins being spent. Price appreciation often occurs when new capital buys coins from long-term holders at higher prices.
A useful proxy is the proportion of the total circulating supply that has moved on-chain in the past year. In the four previous cycles, this metric surpassed 60% during the appreciation phase, meaning over 60% of the supply changed hands. The current reading is approximately 54%, suggesting we could see a further increase in on-chain activity before the cycle concludes.
Miner Profitability Metrics
Indicators focused on Bitcoin miners—the professionals who secure the network—can also provide signals. One common metric is the Miner Capitalization to Thermal Capitalization (MCTC) ratio. This compares the market value of miners' coin holdings to the cumulative value of the Bitcoin they have earned through block rewards and fees. The theory is that miners may be more inclined to sell their holdings when this ratio reaches an extreme level.
Historically, prices have often peaked after this ratio exceeded 10. It currently sits around 6, pointing again to a mid-cycle phase. Similar to the MVRV ratio, the peak of this metric has also trended lower in each cycle, meaning a price top could occur before it reaches 10 again.
It is crucial to remember that on-chain metrics can vary between data providers. They are blunt instruments for comparing the current market to the past and offer no guarantee that historical relationships with price will hold. That said, a consensus across these common Bitcoin cycle indicators suggests they remain below levels associated with past price peaks, leaving room for the bull market to continue if supported by strong fundamentals.
Signals from Beyond the Bitcoin Ecosystem
The crypto market extends far beyond Bitcoin, and signals from other sectors can offer additional insight into the cycle's stage. This is particularly relevant for the year ahead, given Bitcoin's shifting dominance.
Bitcoin Dominance
Bitcoin's dominance (its share of the total crypto market capitalization) peaked around the two-year mark in the last two bull markets before beginning to decline. Its recent pullback in dominance aligns almost precisely with the two-year anniversary of the current cycle low. If this pattern continues, investors should incorporate a wider set of indicators to assess whether crypto valuations are approaching a cyclical peak.
Altcoin Leverage and Speculation
Investors can monitor funding rates for perpetual futures contracts. These rates represent the cost paid by traders holding long positions to those holding short positions. When leveraged speculative demand is high, funding rates become significantly positive. Therefore, the level of funding rates across the market can gauge the degree of speculative long positioning.
The weighted average funding rate for the top ten cryptocurrencies excluding Bitcoin (the largest "altcoins") is currently positive, indicating healthy demand from leveraged longs—though it dropped sharply during the recent market sell-off. Even at recent local highs, these rates were below levels seen earlier this year and during the last cycle's peak. This suggests a state of moderate speculative fervor, not yet at extremes typical of a market top.
In contrast, the aggregate open interest (OI)—the total value of outstanding perpetual futures contracts—for these altcoins had recently climbed to very high levels. Before the large-scale liquidations in mid-December, the combined OI for altcoins on three major exchanges neared $54 billion, highlighting an exceptionally high level of speculative long positioning. Although OI dropped by roughly $10 billion after the liquidations, it remains elevated. Such high levels of speculative positioning can be a hallmark of later-cycle activity and warrant close monitoring.
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Conclusion: The Music Continues
Since Bitcoin's inception in 2009, the digital asset market has evolved dramatically. The current bull market is different in crucial ways, most notably through the introduction of US spot Bitcoin and Ethereum ETPs, which have attracted billions in new capital and facilitated integration into traditional portfolios. Furthermore, the potential for clearer US regulation following the recent election could solidify the asset class's standing in the world's largest economy.
These developments suggest that crypto valuations may not be doomed to repeat the exact four-year cycle of its early years. However, as a digital commodity, crypto prices may still exhibit momentum characteristics. Therefore, analyzing on-chain metrics and altcoin positioning data remains a valuable tool for investor risk management.
The consensus from a suite of indicators suggests the market is in a mid-cycle phase. Key metrics like the MVRV ratio are well above their cycle lows but still shy of levels associated with previous market tops. Barring a deterioration in fundamentals—such as stalling adoption or an unfavorable macro environment—there is no compelling reason the crypto bull market cannot continue into 2025 and beyond.
Frequently Asked Questions
What is a crypto market cycle?
A crypto market cycle refers to the recurring pattern of boom and bust periods observed in cryptocurrency prices. These cycles have historically lasted roughly four years and are often influenced by factors like the Bitcoin halving, technological innovation, regulatory developments, and broader macroeconomic conditions.
Why is the MVRV ratio important?
The MVRV ratio compares Bitcoin's market price to the average price at which all coins were last transacted on-chain. It helps gauge the overall profit level of the market. Historically, very high readings (e.g., above 4) have often coincided with market tops, while low readings have signaled bottoms.
What do high altcoin funding rates indicate?
High positive funding rates for altcoin perpetual futures contracts indicate that traders are willing to pay a premium to maintain leveraged long positions. This is typically a sign of strong bullish sentiment and speculative demand, which can be a healthy sign in a bull market but may signal excess near a top.
How does Bitcoin dominance relate to the cycle?
Bitcoin dominance often increases in the early stages of a bull market as investors seek the relative safety of the largest asset. Its decline often signals a "risk-on" shift where capital begins flowing into smaller altcoins, a phenomenon that has typically occurred later in past cycles.
What are the risks of relying on past cycles?
While history provides useful guideposts, every cycle is different. Fundamental changes, like the arrival of institutional ETFs or new regulations, can alter market dynamics. Past performance is not a reliable indicator of future results, and these metrics should be used as tools for context, not crystal balls.
Are we in a crypto bull market?
Multiple on-chain and market indicators, such as price momentum, the MVRV ratio, and supply activity, currently suggest the market is in a mid-phase of a bull cycle. However, this is contingent on continued positive fundamentals, and the situation can change rapidly based on new information.