The Grayscale report suggests that the crypto market is currently in the middle of a bull run, supported by strong fundamental and technical factors. Historically, it has been difficult to predict the start of bull runs, but they often occur 8-11 months after a Bitcoin supply halving. Grayscale analysts have identified key elements of a bull market, which can be categorized as precursors and the “fifth inning,” representing the current state of the market.
According to the report, bull markets in crypto typically begin with a rise in Bitcoin’s dominance. This trend highlights Bitcoin’s role as a leading indicator for the wider crypto market. Altcoins tend to rally after Bitcoin’s price increase, as investors seek higher returns. Grayscale analyst Michael Zhao explains that this cycle is distinguished by three unique catalysts: spot Bitcoin ETF inflows, positive stablecoin inflows, and decreasing Bitcoin balance on exchanges.
The approval of spot Bitcoin ETFs on January 10 has led to consistent capital inflows, surpassing Bitcoin issuance by more than three times. This has put upward pressure on the price. Additionally, healthy on-chain fundamentals, including the supply of stablecoins on exchanges, have contributed to the recent rally in Bitcoin’s price. The increase in stablecoin liquidity indicates the availability of more capital for trading.
Furthermore, the decrease in Bitcoin held on exchanges and the transfer of BTC into custodian cold wallets suggest a supply squeeze. This is driven partly by spot Bitcoin ETFs and indicates investors’ long-term storage expectations for price growth. Grayscale reports a noticeable decrease in Bitcoin held on exchanges since the local peak in May 2023.
Grayscale describes the current state of the market as the “mid-phase” or the “fifth inning” of the bull run. Using the Net Unrealized Profit/Loss (NUPL) metric, which measures the percentage profit/loss based on market value and realized value, Grayscale analysts note that the NUPL ratio has increased with Bitcoin’s price. This suggests that investors who bought at lower prices are still holding onto their coins.
Bull markets are driven by euphoria, fear of missing out (FOMO), and speculative trading from retail investors. Retail market sentiment can be analyzed to determine these factors. While retail investor interest is lower than during the 2021 bull market, sentiment analysis shows similarities to the height of that bull market. This could indicate a return of retail investors and the potential for higher prices driven by greed and FOMO.
Based on the analysis of technical and fundamental factors, Grayscale believes that the bull run will continue. However, they advise investors to monitor flows into spot Bitcoin ETFs and macroeconomic factors for any signs of market shifts. It is important for readers to conduct their own research and exercise caution when making investment decisions.