Emotions bottomed out, leverage cleared, 5 reasons for a bullish future market

Original Title: “Where are we in the current crypto cycle and where do we go from here?”

Original author: Tom Dunleavy

Compilation: Joyce, BlockBeats Editor’s note: The impact of the US and German governments selling coins and the Mt. Gox case on the market is coming to an end, and community sentiment has reached a trough. What direction will the encryption market take next? There are many factors to consider in this process. Tom Dunleavy, the author of this article, is optimistic about the future market and believes that the current encryption market is at a historical turning point, with huge potential for BTC, and market fluctuations are only temporary adjustments.

Unlike the usual simple bullish stance, Tom Dunleavy provides specific reasons for being bullish from the perspective of technical indicators, macro Liquidity, and market structure, and offers his analysis of potential new crises in the encryption market. Readers with either a bullish or bearish attitude can gain some inspiration from this article’s analysis.

In this article, I will discuss:

Current Market Status: We are standing at a historical turning point, BTC has immense potential, and the market Fluctuation is a temporary adjustment.

Outlook for the Next 18 Months: The continuous increase in global Liquidity and the influx of institutional funds will continue to drive the market, with promising prospects.

Investment Advice: Choosing promising sectors and early-stage projects is crucial, so focus and invest cautiously.

In short, you are not optimistic enough.

After the large-scale deleveraging, the market is about to start

First, let’s review the current market situation. In the fourth quarter of 2023, the expected approval of the BTC ETF in the United States has triggered a wave of enthusiasm, marking the beginning of this cycle. In the first half of 2024, the market attracted approximately 15 billion US dollars of new capital inflows. In particular, the release of the ETH ETF on May 23 has caused the price to soar by more than 30%, although there has been a pullback in recent weeks, this is just a normal fluctuation within the cycle, so there is no need to worry too much.

At the same time, we also experienced a large-scale deleveraging event. At the end of the second quarter, nearly $1 billion in assets were liquidated over a weekend. Although this may seem somewhat frightening, it actually helps the market to rid itself of the burden of excessive leverage, making it healthier and more stable.

Key Indicator: MVRV

Let’s take a look at a very important market indicator, MVRV, which is the ratio of market value to realized value. This ratio is an important reference for judging whether the market is overvalued or undervalued, and it is also the most reliable indicator to indicate BTC oversold or oversold situation. Currently, BTC’s MVRV ratio is 1.5, indicating that the market is relatively undervalued.

As a large amount of leverage is cleared in the market, the current low MVRV value suggests that there is further potential for rise in the market. Historical data shows that when the ratio exceeds 4, it is often a signal to sell; while when it is below 1, it is a good time to buy. Therefore, from this perspective, there is still a lot of rise potential for BTC in the future.

Global Liquidity’s Favourable Information Stimulus

Global Liquidity is an important driver of market cycles. It is well-known that the stimulus policies of global Central Banks and governments have a profound impact on the market, especially in the United States. As the world’s largest economy, policy changes in the United States are crucial to the market. Currently, the market expects the Federal Reserve to cut interest rates twice this year, and Citibank even predicts up to 8 rate cuts in the next 12 months. This will significantly increase market liquidity, which is undoubtedly Favourable Information for the Cryptocurrency market.

The institution crossbordercap, which focuses on Liquidity, has called for an increase in Liquidity growth rate to 20% in the second half of 2024. In addition, the Central Bank of Sweden and Europe have also indicated that they will begin to relax monetary policy. Such policy changes will inject more long-term funds into the market and push up the prices of risky assets to pump.

The Impact of Election Cycles

The impact of the election cycle on the market is also significant. In election years, government spending tends to increase, which is a positive signal for the market. Especially during the election campaign, the incumbent government usually increases both direct and indirect spending, which typically leads to a strong market performance at the beginning of the year, a relatively calm summer, and a rebound in the market in the second half of the year. The election cycle in 2024 is no exception, and it is expected that the market will perform well in the second half of the year.

Additional Buying Power from FTX

We also have additional bullish catalysts, with the expected $12 to $14 billion from FTX compensation claims set to flow into the market in October and November 2024. This will inject a large amount of new capital into the Crypto market, further driving up market prices. For investors, this is undoubtedly a very Favourable Information.

Halving「传统」

Speaking of this, we cannot ignore past lessons. Historically, the cryptocurrency market has often followed a four-year cycle centered around the BTC halving. In the first year after the halving, the market pumps rapidly; in the second year, the growth rate begins to slow down; in the third year, the price remains roughly unchanged; in the fourth year, the price will sharply decline. The price usually reaches its peak around 500 days after the halving. If this cycle follows the same pattern, the market may reach its peak around October 2025.

If we follow this ‘tradition’, we are still in the early stage of the cycle, and it is expected that the market will remain relatively calm in July and August before a rapid pump in the next 12 months.

How to Navigate This Bull Market Without Chasing the Ghost of a Dropped Sword?

Although we believe that the market will follow the previous cycle pump, there are indeed some subtle differences in this cycle market.

Market Variables Not to Be Ignored

The Impact of Institutional Entry

In this cycle, we have seen some new factors. First, the influence of institutional products is growing. Since the approval of Bitcoin ETF, the market has attracted over 15 billion dollars. Moreover, only about 25% of US financial advisors can recommend these products to clients, which means there is still a lot of rise potential in the future.

After the approval of the Gold ETF, it has seen five consecutive years of net inflows. Therefore, we can expect BTC ETF to continue to attract capital inflows. This will help reduce market volatility and prolong the duration of the cycle.

More longToken and bigger hairstyle backlog

Secondly, the number of Tokens available for purchase has increased significantly. In 2021, there were approximately 400,000 Tokens on the market, and now the number has exceeded 3 million, with an additional 100,000 Tokens being added every day. In addition, there are a large number of Tokens unlocked from previous issuances, with Tokens worth $350 million unlocked in July alone. Such a supply increase will undoubtedly have an impact on the market.

There are still a large number of private projects preparing for listing in the market. These projects are expected to conduct Token generation activities in the autumn. 1000 long projects funded in late 2023 and early 2024 have not issued Tokens yet, and the expected total supply will reach tens of billions of dollars. The issuance of these new Tokens may have a significant impact on the market.

Macroeconomic Conditions

The macroeconomic conditions in the United States also have a significant impact on the market. Currently, the U.S. unemployment rate remains very low, inflation continues to drop, unemployment claims are flat, and wages are stagnant. These factors provide the Federal Reserve with reasons to lower Interest Rate. It is expected that we will see a drop in 2024 and 2025, which will lower the capital cost for enterprises, decrease consumer Intrerest Rate, and provide longer funding for risk assets.

VC Reserve Funds

In 2021 and 2022, long个 10 billion dollars or more Cryptocurrency focused funds were successfully raised. These funds typically have a 3-4 year capital deployment timeline. Due to the influence of FTX, many funds are cautious in their investments at the end of 2022 and the beginning of 2023. However, the recent market pump has caught many venture capital firms off guard, resulting in a large amount of reserve funds being in a wait-and-see mode in this round of the cycle. Many reserve funds will be actively deployed in the first and second quarters of 2024.

Clearer Regulatory Environment

Finally, changes in the regulatory environment have also had a significant impact on the market. Although the upcoming regulations may be controversial, clear rules can drop the market’s uncertainty. The EU’s MiCA has been launched, and the US also has long bills on market structure, banking services, and stablecoins. If the Republicans win the presidency and the Senate, these bills will be quickly introduced in the first quarter of 2024.

How to view this cycle?

Longer and less volatile

Overall, we believe that this cycle is likely to be longer and less volatile than previous cycles. Large assets will lead the rally, and the large reserves of venture capital firms will support a range of new projects, but we still need new net buyers to support longer assets. Although we have gained many buyers through ETFs, these buyers are unlikely to be on-chain users supporting the valuations of other tokens.

The overall market assets lead the way, and the “altcoin season” is no more

We expect that large assets will lead the way in this round of the cycle, while small-cap assets will have greater volatility. Many top assets may be included in institutional-grade products. Compared to previous cycles, many small or emerging protocols will go to zero as the competition for capital intensifies. In this round of the cycle, there will be significant differentiation in the investment and performance of small-cap protocols.

Choosing and focusing are crucial

In this cycle, asset selection is more important than ever. The previous method of ‘casting a net to fish’ is no longer effective. Due to the increase in supply, attention is almost as important as fundamentals (even more important in certain verticals). Investors should focus on following verticals and protocols in the seed and A-round stages.

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