Bull market signal? How much longer will Bitcoin stay at $30,000?

How long will Bitcoin remain at $30,000 amidst bull market signals?

Currently, the price of Bitcoin is at the “midpoint” of the 2021-2023 cycle, around $30,000. Several indicators of Bitcoin are also approaching the level of the “re-accumulation period” in the previous cycle. Although the heat of inscriptions has been cooling down recently, the Bitcoin trading market is becoming active again.

Summary

• The price of Bitcoin is hovering around $30,000, the midpoint of the 2021-2023 cycle, and the price performance from the beginning of the year remains strong.

• Inscriptions have cooled down significantly, and network congestion is starting to ease. However, we can see that Bitcoin trading volume is starting to increase, currently up 75% from the low point in November.

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• The price of Bitcoin is at the breakeven point, which is the “re-accumulation period” that lasted for several months in the previous cycle.

Bitcoin remains strong

Since 2023, the Bitcoin market has maintained a momentum of continuous growth, rebounding to more than $31,000 in recent weeks and consolidating at this price. If we assume that the low point in November 2022 is the bottom of the cycle, we can compare the magnitude of the “pullback” from that time to the present from the perspectives of “high point” and “low point” and compare this price performance with the previous cycle.

Compared with the high point in 2023, the highest price drop this year is only -18%, which is very shallow compared to all previous cycles. This may indicate the strong demand for Bitcoin in the current market.

Figure 1: Pullback magnitude

Looking at the low point again. The strong rebound since the November low has risen by 91%, which is extremely similar to the rebound magnitude of the previous cycle.

Except for 2019, all previous cycles that have experienced similar bottoming rebounds have actually been the starting point of a new cycle’s upward trend.

Figure 2: Rebound performance

Inscriptions slow down, Bitcoin warms up

One of the most surprising events in 2023 was the appearance of ordinals and inscriptions on Bitcoin. It brought two different inscriptions booms:

• The first type: mainly image-based inscriptions, which have spawned NFTs on the Bitcoin ecosystem. So far, a total of 1.08 million images have been engraved;

• The second type: mainly text inscriptions related to “BRC-20” tokens. Bitcoin currently has 14.8 million text-based inscriptions.

From the number of Inscriptions, the second one has a larger scale, but its activity has been declining since May. This week, the text Inscriptions saw a brief rebound, and the number of unconfirmed transactions in the Bitcoin memory pool also began to decrease.

Figure 3: Inscriptions data

At the same time, we also found a very interesting phenomenon in the on-chain activity indicators. Generally speaking, the increase in on-chain activity indicators of Bitcoin is a signal of usage growth and network health (that is, the increase is usually a good thing).

However, at the same time, a large number of addresses are reused, and the transaction amount related to Inscriptions is also very small (~10k sats), which will reduce the block space demand dominated by Inscriptions.

Therefore, we need a more detailed explanation for the overall high demand in the Bitcoin block. The summary is shown in the following table:

Table 1: On-chain activity indicators rise

It can be seen that with the cooling of Inscriptions’ popularity, the momentum of active Bitcoin addresses has begun to rise again. Some people may think that this is because the Bitcoin network activity has declined in the previous 2-3 months, but in fact, at that time, Inscriptions traders used a large number of repeated addresses, and network activity was actually booming, and block space was also squeezed.

Figure 4: Growth momentum of new Bitcoin addresses

Due to the application of SegWit, the number of Bitcoin transactions has also reached a new high. This means that miners can package more transaction data in each block, and some blocks are even close to the theoretical limit of 4MB.

In recent weeks, the daily trading volume of Bitcoin has also significantly decreased, consistent with the trend of Inscriptions activity slowing down.

Figure 5: Bitcoin transaction activity

After experiencing several months of network congestion, the Bitcoin memory pool is slowly clearing, and on-chain transaction fees are also beginning to decline. Since Brc-20 exploded in May, Bitcoin transaction fees priced in US dollars have fallen by more than 96%, and the average fee is currently $1.33, while the median fee has dropped to $0.16.

The transaction activity on the chain is currently slowing down, as indicated by the transaction fee index.

Figure 6: Average and Median Transaction Fees (USD)

As on-chain transaction activity slows down, the amount of BTC traded is increasing. The current BTC trading volume is up 75% from the low point during the FTX blow-up period, with a current daily settlement amount of $4.2 billion.

Figure 7: Total Settlement Amount (USD)

If we only look at the inflow and outflow of trading platforms, we can see that the Bitcoin network is entering a period of robust growth. The monthly average of trading platform traffic is currently stable above the annual average. From the perspective of assets, this is a good phenomenon, indicating that more and more people are using Bitcoin.

Although some other on-chain activity indicators are still cooling down, this indicator is enough to show that Bitcoin’s dominant position is returning.

Figure 8: Trading Platform Traffic

From this trading platform-related activity, we can establish an NVT price model. The model aims to provide a “fair value” for a given on-chain transaction volume settlement.

The short-term (28-day) NVT price model indicates a “fair value” of $35,900, which is higher than the spot price since November 2022 for the first time. The 90-day model also rose sharply from the level of $24,700.

Figure 9: NVT Price Model for Trading Platform Inflows

A Solid Foundation

Through the above, we have determined that the recovery of the Bitcoin market in 2023 is very strong, both in terms of price performance and network usage. The following chart can help us better understand this, showing the approximate situation of buying Bitcoin at prices below $30,000.

We can see that a considerable amount of Bitcoin was bought between $15,000 and $30,000, indicating a large amount of Bitcoin trading in the past 12 months. Conversely, only 25% of Bitcoin supply was obtained at prices above $30,000, with trading time in 2021-2022.

Figure 13: Comparison of Midpoints

As the market price consolidates below the “midpoint” of $30,000, we can see that around 75% of the total Bitcoin supply is in a profitable state, while 25% is in a loss state. This ratio is the same as the ratio when the price reached the midpoint in 2016 and 2019.

This 75:25 profit-loss balance can also be seen as the overall balance point of Bitcoin. On all trading days, 50% of the trading days have a profit-loss balance point higher than this point, and 50% have a profit-loss balance point lower than this point.

Figure 14: Profitable Supply Percentage (7D)

Historically, this balance point will last for a period of time, and many Bitcoin analysts refer to it as a “reaccumulation period”.

We can intuitively understand this by observing the proportion of unrealized losses (the purchase price is higher than the market price, but has not been sold) in market value. In the early stages of the bear market, the market was in a loss, and investors gradually exited. Then the market rebounded from the low point, and the profitability surged sharply, reaching levels similar to today.

The previous “reaccumulation period” was characterized by a lack of macro market direction and often lasted for several months at this point. Whether it still needs to go through such a long and tortuous process to break this balance point remains to be observed.

Figure 15: Unrealized Losses

Summary

The Bitcoin price is currently consolidating below the “midpoint” of $30,000 in 2021-2022, while several indicators have reached relevant balance points of the “midpoint”. This is the same as the “reaccumulation period” in the previous cycle, which was characterized by almost no macro direction for several months.

However, the price performance from the beginning of the year to now is relatively strong, and the largest drop so far is only -18%. Bitcoin’s on-chain activity has declined, mainly due to the decrease in the popularity of inscriptions. However, Bitcoin trading volume has begun to rebound, and the liquidity and usage situation has gradually shown a positive trend.

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