Is the Bitcoin Bull Market Over?

"History doesn't repeat itself, but it often rhymes."

This classic quote seems particularly fitting for the current crypto market. Since Bitcoin hit an all-time high of $64,846.9 on April 14, it has been oscillating downward for over a month. As of 13:00 on May 18 (Beijing time), OKX data shows Bitcoin trading at around $45,000, representing a cumulative decline of 34%.

BTC/USDT

Bitcoin price trend, source: OKX

Unlike previous pullbacks, this decline has been the largest in magnitude and has repeatedly broken below the 120-day moving average (MA120), even approaching the 200-day moving average. This is the first occurrence since the market rally began last September. More importantly, from a technical analysis perspective, MA120 is generally considered a key indicator for medium-term trend shifts, while MA200 is viewed as the bull-bear dividing line. When Bitcoin price reaches this point and fails to climb back above MA120 for multiple consecutive days, it inevitably sparks speculation among investors: Is the bull market still here? —— Although just a month ago, the market was filled with optimistic expectations of Bitcoin reaching $100,000 after hitting new highs, this doesn't stop today's panic from spreading.

Why Is There Speculation About "Is the Bull Market Still Here?"

Beyond the technical signals mentioned above, the market is showing other warning signs. For example, the continuous growth of Bitcoin balances in exchange addresses, and the decline in whale numbers, among others. In our May 12th article "Goldman Sachs Enters Bitcoin Market: Risks and Opportunities Ahead", we focused on these two data points. Let's review them today.

比特币钱包余额

Bitcoin balance in exchange addresses, source: bybt

The chart above shows the change in Bitcoin balances in exchange addresses since February this year. As of 12:00 on May 18 (Beijing time), this figure was 1.9513 million, while on May 12 it was 1.86 million. This means nearly 100,000 Bitcoins flowed net into exchanges within a week.

Bitcoin: Number of Addresses with Balance >= 1k

Number of whales holding over 1,000 Bitcoin, source: glassnode

Looking at the change in the number of whales holding over 1,000 Bitcoin, on the 12th we observed 2,181 addresses, while today this number has decreased to 2,150. The inverse relationship between these two datasets is more reasonably interpreted as whales selling Bitcoin for cash. If this interpretation holds and this trend continues, we can predict increasing selling pressure in the secondary market. Of course, this is just one possible scenario for these data changes. We'll discuss other possibilities in the second section of this article.

Beyond on-chain Bitcoin transfers, we've also observed similar changes in the derivatives trading market. For example, on the OKX platform, the basis spread between current-quarter and next-quarter Bitcoin futures has been continuously narrowing since Bitcoin hit its high.

现货指数，合约价格

BTC-quoted current-quarter futures basis, source: OKX

Similarly, in Bitcoin's next-quarter futures, the basis narrowed from $10,798.85 on April 14 (basis rate of 17.04%) to $2,387.76 on May 18 (basis rate of 5.28%). In terms of basis rate change, this represents a 69% decline.

Generally, the premium in derivatives contracts reflects market participants' judgment on future trends — the higher the premium, the stronger the bullish expectations. In fact, in OKX's Bitcoin current-quarter futures market, from mid-December 2020 to mid-April 2021, the basis rate remained above 5% for most of these 4 months. This basis rate of 0.7% is the first occurrence since December 10, 2020 (basis rate of 0.6%), to some extent reflecting the market's pessimistic expectations for the future.

Can We Declare the Bull Market Over Now?

In his book "Commodities Trading Strategies," legendary Wall Street trader Stanley Kroll mentions a concept: Let the trend be your friend. In real markets, most investors lack sufficient time and patience to identify trends, grasp trends, and make friends with trends. Instead, they're more influenced by market emotions and make investment decisions under emotional sway. Although everyone entering the crypto market has heard the quote "trading is counter-intuitive" to some extent, very few can actually practice it. Therefore, for investors, the more complex the situation, the more necessary it is to return to the market itself and minimize emotional influence. Simplicity is the ultimate sophistication — using the simplest logic to judge complex situations may be the best coping strategy.

Take the recently controversial Musk as an example. Many investors attribute Bitcoin's decline over the past week to Musk's "Twitter pumping." From an emotional perspective this seems irrefutable, but logically it deserves careful scrutiny. First, Bitcoin has had 12 years of development since its inception and is now a massive asset with a trillion-dollar market cap. The possibility of manipulation decreases as market cap increases. Meanwhile, Bitcoin's strong liquidity has attracted numerous traditional financial giants including Grayscale, MicroStrategy, and JPMorgan in recent years. Second, looking purely at holding value, neither Musk's personal Bitcoin holdings nor Tesla's holdings are sufficient to cause more than 1% fluctuation in the entire market. Combined with on-chain Bitcoin flows over the past month, this decline is more likely caused by whales accelerating sales with Musk's Twitter help, triggering a chain reaction among retail investors. As for what role the反复无常的 Musk played in this process, as outsiders it's not appropriate to speculate.

Inserting Musk's example here expresses one point: Given Bitcoin's current market size, it's no longer something any individual or a small number of institutional investors can easily influence. Therefore, judging the future still requires focusing on the most essential factor — whether funds continue to flow in.

In the same article "Goldman Sachs Enters Bitcoin Market: Risks and Opportunities Ahead," we also mentioned the "money printing" policies of major economies including the Federal Reserve and European Central Bank since late 2020. Incomplete statistics show at least $7.9 trillion in incremental funds will flow into the market over the next 3 years, equivalent to 8 times Bitcoin's current market cap. If US inflation expectations stabilize around 2% over the same period and the Fed doesn't implement significant rate hikes, this would be a major positive for most global investment markets, and Bitcoin could undoubtedly get a piece of the pie.

Is this actually the case? Let's observe the recent inflow of stablecoins to exchanges.

Tether USD: Balance on Exchanges - All Exchanges

USDT balance changes in exchange addresses, source: glassnode

According to glassnode statistics, since January 2020, USDT quantities in exchange addresses have shown a steady upward trend. Just for USDT alone, one stablecoin, the current exchange balance exceeds 2.8 billion. Moreover, the chart above shows nearly 1 billion USDT flowed into exchanges in the past week. If we include other stablecoins like USDC and TUSD, the total stablecoins on exchange addresses exceeds 5 billion — undoubtedly a huge potential buying force.

Looking back at the topic of whale count changes holding over 1,000 Bitcoin that we left in section one, if we extend the timeline, during the previous bull market (October 2016 ~ February 2017), there was also a significant decline in whale numbers. The number of holding addresses didn't return to September 2016 levels until February 2019, but this didn't prevent Bitcoin's major rally 7 months later.

Bitcoin: Number of Addresses with Balance >= 1k

Changes in Bitcoin whale addresses since November 2014, source: glassnode

Bitcoin: Number of Addresses with Balance >= 1

Changes in addresses holding over 1 Bitcoin, source: glassnode

Bitcoin: Number of Addresses with Balance >= 0. 1

Changes in addresses holding over 0.1 Bitcoin, source: glassnode

At the same time, if we compare the number of addresses holding over 1 Bitcoin and 0.1 Bitcoin, we can find that unlike the sharp drop in whale addresses, the decline in these two metrics over the past month has been much more moderate. This shows that while some whales are selling Bitcoin, more small and medium investors are choosing to buy and hold Bitcoin.

Similarly, regarding the basis rate changes in OKX's current-quarter and next-quarter Bitcoin futures mentioned above, although there has been a significant recent decline, it's worth noting that so far both contract types still maintain a positive premium, and the next-quarter futures basis rate remains above 5%, to some extent indicating long-term investors remain optimistic about Bitcoin's future trend.

Returning to the market itself, we calculated that the largest decline recorded in this pullback is 34%. But reviewing the previous bull market rally, we can see there were at least 3 major pullbacks with declines between 30%-40%.

比特币/美元

Bitcoin market October 2017 ~ December 2018, source: coinbase, screenshot from tradingview

History may not repeat itself, but it often rhymes. Finally, let's return to the technical level. In the previous bull market, Bitcoin peaked in mid-December 2017, then entered two months of oscillating decline until breaking below MA200 on February 6, marking the bull market's end. Bitcoin's current price is still trading above MA200, so we need not be overly pessimistic. Let's wait for the market to reveal its direction.

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Conclusion

Considering signals from current market conditions, premium situations in the derivatives trading market, Bitcoin on-chain flow data, stablecoin inflows to exchanges, and multiple other factors, and comparing with the previous bull market cycle, data supporting the bull market ending seems insufficient. Therefore, for investors in the market, maintaining constant respect for the market and reducing emotional influence on investment decisions should be the top priority.

Disclaimer

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