Summary Bitcoin's unique supply mechanism and market cycles are analyzed using historical data and chain indicators to determine if we are still in a positive cycle. Key metrics like LTH MVRV, STH P/L Z-Score, and MVRV & Mayer Models indicate that a market top has not been reached yet. Current market corrections are normal within bullish cycles; historical data shows Bitcoin often corrects by 35% in such phases. Despite external risks, Bitcoin's chain performance suggests the potential for higher prices; holding or buying now could yield gains, but expect short-term volatility. Introduction Today's article will look at the Bitcoin (BTC-USD) asset from a risk and cycle continuation perspective. As the reader will know, it is well known that Bitcoin has a limited supply (21M) that is released each time a block is mined. By halving that issuance, approximately every four years (halving). This unique feature causes market cycles in the evolution of the price of the asset, caused among other things by the behaviour of miners and other market participants. Today we will try to explain whether or not we are still in a positive cycle for the asset price, analysing different chain indicators that have historically helped us to detect market tops and bottoms. I will make historical comparisons with previous market cycles to try to explain the above. In the following chart, we can observe the evolution of the Bitcoin price with some marks on it. The red lines correspond to market tops and the green lines to market bottoms. In this particular chart, we detect market tops using an indicator called the ‘Pi Cycle Top Indicator’ which was developed in its day by David Puell of ARK Invest. What this indicator measures is the crossing of the 111-day average above the 350-day average multiplied by 2. For market bottoms, we use the minimum values of the MVRV (Market Value Realized Value). Bitcoin Cycles (TradingView) Analysis Once the introduction has been made and the existence of market cycles is clear and demonstrated, we analyse the past and the present with the following graph. In this graph what is shown is a weighting of risk and therefore of the market temperature that coincides in time with the existence of these market cycles. The chart is made up of the following metrics that can be found on websites such as Glassnode, CryptoQuant, or Bitcoin Magazine, which I will explain briefly below: LTH Spending Binary Indicator: Indicator worth 1 when long-term holders (≥155 days) spend (sell) above a sustained threshold, and 0 otherwise. LTH MVRV: Ratio between market value and realised value of coins held by long-term holders; measures how much profit (or loss) they have accumulated on average. STH P/L Z-Score: Z-score of short-term ( STH Supply P/L Ratio: Ratio between the percentage of supply held by short-term holders that is in profit and that which is in loss. Miners Fees Binary Indicator: Binary indicator that jumps to 1 if the fees paid to miners exceed a stress threshold (signal of high block demand), and 0 otherwise. Exchange Momentum Volume: Net difference between deposits and withdrawals on exchanges in a period; positive indicates selling pressure, negative indicates buying pressure. Realized P/L Ratio: Ratio of total realised gains to total realised losses for all participants in a given period. Net Unrealized P/L Ratio: (Market value - realised value) ÷ realised value, applied to the pool of unsold coins, to measure average latent profit or loss. Supply Profit Stake: Percentage of total BTC supply that is ‘in the money’ (current price > acquisition price) and therefore theoretically in profit. MVRV & Mayer Models: MVRV: Market Cap/Realized Cap ratio for the entire market, used to detect overvaluation or undervaluation. Mayer Multiple: current price divided by the 200-day moving average; values >≈ 1.8 usually warn of high overbought levels. To these metrics, we apply a risk standard ranging from very low risk (green colour), moderate risk (yellow colour), high risk (orange colour) and extreme risk (red colour). As can be seen in the image, the two market ceilings (red line in the price) coincide with a large part of the metrics in a state of extreme overheating (red colour). On the contrary, the market floors (green line in the price) clearly coincide with an extremely low risk in almost all metrics (green colour). With this clear, we move on to the next step, which is to look at the duration of these risks over time. As you can see, just because a metric or series of metrics enters an extreme risk zone, it does not mean that a market top has been reached per se. We have to take into account the duration of this. In metrics such as the LTH MVRV or Net Unrealized P/L, we see that at market tops the extreme risk status of these metrics has been very consistent. Comparing this with recent times, when they have not been so consistent over time, leads us to think that a market ceiling has not yet been reached in this cycle. It is also worth noting that the MVRV & Mayer Models metric has not reached the extreme risk category in recent times, which is quite strange if we were at the end of a cycle. Bitcoin Risk Assessment (Node Analytica) Apart from this, there are other indicators that tell us that the probability of a bullish end to the cycle is extremely high. In the following images, we will take a closer look at the STH Supply P/L Ratio. As can be seen in the following image, the intensity of the extreme risk in previous cycles does not coincide with this last one, so I firmly believe that we still have an upside left. In fact, corrections like this one are relatively normal in these bullish cycles. On average, bitcoin has corrected 35% in these cycles, so we can categorise this latest correction as normal. STH P/L Ratio (Node Analytica) STH P/L Ratio (Node Analytica) Conclusion To conclude, I believe that although we must be careful with the current market situation, due to external situations (tariffs, trade wars, etc.), at the chain level, the asset has been performing well in recent times. If you have it, keep it, it is quite possible that you can sell it at a higher price than it is today in the short term. You may even be able to sell it above its current ATH. If, on the other hand, you do not own the asset and are considering buying it, you can do so, but accept a lot of volatility at this point in the market. It is possible that there may be corrections of 10-15% in the very short term before going to higher price levels.
