About Bitcoin's Cycle
Understanding why Bitcoin's current bull run looks different and what it means for crypto investors
Bitcoin’s bull markets have followed some fairly predictable patterns. But right now, the data suggests we may not be seeing the usual surge of excitement — or overvaluation — that marks the end of past cycles. This article breaks down the key on-chain metrics behind Bitcoin’s price, what they reveal about market sentiment, and why some investors think this bull run might last longer than expected.
Why Bitcoin’s Price Isn’t Going “Parabolic” — Yet
Bitcoin’s price compared to its long-term on-chain value offers a crucial lens for investors. On-chain value is like Bitcoin’s fundamental worth based on actual network activity, not just market hype.
- When Bitcoin’s market price surges well above this on-chain value, it signals irrational exuberance — the market hype pushing prices beyond fundamentals.
- When it falls below on-chain value, it often points to undervaluation or oversold conditions.
Historical Context
Heading into the 2017 bull market top, Bitcoin’s price was about 0.9 magnitudes above its on-chain value. The same extreme overvaluation happened in 2021’s peak. Both marked times when profit-taking and corrections followed.
Right now, that gap is only around 0.6, well below previous bull market tops. This suggests the market has not yet reached euphoric levels. Price gains remain more in line with fundamentals.
What Could This Mean for the Current Cycle?
There’s a chance Bitcoin is still in the early or middle innings of this bull run. Some reasons:
- Easier monetary policy globally, which means more liquidity seeking assets like Bitcoin.
- Increasing institutional demand slowly building without excess hype.
- Historical cycles show young assets like Bitcoin sometimes have abnormal patterns. For example, in 2011, Bitcoin’s cycle was shorter because it was still an emerging asset and prices responded quickly to capital flows.
The current dynamic might be the opposite — a longer, steadier rise rather than a quick, euphoric spike.
Answer Box: What Does Bitcoin’s On-Chain Value Tell Investors?
Bitcoin’s on-chain value tracks its fundamental network activity. When market price rises significantly above this value, it signals overvaluation and possible market peak. Today, Bitcoin’s price remains closer to its on-chain value than in past bull market tops, suggesting the current rally is not yet overheated and may continue.
Data Callout: On-Chain Valuation Gap
- 2017 & 2021 bull markets: Price was ~0.9 magnitudes above on-chain value at the peak.
- Current bull market: Gap stays below 0.6 magnitude, signaling more aligned prices with fundamentals.
This metric can help investors gauge when market sentiment shifts from rational buying to euphoric excess.
What Could Go Wrong? Risks to Keep in Mind
- Market sentiment can change fast. A sudden surge in hype or external shocks could push Bitcoin into overvalued territory quickly.
- Global macroeconomic factors like tightening monetary policy or geopolitical crises may limit institutional inflows.
- Technical disruptions or regulatory crackdowns in crypto markets can dampen enthusiasm abruptly.
- The assumption that institutional demand will sustain the rally might be overly optimistic if big players hit exit points sooner than expected.
Investors should always manage risk and be ready to adapt as data evolves.
Actionable Summary
- Historical spikes in Bitcoin price above on-chain value have marked past market tops.
- Current price is less overextended than in 2017 and 2021 bull markets.
- Easing monetary policy and institutional demand could prolong the rally.
- Past early cycles showed quicker spikes; today’s cycle might be slower and extended.
- Keep monitoring on-chain metrics for shifts in market sentiment.
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FAQ
Q: What is Bitcoin’s on-chain value?
A: It’s a fundamental metric tracking Bitcoin’s network activity and use, helping assess its intrinsic worth beyond market price.
Q: Why did the 2017 and 2021 bull runs peak at 0.9 magnitude above on-chain value?
A: Those levels marked periods of irrational exuberance, where prices far exceeded fundamentals, signaling market tops.
Q: Could Bitcoin’s current bull market last longer than the usual 4 years?
A: Yes, current data suggests the cycle could extend if institutional demand sustains and prices stay aligned with fundamentals.
Q: How can investors use on-chain data effectively?
A: On-chain metrics provide insight into market valuation and sentiment, aiding better timing for entries and exits.
Q: Is this article financial advice?
A: No, this is for educational purposes only. Always do your own research and manage risk accordingly.
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By Wolfy Wealth - Empowering crypto investors since 2016
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Disclosure: Authors may be crypto investors mentioned in this newsletter. Wolfy Wealth Crypto newsletter, does not represent an offer to trade securities or other financial instruments. Our analyses, information and investment strategies are for informational purposes only, in order to spread knowledge about the crypto market. Any investments in variable income may cause partial or total loss of the capital used. Therefore, the recipient of this newsletter should always develop their own analyses and investment strategies. In addition, any investment decisions should be based on the investor's risk profile
