5 On-Chain Factors Suggest Bitcoin’s Bull Run Could Have Started: Analysis

Muhammad Naeem

Blogger

Bitcoin, the world's largest cryptocurrency by market capitalization, has seen a significant increase in price over the past few months. Many experts believe that this could be the start of a new bull run. While 2022 came to an unfortunate close with macro headwinds offering little prospect of a recovery in 2023, the beginning of the new year has shocked investors with a spike in Bitcoin. With an upside breakout, the crypto market seems to be ending its period of low volatility.

Technically, as positive momentum increases, the total market value of bitcoins has surpassed a significant technical resistance level.

Although the bull run's longevity is in doubt because the overall trend is still bearish, the recent uptick might yet cause some harm to late sellers.

5 On-Chain Factors affecting Bitcoin prices

The most recent analytics firm to provide some insight into the important on-chain indicators that can portend the beginning of a bull run is CryptoQuant. The following are the top five elements affecting Bitcoin prices:

• Exchange Flow

The first indicator relates to exchange flow. The movement of bitcoin between spot and derivative markets shows that investors have switched to a "risk-on" mindset, indicating the start of a new bull cycle. Traders frequently transfer their coins to derivative exchanges (leverage) to maximize their exposure to the market upside.

• MVRV Ratio

The second indicator is the MVRV ratio, which is calculated by dividing the market capitalization of bitcoin (market price) by the actual market capitalization of bitcoin. It shows whether the price of bitcoin is undervalued or overvalued. The fact that MVRV is above 1 (1.07) and near its 365-day moving average (orange line) indicates that a fresh uptrend in bitcoin is about to begin.

• NUPL (Net Unrealized Profit/Loss)

The third one is the average profit margin of bitcoin owners, or NUPL (Net Unrealized Profit/Loss). Similar to the MVRV ratio, the NUPL is approaching its 365-day moving average (orange line), which may indicate that a new upswing in bitcoin is about to begin.

• Puell Multiple

The fourth one, the Puell Multiple, measures the difference between the daily dollar value of newly issued bitcoins and their one-year moving average. Given that bitcoin's price has recently surpassed its 365-day moving average significantly to the upside for the first time since November 2020, the Puell multiple is currently exhibiting a move to a bullish trend.

• CryptoQuant's P&L Index

Last but not least, CryptoQuant's P&L Index creates a single bitcoin value indicator using the MVRV ratio, NUPL, and LTH/STH SOPR. When the PnL Index's (dark purple line) 365-day moving average (light purple line) is crossed to the upside, a buying signal for BTC will be issued. But in the near term, Bitcoin seems to be pricey, increasing the chance of a fall (the price increased too quickly in the previous week).

Particularly notable increases have also been seen in Lido (LIDO), Solana, and Cardano, alternative coins. The imminent Ethereum Shanghai upgrade (for LIDO) and the negative financing rate in the futures market, particularly for SOL, are the main drivers of the increase in the value of these currencies.

Given that the majority of traders appear to be holding short positions, the negative rates present a chance for whale purchasers to run their stop losses. Some other coins' funding rates are still subject to a short squeeze. Degen gambling has also returned in the new year after taking a backseat following the collapse of FTX in November. The price explosion of Memecoin is evidence of the persistent degen spirit. The market capitalization of all alternative coins has technically surpassed a critical technical resistance barrier as upward momentum builds.

Data on the job market rekindle optimism for a soft landing

The labor market report revealed that 230,000 new nonfarm payrolls were added, representing a 0.2% gain in employment, defying Dow Jones predictions for only an extra 200,000 nonfarm job additions in December and market expectations of a downturn. A healthy labor market disproves common recessionary predictions and spurs a risk-on rally. The Consumer Price Index (CPI) data for December, which will be released on January 12th, will be crucial in determining if the recent bullish feeling will be maintained or if negative sentiments will resurface. If the CPI print for December was below 7.7% and inflation continued to trend downward, the market's confidence in a gentle landing may grow. However, if inflation increased in December, the likelihood that the U.S. Federal Reserve will raise interest rates at its meeting at the end of January would rise, increasing the possibility of a sharp decline.

A permanent swap with a negative financing rate is sought after by traders

The year's end and the holiday trading season saw a decline in spot trading activity and liquidity on cryptocurrency exchanges, which gave futures markets more power to move prices. A price will likely respond in the opposite direction to a busy trade position.

Meme coins pump, then dump

A Solana-based meme coin called BONK had a staggering 25x increase in value within the first week of January. The increase represented the irrational gambling spirit that characterized the 2021–2022 bull run. Bear markets, however, tend to encourage traders to be cautious.

Historical patterns and an increase in positive emotion

Given that the underlying trend is still bearish, the viability of the bullish altcoin run is in doubt. The underlying driver of this bull run is difficult to pinpoint, and Bitcoin's price is currently trading below the area that previously served as a barrier between $18,200 and $19,000. As buyers tire, the rise is therefore expected to diminish. If we take a look at prior crypto cycles, we can see that during a bull run, altcoins outperformed Bitcoin, and during the subsequent cooldown period, there was a cross-over with Bitcoin driving the crypto market gains. Similar events occurred during the most recent parabolic surge in 2021, with altcoins outperforming Bitcoin. In contrast to Bitcoin, the altcoin market has not been destroyed during the downturn phase. Both the market capitalization of altcoins and the price of bitcoin have declined by 75% since their peaks, with altcoin losses outpacing those of bitcoin.

During bull markets, altcoins fare better than bitcoin. Because Ether is becoming more and more dominant in the market, the aforementioned rule may be an exception. Technical advances like the switch to an energy-efficient proof-of-stake system and lower inflation have helped Ethereum maintain its market domination of 20% while also significantly sustaining its price despite the downward trend. However, a more significant decline in the market value of all altcoins cannot be excluded.

If we compare Bitcoin dominance with altcoins dominance, we can clearly see that Bitcoin is losing the battle. Even though the market cap of crypto is rising, Bitcoin is not showing as much gain as altcoins are. Below is the comparison between Bitcoin and Ethereum price gains.

Conclusion

Several on-chain factors suggest a bull run for Bitcoin may have already begun. While it is impossible to predict the future with certainty, these on-chain factors suggest that Bitcoin could be on the cusp of a new bull run. However, it is important to note that nothing can be guaranteed, and crypto markets are highly volatile, so it's always important to do your research and invest wisely.