Bitcoin Fundamentals Suggest it’s Bear Hunting Season
Over the weekend, I’ve come to realise the fundamental outlook is now very promising for Bitcoin (BTC). Several indicators now seem to suggest that it’s bear hunting season. Bitcoin bears, that is.
A few days ago, Bitcoin exited the buy zone for a fundamental indicator that’s proven to be useful in the past for picking turning points: the market value to realized value ratio (or MVRV).
This indicator simply divides the current market value by realised capitalisation. Realised capitalisation (or realised cap for short) is an alternative measure of a network’s value (credit to Nic Carter and Antoine Le Calvez for coming up with this concept).
Rather than using the last traded price and multiplying by the coins in circulation as seen in market capitalisation, realised cap approximates the value paid for all coins in existence by summing the market value of coins at the time they last moved on the blockchain.
The MVRV ratio itself was created by Murad Mahmudov & David Puell, following Nic Carter’s presentation on the realised cap metric at Honeybadger 2018.
What’s important to know about this indicator is that there’s a threshold for the buy zone: any value below 1.
From the chart below, we can see on January 13th the ratio went back above 1 for the first time since November 5th, exiting the buy zone which has historically been a very good area to get long exposure to Bitcoin.
With a low of around $18,850 on January 13th, any price near this level should be a good long-term buy. Anything below $20,000 too, depending on your time horizon. To maximise returns based on this fundamentals-driven trade idea, look to buy any dips as close as possible to this zone around $18,850 — $20,000.
Although the MVRV ratio has previously flirted with exiting the buy zone three times in the past 7 months, this move looks more convincing.
I don’t think we’ll see this ratio go back below 1, which if correct, means the bottom was in on November 9th, when the price dropped to lows near $15,500 and the MVRV ratio reached an almost 4-year low of 0.7539.
Now the ratio is back above 1, Bitcoin should be clear to proceed higher. Of course, the risk is that it’s another fakeout or the market can just enter the buy zone again if there’s a big dump. For example, the ratio was higher than 1 for several weeks in July and August. But let’s see what some other fundamental indicators are telling us.
The Net Unrealised Profit & Loss (NUPL) indicator is also flashing a buy signal. On January 13th, the indicator moved out of the capitulation zone and turned positive — meaning that overall, Bitcoin investors are sitting on unrealized profits (according to the sum of the value of all coins at the price since they were last moved on-chain).
Historically, we can see the NUPL indicator has been effective in spotting bottoms and tops. Each zone is aligned with certain emotions in the market. The NUPL chart nicely illustrates where are we in the current cycle tracking the overall profitability of bitcoin investors, and it’s indicating we’re entering a new Hope phase.
If you’re familiar with the Wall Street Cheat Sheet, Hope is then followed by Optimism, Belief, and then Greed stages of the bullish part of a cycle. Or is it hopium???
I guess it’ll be important to track sentiment for signs of hope turning into optimism. How exactly do we gauge that? Less bearish posts on socials maybe. Normies returning? Celebrity endorsements/mentions start to pick up again?
Another fundamental — the number of wholecoiners (someone that owns at least 1 BTC) — is at an all time high! There are almost 1 million addresses that own 1 BTC or more — showing that more people are acquiring the corn and the supply is becoming more distributed across the global population.
Although, it’s important to note that addresses are not equivalent to people, so it’s just an estimate. But nonetheless, it’s impressive, especially since during previous downturns, we saw sharp drops in the number of addresses with a balance of at least 1 BTC.
One thought experiment that eloquently illustrates the bull case for Bitcoin: how many Bitcoins will there ever exist? 21 million. How many millionaires are there in the world? Estimated to be at least 56 million.
That means every millionaire in the world cannot own 1 BTC, it’s impossible! So by being a wholecoiner now, it’s like you’re front running them when everyone eventually realises it’s a better alternative to the fiat system for so many reasons.
From the three indicators I’ve presented here, I have strong conviction that the fundamental case for $BTC is as strong as ever and you’ll have no regrets buying here by the end of 2023.
If you don’t believe me, I pointed out some similarly powerful signs of a bullish phase — although that time based on technicals — years ago which turned out to be an excellent call.
Hands up bears, it’s over!
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