Bitcoin Bear Market or Bull Run? Experts reveal 4 key things to watch out for

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The Kraken Intelligence team analyzed on-chain data for Bitcoin and Ethereum. There are certain indicators that are essential in determining whether the bull run will resume in the near future or not. The Federal Reserve is having a bigger impact on the crypto markets now than it has in the past.

Bitcoin has declined by about half its value from its peak of $69,000 in November to stand at around $35,000 at the end of January.

This precipitous drop for the original crypto and many others is nothing out of the ordinary for the most volatile asset classes, but it has still shaken investor confidence and many people are proclaiming it to be the beginning of a long bear market.

This view is far from unanimous, with some experts viewing recent market moves as the inevitable period of short-term profit-taking that follows a sharp rise in price. After all, bitcoin is still up nearly 1,000% in the past three years, despite falling from its all-time high in November.

Another thing to keep in mind is that crypto has started trading with a much closer correlation to tech stocks than in the past, and is therefore affected by expectations of rising interest rates.

Prices have stabilized over the past week and whether the decline is bottoming out or if there is another big drop ahead is the key question that all crypto investors wrestle with.

One of the largest crypto exchanges in the world, Kraken, has a team of analysts dedicated to finding answers to questions such as this.

In a research note from the Kraken Intelligence team titled “On-chain digest,” analysts described the status of the crypto market as “the hodlers’ last chance.”

“Market participants argue that the latest market weakness stems from heightened concerns over the Federal Reserve’s hawkish policy,” the Kraken team said. “Although prices have been declining since November, the decline did not accelerate until the release of the minutes of the Federal Open Market Committee (FOMC) meeting from December 14 to December 15, 2021.”

The meeting contained hints that an acceleration in the pace of cuts, interest rate hikes and potential quantitative tightening to ease the central bank’s balance sheet were ahead. Although the Fed’s hawkish tone has convinced some that a bear market may be ahead, observing on-chain data is crucial to paint a complete picture of crypto markets and their direction.”

There are four main data points on the chain that the team is watching like a hawk.

HODL waves

These reflect the percentage of the circulating supply of bitcoin that has not moved wallets over a given period.

When compared to the price of bitcoin, it shows which market players – long-term, medium-term, or short-term holders – can fuel selling pressure. There are three main categories. “Old or lost coins” which have not moved for over five years, “old coins” which have not moved for over 6 months, and “young coins” which have only been static for 6 months or less .

“BTC’s HODL waves show that long-term holders have been accumulating coins since April 2021 and may have started taking profits in November 2021,” the Kraken team said.

“From April 30, 2021 to November 24, 2021, young coins quickly transitioned into the long-term holding category. While long-term holding conviction seems stronger than ever, network activity shows that Bitcoin and Ethereum see less in demand chain,” they added.

Network activity

This refers to the number of active people on a blockchain and is measured by the number of Bitcoin or Ether addresses that are actively transacting on the blockchain.

“In addition to a reduction in long-term holding behavior, on-chain data shows that network activity for Bitcoin and Ethereum has fallen month-over-month, as evidenced by lower monthly active addresses. “, said the Kraken team. “Since early November 2021, the number of monthly active Bitcoin on-chain addresses has dropped significantly, ending a 3-month upward trend.”

SOPR and MVRV

SOPR is the ratio of profit to output spent. SOPR measures whether market participants are selling at a profit or a loss. It is calculated by taking an expended production and dividing its realized monetary value by its monetary value at creation.

MVRV is the market value of ether at realized value. The MVRV Z-Score compares the difference between a crypto-asset’s market capitalization and its realized value against the standard deviation of its market capitalization.

“As long-term holding conviction and network activity slow, on-chain indicators such as BTC’s SOPR and ETH’s Z-score MVRV suggest that the broader macro trend is not necessarily yet over,” the Kraken team said.

“Although BTC’s SOPR shows that market participants are mostly selling at a loss, the situation was much worse during Bitcoin’s last retracement from $65,000 to $30,000 in May 2021 to July 2021, after which the market did a comeback.”

“The crypto market is currently going through another test amid broader macroeconomic uncertainty related to global interest rate policy and the repricing of risky assets,” added Thomas Perfumo, Head of Trade and Operations. of Kraken’s strategy.

“More than ever, this market environment highlights the importance of on-chain fundamentals, which is the focus of our report. In particular, we highlight signals that indicate that investor sentiment in equity markets crypto is higher than when the markets briefly turned around eight months ago. Long-term confidence in the outlook for both assets has not disappeared as some might argue.”

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