Opinion: 5 Reasons for the bullishencryption Market

Author: Tom Dunleavy

Compiled by Joyce, BlockBeats

Editor’s Note: The impact of the German and American governments selling coins and the Mt. Gox case on the market is gradually coming to an end, and community sentiment has bottomed out. Where will the encryption market go next? There are many factors to consider in this process. Tom Dunleavy, the author of this article, remains optimistic about the future market, believing that the current encryption market is at a historical turning point, with huge potential for BTC and market fluctuation is only a temporary adjustment.

Unlike the general simple bullishness, Tom Dunleavy provides specific reasons for bullishness from technical indicators, macro liquidity, market structure, etc., and makes his own analysis of potential new crises in the encryption market. Readers who hold bullish or bearish attitudes can gain some inspiration from the sorting out in this article.

In this article, I will discuss:

Current market status: We are at a historical turning point, BTC has enormous potential, market Fluctuation is a temporary adjustment.

18-Month Outlook: The global Liquidity increase and the influx of institutional funds will continue to drive the market, with promising prospects.

Investment Advice: It is crucial to select promising sectors and early-stage projects, and to focus and invest cautiously.

In short, you are not optimistic enough.

After the large-scale deleveraging, the market is about to start

First, let’s review the current market situation. The expected approval of BTC ETF in the fourth quarter of 2023 has triggered a wave of enthusiasm, marking the beginning of this cycle. In the first half of 2024, the market attracted approximately $15 billion in new capital inflows. In particular, the release of the ETH ETF on May 23 led to a surge of over 30% in price, although there has been a pullback in recent weeks, this is just a normal fluctuation within the cycle and there is no need to worry too much.

At the same time, we also experienced a large-scale deleveraging event. At the end of the second quarter, nearly $1 billion in assets were liquidated over a weekend. Although this may seem somewhat frightening, it actually helps the market to rid itself of the burden of excessive leverage, making it more healthy and stable.

Key Indicator: MVRV

Let’s take a look at a very important market indicator - MVRV, which is the ratio of market value to realized value. This ratio is an important reference for judging whether the market is overvalued or undervalued, and it is also the most reliable indicator for suggesting BTC oversold or oversold situations. Currently, BTC’s MVRV ratio is 1.5, indicating that the market is relatively undervalued.

As a large amount of leverage in the market is cleared, the current low MVRV value implies that there is further potential for rise in the market. Historical data shows that when the ratio exceeds 4, it is often a signal to sell; and when it is below 1, it is a good time to buy. Therefore, from this perspective, there is still a lot of rise potential for Bitcoin in the future.

Favourable Information Stimulating Global Liquidity

Global Liquidity is an important driver of market cycles. As we all know, the stimulus policies of global Central Banks and governments have a profound impact on the market, especially in the United States. As the world’s largest economy, policy changes in the United States are crucial to the market. Currently, the market expects the Fed to cut interest rates twice this year, while Citibank even predicts up to 8 rate cuts in the next 12 months. This will significantly increase market Liquidity, undoubtedly a Favourable Information for the Cryptocurrency market.

Institution crossbordercap, which focuses on Liquidity, has called for a 20% increase in Liquidity growth rate in the second half of 2024. In addition, the Central Bank of Sweden and Europe has also indicated they will begin to relax monetary policy. Such policy changes will inject more long funds into the market, driving the prices of risk assets to pump.

The Impact of Election Cycles

The impact of the election cycle on the market is equally important. In election years, government spending tends to increase, which is also a positive signal for the market. Especially during the campaign period, the current government usually increases both direct and indirect spending, which often leads to a strong market performance at the beginning of the year, a relatively calm summer, and a rebound in the market in the second half of the year. The election cycle in 2024 will be no exception, and it is expected that the market will perform well in the second half of the year.

Additional Purchasing Power from FTX

We also have additional bullish catalysts, with the expected 12 to 14 billion dollar compensation claims from FTX flowing into the market in October and November 2024. This will inject a large amount of new funds into the cryptocurrency market and further drive up market prices. For investors, this is undoubtedly very favorable information.

Halving「传统」

When it comes to this, we cannot ignore the lessons of the past. Historically, the Cryptocurrency market has often followed a four-year cycle centered around BTC Halving. In the first year after Halving, the market pump rapidly; in the second year, the rise begins to slow down; in the third year, the price generally remains unchanged; in the fourth year, the price will sharply decline. Prices usually peak around 500 days after Halving. If this cycle follows the same pattern this time, the market may peak around October 2025.

If we follow this ‘tradition’, we are still in the early stage of the cycle, and it is expected that the market will remain relatively calm in July and August before the rapid pump in the next 12 months.

Without focusing on the wrong things, how to navigate this Bull Market?

Although we believe that the market will follow the previous cycle pump, there are indeed some subtle differences in this cycle market.

Market Variables Not to Be Overlooked

Impact of Institutional Entry

In this cycle, we have seen some new factors. First, the impact of institutional products is becoming increasingly significant. Since the approval of Bitcoin ETF, the market has attracted over 15 billion US dollars in capital inflows. Moreover, currently only about 25% of US financial advisors can recommend these products to clients, which means there is still a significant rise potential in the future.

After the approval of the Gold ETF, it has seen net inflows for five consecutive years, so we can expect the BTC ETF to continue to attract fund inflows. This will help reduce market volatility and extend the duration of the cycle.

More longToken and bigger hairstyle backlog

Secondly, the number of Tokens available for purchase has increased significantly. In 2021, there were about 400,000 Tokens in the market, but now this number has exceeded 3 million, with an additional 100,000 Tokens being added every day. In addition, there is a large amount of Tokens unlocked from previous issuances. In July alone, Tokens worth $350 million were unlocked. Such an increase in supply will undoubtedly have an impact on the market.

There are still a large number of private projects preparing to go public in the market. These projects are expected to conduct Token generation activities in the autumn. 1000 long-term projects funded in early 2023 and 2024 have not yet issued Tokens, and the total supply is expected to reach billions of dollars. The issuance of these new Tokens may have a significant impact on the market.

Macroeconomic conditions

The macroeconomic conditions in the United States also have a significant impact on the market. Currently, the US unemployment rate remains low, inflation continues to decline, unemployment claims remain flat, and wages are stagnant. These factors provide the Fed with a reason to lower interest rates. It is expected that we will see a drop in interest rates in 2024 and 2025, which will drop the cost of capital for enterprises, drop the Intrerest Rate on consumer debt, and provide longer funding for risk assets.

VC Reserve Fund

In 2021 and 2022, long-focused Cryptocurrency funds with more than $1 billion have successfully raised. These funds usually have a capital deployment timeline of 3-4 years. Due to the influence of FTX, many funds are cautious about investing at the end of 2022 and early 2023. However, the recent market pump has surprised many venture capital firms, leading to a large amount of reserve funds being in a wait-and-see state in this cycle. Many reserve funds will be actively deployed in the first and second quarters of 2024.

Clearer Regulatory Environment

Finally, the changing regulatory environment also has a significant impact on the market. Although the upcoming regulations may be controversial, clear rules can reduce the market’s uncertainty. The EU’s MiCA has been initiated, and the United States also has long-term bills regarding market structure, banking services, and stablecoins. If the Republican Party wins the presidency and the Senate, these bills will be quickly introduced in the first quarter of 2024.

How to view this cycle?

Longer and lower volatility

Overall, we believe that this cycle is likely to be longer and less volatile than previous cycles. Large assets will lead the way, and the substantial reserves of venture capital firms will support a range of new projects, but we still need new net buyers to support longer assets. Although we have gained many buyers through ETF, these buyers are unlikely to be on-chain users supporting the valuation of other Tokens.

The overall market is leading the gains, and the “altcoin season” is no longer there.

We expect large assets to lead the rally in this round of cycles, while the volatility of small-cap assets will be greater. Many top assets may be included in institutional-grade products. Compared to previous cycles, many small or emerging protocols will go to zero as competition for capital intensifies. In this round of cycles, there will be significant differentiation in investment and performance of small-cap protocols.

Choosing and focusing are crucial

During this cycle, asset selection is more important than ever. The previous ‘casting a net to catch fish’ method no longer works. Due to the increase in supply, attention is almost as important as the fundamentals (and even more important in some verticals). Investors should focus on following seed and Series A stage verticals and protocols.