Anatomy of a Bitcoin Bull Market

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March 29,2024

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Throughout its history, Bitcoin has shown signs of cyclical behaviour, including clear "bull" and "bear" market phases.

A combination of strong fundamental causes, such as positive stablecoin inflows and an increase in Total Value Locked (TVL) in DeFi applications, and technical drivers, including spot Bitcoin ETF inflows, appear to be driving the current bull cycle in Bitcoin.

Based on current patterns, cyclical indications for Bitcoin indicate we are currently in the middle of the bull run, or probably around the fifth inning, to use a baseball analogy.

Given the variety of encouraging fundamental events, it seems likely that the bull market will continue to rise. Nonetheless, investors must to exercise caution by keeping an eye on spot Bitcoin ETF flows and macroeconomic factors in order to notice any indications of market changes.

Is this a bull market?

Over the past month, bitcoin prices have risen sharply to break many all-time highs in the United States, swiftly recovering from the 2023 lows. Even earlier, Bitcoin hit fresh all-time highs in over thirty different currency pairs. News organisations have taken notice of this revival and are reporting on Bitcoin's price changes every day. The mainstream's growing interest in cryptocurrencies has historically been indicated by the fact that traditional investment managers have started analysing memecoins in their research notes. However, it doesn't seem to stop there. We have to ask ourselves, as the total market capitalization of cryptocurrencies approaches its all-time high (Exhibit 1), if a new bull market is about to begin.

Exhibit 1: The total value of the cryptocurrency market is getting close to all-time highs.

Let's define what a bull market is first. While defining bull markets precisely can be challenging, one useful method is to think of them as roughly three- to four-year cycles that start at the lowest points in the preceding cycles' price history (Exhibit 2). These cycles are usually characterised by a slow upward trend in pricing, which peaks at cycle highs and is then followed by a stabilisation or mild drop phase.

Exhibit 2: Visualisation of Crypto Bull Cycles

Recognising the characteristics of a bull market can be difficult. What has pushed us ahead to reach this point? What can we anticipate in terms of sustainability and duration?

The Forerunner: Increasing Dominance of Bitcoin

A spike in Bitcoin's "dominance," or its market value in relation to the entire cryptocurrency market, has historically signalled the start of cryptocurrency bull markets. This pattern highlights the significance of Bitcoin as a leading indicator for the entire cryptocurrency industry. Broader gains across altcoins usually precede a rally in Bitcoin. Encouraged by their Bitcoin earnings, investors can now consider higher-risk cryptocurrencies in an attempt to increase their returns. This dynamic was evident in the 2021–2022 bull run, when the gains made by Bitcoin were quickly followed by a notable increase in the prices of altcoins (Exhibit 3).

Exhibit 3: Gains in Bitcoin typically come before gains in altcoins

The traditional pattern of Bitcoin's growing dominance opening the door for altcoin rallies is evident in the current cyclethis cycle's distinctive catalysts are what set it apart. As we've previously discussed, significant factors like spot Bitcoin ETF inflows and improved onchain liquidity not only support the strength of the current bull market but also indicate a shift from the conventional dynamics seen in earlier cycles.

First Catalyst: Identify Bitcoin ETF Flows

The first significant distinction between this bull market and others is the quick shift in favourable market dynamics, which has been greatly impacted by inflows into Bitcoin ETFs. As of mid-March, these inflows had routinely surpassed Bitcoin issuance by a factor of more than three, following the ETF approvals in January. This has caused price pressure to increase (Exhibit 4).

The End

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