Historical patterns in cryptocurrency markets suggest that certain on-chain data can indicate the stage of investor sentiment and market trends. Today, we discuss three signals that imply the start of a crypto bull season. Past bull markets have initiated with these indicators, and on-chain analysis provides clearer long-term results. For instance, a recent $5 billion sell-off on January 12th was anticipated by an investor profitability reaching 95%, signaling an impending price correction.
The on-chain value map for Bitcoin (BTC) was developed by the analyst therationalroot, combining three key on-chain indicators: realized capitalization, liquid supply, and destroyed coin volume. This model aims to identify the market’s bottom and peak prices. The value map displays four different colors, with the middle line indicating neither overvalued nor undervalued conditions. Currently, BTC’s price has returned to fair value and shows an upward trend, suggesting it may soon become overvalued.
Realized market capitalization prices different portions of the supply at varying prices based on the last movement price of each UTXO, rather than using the current daily closing price. This metric is used for long-term cycle detection and aligns with the first chart’s conclusion. The recent bear market has caused a slight decline in realized capitalization, following a few years of sideways trend.
Data shared by Glassnode illustrates how bull markets develop when long-term investors start selling to short-term traders. The chart shows blue lines for long-term holders and red for short-term traders. During bear markets, long-term investors accumulate and eventually sell their profitable assets, fueling the bull market peak with new investors.
The chart will mature as short-term traders accumulate more. The role of ETFs should also be considered, as a significant number of new investors may enter the BTC market through ETFs in the new cycle.