Crypto Market Direction: Navigating The Transition To Next Bull Market

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Peter Habermacher, CEO of London-based cryptoassets and DLT investment specialist Aaro Capital, believes we’re currently in a transition period out of a bear market to an early-stage bull market, based on the analysis of previous crypto market cycles.

The crypto market’s roller-coaster journey in recent years has drawn significant attention, from record-breaking highs to sharp retractions. As the crypto market continues to evolve, addressing these volatility issues and implementing robust risk management strategies will be imperative to establish stability and sustainable growth in the future.

Delving into the historical patterns of crypto market cycles and examining where we are now can help investors understand where the crypto market might be heading in the coming months and what key drivers could shape its trajectory.

Understanding Crypto Market Cycles

The crypto market has historically followed a 4-year market cycle relatively closely, with exuberant and parabolic market peaks followed by severe and painful bear markets. These market cycles have roughly followed Bitcoin’s so-called halving events, which halve the rate of new Bitcoin supply.

We are currently approaching the end of another crypto market cycle, with the next Bitcoin halving expected in April/May 2024. Throughout history, crypto bull markets have typically commenced more than a year before the halving event. This anticipation might be driven by the expectation of lower future supply and the completion of the washout from the previous market cycle.

Bitcoin tends to recover first from bear markets by increasing its market dominance. It also tends to lag the market in the later stages of a bull market. With this in mind, Bitcoin’s dominance is showing signs of increasing again, similar to previous transitions out of bear markets and into the next bull market.

Where We Are Now

One of the data sources that might shed some light on where we are in the market cycle is blockchain data. It provides the ability to recognise patterns and behaviours of the users of the blockchain via their transactional data, known as on-chain data.

Overall, the data is consistent with previous crypto market cycles. If the crypto market evolves in a similar way as previous market cycles, we can have increasing confidence that we are in the transition phase out of the 2022 bear market and into the next crypto bull market.

Bitcoin on-chain metrics, which have been relatively successful in identifying market bottoms in the past, essentially bottomed out by the end of last year. This indicates that a market bottom has likely been established, notwithstanding a black swan event.

Another way of accessing market health is technical analysis, which attempts to understand at which prices the market is willing to buy and sell. These again point towards greener pastures ahead with a clear change in the behaviour of market participants exhibiting early bull market behaviour.

Looking Ahead: Transitioning to the Next Bull Market

If the current data trends continue, it would be consistent with the transition period out of a bear market and into the next bull market in the form of a slow grind in market activity, both on-chain and on exchanges, typically with spurts of high price action.

Currently, there is a Bitcoin and Ethereum supply squeeze underway, which squeezes the price upwards out of the depths of the bear market and creates the early bull market conditions of upward price movement amongst investor disbelief. Once enough price momentum is formed, investors start reentering the market and the bull market gets into full swing.

Outlook: Key Drivers to Watch

Overall, the analysis of cryptoassets market data, in particular the Bitcoin ecosystem data, is consistent with the market currently experiencing a transition period out of a bear market and an impending bull market.

If the crypto market were to follow a similar path to past crypto market cycles, we would expect market activity to continue being muted, with Bitcoin leading the market into a full-fledged early-stage bull market later this year and early next year. This is then followed by altcoins experiencing an increase in investor inflows and activity on-chain as the bull market matures.

There are possible short-term headwinds around crypto finance service provider issues and bottlenecks, as well as US regulatory actions, which may temporarily dampen market development.

Nonetheless, we expect the rest of 2023 and 2024 to see substantial positive price momentum, supported by positive market developments with a continuation of recent institutional involvement and adoption of crypto. We expect to see a continuation of the positive regulatory developments globally based on international body frameworks and the eventual supportive crypto regulatory framework in the US.