The Dish is Ready: BTC Accumulation Structure Has Been Ready for a Bull Market

Liquid Fund Metrics Ventures October Market Report Summary:

1/ The Bitcoin market has already met the prerequisites for starting a bull market, with a high proportion of long-term holders and a healthy accumulation structure.

2/ However, it is important to note that we still do not anticipate an immediate bull market. This round of surge is primarily driven by leveraged positions, but a true bull market is still awaiting new capital inflows. The overheated market will inevitably experience a retracement. Once the leveraged position is liquidated and the holding cost falls back to the WMA120, it remains an excellent opportunity to establish positions.

3/ The macro environment is favorable for the crypto market. The trends of the US dollar index, unemployment rate, and US bond yields indicate that the macro environment will be more conducive to the crypto market. At this moment, our focus will be on identifying potential targets that could become new trends, observing the speed of incremental capital entering the market.

This report provides an overview and analysis by Metrics Ventures of the overall performance and market trends in the cryptocurrency market in October.

A real surge triggered by fake news has allowed Bitcoin to break through the bull-bear line.

Things started going strange from October 17th. After the fake news about the ETF approval was debunked and deleted, surprisingly, the price of Bitcoin remained stable without a drop.

Commonly, the surge brought about by false news is usually engulfed entirely by the selling pressure of trapped traders and the stop-loss of chasing traders after the debunking, even leading to new lows. However, the price of Bitcoin remained stable for the next three days, implying that some investors disregarded the ETF news and started entering the market steadfastly.

For the long-term trend of Bitcoin, we generally refer to the weekly MA120 as the bull-bear line. When Bitcoin rises above the weekly MA120 for the first time after completing the drop from the previous bear market cycle, it can be considered that the bear market cycle is coming to an end. Similar time points can be referenced, such as December 2015, April 2019, and April 2020. When the Bitcoin price breaks through the WMA120, there will be a significant surge, even considered as the starting point of a new bull market.

The logic behind still relies on Bitcoin's accumulation distribution. In our previous reports, we repeatedly emphasized the necessary conditions for the start of a new bull market cycle, which is that the costs of long and short-term holders in the market must become closer. This way, after the bull market starts, there will be no selling pressure from historical trapped positions, only selling pressure from profit-taking positions, which can be absorbed by new inflows.

The significance of WMA120 in terms of accumulations can be approximately viewed as the comprehensive cost of long-term holders. Currently, the price of WMA120 is around $32,000, and at the time of writing this article, the market price is around $33,700. We believe that the current accumulation structure of Bitcoin has already met the prerequisites for starting a bull market.

From Glassnode's data, we can observe that currently, long-term holders who have held for 155 days or more account for over 76% of the total, indicating a stable lock-up of long-term accumulations. On the other hand, short-term holders with a holding period of less than 155 days mainly have cost in the range of $29,000 to $30,000. More than 86% is profiting currently.

Although this data is constantly changing, the accumulation distribution of Bitcoin has already indicated that long-term investors hold a high proportion of positions, with a firm willingness to hold, mainly at a cost level around the WMA120 of $32,000, currently in a state of unrealized profits (Microstrategy's weighted average cost is also in a state of unrealized profits, which is not easy). Short-term investors hold a small proportion with the cost below $30,000, and are currently also in a state of unrealized profits. The current accumulation structure implies that the protracted bear market's cycle of cutting losses and turnover can be declared over. The market has already completed the transition from cutting losses to establishing positions. The subsequent market trend will largely depend on the willingness and speed of new capital entering the market. The new crypto cycle from 2025 to 2026 can consider this month as a starting point.

The accumulation structure of ETH is not as healthy as that of BTC. The cost for short to medium-term investors in ETH is around $1,770, with the current market price at $1,788, just barely in the profiting zone. On the other hand, the cost concentration area for long-term ETH investors is around $2,200. Currently, long-term ETH holders are still at loss, imposing significant selling pressure. This is also the fundamental reason why the ETH/BTC exchange rate is still at bottom.

Many people feel that the market is moving too quickly this time. In reality, this round of surge is still driven by leveraged funds and an oversold rebound within the market. From Coinglass's data on the overall BTC futures open interest, it can be observed that even on the day of the surge due to the false news on October 16th, the total BTC OI remained very low, at around 11.67 billion. Furthermore, the short-long ratio is relatively high, with a slightly negative funding rate.

However, once the BTC price stabilized at $30,000, leveraged positions surged rapidly, and within just two days, the BTC OI surpassed the annual high, reaching a level of 14.97 billion. The funding rate also reached its peak for the year, showing an extremely high enthusiasm for longing.

More insterestingly, as of the writing of this article, Binance's BTC OI was approximately 3.7 billion, still below the August high of 4.54 billion. However, the main force behind the increase in leveraged positions this round, CME, saw its OI rise from the August peak of 2.33 billion to the recent 3.58 billion. BitMex's OI also rose from its August peak of 261 million to 300 million. Bitmex's funding rate and premium have both reached the levels seen in October 2021 when BTC was around $60,000. This round of enthusiasm from U.S. investors is evident.

In fact, in terms of the market sentiment, some intriguing changes also emerged in October. We still remember in early October, there were suddenly many arguments about "crypto is dead" and "halving doesn't guarantee a bull market." All of this is so similar to the deep bearish sentiment at the end of 2019, which also prompted us to firmly start buying.

For ETH and Altcoins, ETH's performance still lags behind BTC at present. As for Altcoins, the current rebound seems to be purely driven by oversold conditions, with no particularly dominant themes or narratives in the market. Apart from some projects taking advantage of the situation to announce favorable news such as tokenomic transformations or changes in the fee model, the most significant rebounds are still observed in the oversold varieties that experienced significant declines earlier and generally hit new lows relative to November 2022. For crypto funds, these oversold rebound varieties may appear to have a significant increase, but their actual liquidity remains weak, leading to relatively low value for trading.

For the market that first broke through the WMA120 at the end of the bear market, after the first breakthrough in December 2015, there was a continuous five-month oscillation before the start of the one-way uptrend. After the first breakthrough in April 2019, it experienced two subsequent downturns in December 2019 and April 2020 before the one-way trend began.

From the perspective of accumulation distribution, BTC's breakthrough of WMA120 is a sign of the completion of the turnover, but there is still a certain time window before the real bull market starts. The significance of this period is to allow the market accumulations to settle and turnover around WMA120, and at the same time, wait for new capital entering the market.

As for when and why new capital will come in, it still requires innovations to appear in the industry or in some specific tracks, and it is difficult to obtain an answer from trading alone. The timing of the halving may be a relatively meaningful anchor. If there is still an opportunity for a pullback or a break below WMA120 before the halving arrives, it will still be a very promising opportunity to add positions.

If the most common asked question at the beginning of October was "Will it rise?" recently, the most common question we have faced is "Will it fall?" We believe that the market certainly still has the potential for decline. Compared to the Echo Bubble from January to August 2019, I believe that the position of the current cycle is closer to January and February 2020.

The reason for this conclusion is that the period from January to August 2019 is actually comparable in position to the period from January to August this year. Both represent the Echo Bubble following the completion of deleveraging and massive liquidation at the low point of the bear market, essentially a large-scale short-covering. The reason why there was so much room for rebound in January to August 2019 was that many institutional investors were in a bearish mindset and heavily shorted at the BTC 6000-7000 range, providing fuel for the uptrend. Many investors who experienced 2019 should have a deep impression of this. Most of the money made from the rebound at the beginning of the year was lost from shorting after June.

After the release of bullish sentiment in August 2019, the market entered a four-month retracement. This stage is similar in nature to the period from June to October 2023, both being stages of natural turnover of accumulations after the completion of short-covering. It's just that because the rebound at the beginning of 2023 was relatively small, the correction also seemed less severe.

The reason why we believe that the current situation is more similar to that in January 2020 is, first, we have already gone through the process of short-covering and accumulation turnover. Second, the last remaining shorts in the market have surrendered and closed positions below $33,000, with relatively low willingness and momentum for shorting. The halving next year is imminent, and the race funds have started to act. Institutional investors currently have generally low positions and still have room for further positions, making the market more consistent with the characteristics of January 2020.

Since the market has been positioned in the January to February of 2020, many people may subconsciously wonder if there will be a "3-12" tragedy next. First, from the perspective of accumulation structure, BTC has entered a new trading range of $32,000 to $41,000. According to the current yet unaccelerated momentum, there is still a possibility of a push towards the $40,000 level. ETH also has the potential to accelerate towards the WMA120, which is around $2,200.

However, we still believe that there will not be an immediate bull market trend, as the surge is still driven by funds already in the market and leveraged positions, without data supporting the entry of new funds into the market. Moreover, the OI and the Fear and Greed Index are both in a high level, along with Bitmex's funding rate and premium being within the range of the 2021 bull market, suggesting that the overheating market will undoubtedly lead to a liquidation of leverage. Once the market accelerates, there is still a significant chance that we might see a large-scale deleveraging-driven downturn. When the leverage liquidating is completed and we observe a decline in OI and funding rate, and the BTC price returns to the long-term cost average, it will still be an excellent opportunity to add positions.

As for when this downturn will come, we also do not want to make hasty predictions. In June-August 2019, the funding rates and premiums climbed continuously for two months, with sentiments even more overheated than during the bull market. Those who continued to short suffered significant losses. Even as the market enters a phase of accelerated upward movement, we still have a sufficient time window for reflection and decision-making.

We believe that starting from November, the accumulation structure of BTC has been preparing for the bull market. Before next year's halving, it is expected to continue to experience frequent oscillation to solidify the cost of long-term positions. As for ETH, it still needs to wait for a breakthrough of WMA120. Whether it falls or not, whether it crashes or not, when leverage will be liquidated, these are not the core contradictions. The core contradiction lies in how to buy smartly. At this moment, our focus will be on identifying potential targets that could become emerging trends, observing the speed of incremental capital entering the market.

In addition to the structure inherent to the cryptocurrency market, we have also observed recent positive news in the macro environment. The higher-than-expected unemployment rate, the tendency to approach the peak of U.S. bond yields, and the peak of the U.S. dollar index, all point to a macro environment that is more favorable to the crypto market. However, we believe that these are not crucial. Many investors were reluctant to buy the dip in October, fearing that the decline in the equity market would affect the risk appetite in the crypto market. Nevertheless, the crypto market has already significantly decoupled from the equity market. We should look forward to what innovations the builders in the crypto market will present to us, and which ones will become the entry points for new capital, thus ushering in a new cycle of crypto bull market.

The dishes are ready, and we just need to wait for them to be served.

In summary, Bitcoin breaking through the bull-bear line marks the end of the bear market. Both long-term and short-term holders have already made profits, and market sentiment has shifted from pessimism to exuberance. The market trend is mainly driven by leveraged positions, but the real bull market still awaits the entry of new capital. The key is to patiently accumulate leading assets and await the clarion call of the new bull market sounded by incremental funds.