Update #52

Is the Cycle Top In?

Welcome to Capriole’s Newsletter Update #52. A consolidation of the most important Bitcoin news, technicals and fundamentals.

A month ago we had a technical breakout of $65.5K monthly resistance and strong on-chain fundamentals. It looked very positive. But things turned sour quickly. Days later we saw a $70K breakout turn into a fakeout. At the same time, Capriole’s Bitcoin Macro Index turned negative at $67.5K. Summer month downward pressure kicked in and so far the “Sell in May” proverb is standing the test of time. We’ve just had our second retest of $58K.

Never before has Bitcoin broken a new all-time high and had two retests instead of printing new highs. There is a chance this is a function of size, and more time in consolidation at these highs is required before a breakout. Nonetheless, this is still a sign of weakness, as usually Bitcoin would not look back.

So what is going on?

This issue, we will revisit the Bitcoin Top-Signals thread I published a in April 2024, and see if that can share some insights. I will compare each chart using the same method from then, to the data today, scoring each as bullish/bearish/neutral.

Brace yourself, it’s about to get bumpy…

Chart 1. Supply Delta + 90 Day CDD

These two metrics are great at identifying cycle tops. After they go vertical, watch for a rounded top in both metrics.

On the left is the chart I shared in the thread back in April, the right is how it looks today. After going vertical in April, a rounded top has printed locally on both metrics.

Score: Bearish

Watch it here: https://studio.glassnode.com/workbench/d411d52a-2d1d-4bb7-48c7-e76b49bfd203

Chart 2. Long-term Holder Inflation Rate

In April I wrote: “At 0.5 today, we still have quite a bit of room until the 2.0 threshold hits which typically marks a high likelihood of the cycle top being in.”

At 1.9 today, we are too close to that level for my liking.

Score: Bearish

Watch it here: https://studio.glassnode.com/workbench/cded3cea-ee51-4689-4635-0b2995483297

Chart 3. Hodler Growth Rate

This metric tops when Bitcoin’s diamond hands start selling into profit. That process has already begun. Cycle tops typically occur when HGR hasn’t made a new high in 6-9 months.

We are 6 months in today.

Score: Bearish

Watch it here: https://studio.glassnode.com/workbench/cdd5b4a1-9931-443b-63d4-9ce7e4bb8b46

Chart 4. Bitcoin Heater

Extended periods of extreme funding/basis/options readings were a good warning sign last cycle.

Today, we are smack bang in the neutral zone. Nothing to write home about here.

Side note: We also have not seen any real new leverage enter the market this cycle. Check out the “Bitcoin OI / Market Cap” chart at the link below too. Both of these charts tell me there simply has not been the exuberance you would expect for a major market top to be in.

Score: Neutral

Watch it here: http://Capriole.com/Charts

Chart 5. Dynamic Range NVT

Assesses the relative value of the network by comparing onchain transaction to Market cap. The good news: this metric is coming out of the value zone. A result of increased onchain transactions from Ordinals and Runes.

Score: Neutral

Watch it here: http://Capriole.com/Charts

Chart 6. On-chain Transaction Fees

Periods of high transaction fees suggest a spike in demand. When the period of elevated fees then collapses back down for a period of time, it’s almost always just after the market peak.

In April I wrote: “The current fee decline today is not desirable. Worth monitoring closely.”

The situation today is quite similar. The trend definitely looks concerning, but some recent significant spikes suggest it’s probably best to check back here in 2-3 months and see how we are faring in Autumn.

Score: Neutral

Watch it here: https://studio.glassnode.com/metrics?a=BTC&category=&m=fees.VolumeMean

Chart 7. Net Unrealized PnL (NUPL)

NUPL in the “Euphoria” zone (more than 75% of participants in profit) is a classic marker for froth and a zone for increased caution.

We are (still) not there yet… but we did hit 74%. I would argue not enough for a top but also too close for comfort.

Score: Neutral

Watch it here: https://studio.glassnode.com/metrics?a=BTC&category=&ema=0&m=indicators.NuplMore155AccountBased&mAvg=7&mMedian=0

Chart 8. Spent Volume 7-10yr

Whales typically unload around cycle tops. You can see growing clusters and spikes in Spent Volume to help guide areas of growing risk. Note the one false signal here when the FTX fraud was exposed. Also note, growing spent volume in 2024 suggests this cycle is progressing fast.

This chart is a banger this issue. The entire left hand side chart has disappeared in the updated chart today. An enormous amount of coins were moved on chain on 28 May, more than 10X more than the previous all time high, rendering all of Bitcoins onchain history as seemingly puny. 138K Bitcoin were moved. $9,000,000,000. But by who?

Mt. Gox.

It looks like those distributions really are coming.

Score: Bearish

Watch it here: https://studio.glassnode.com/metrics?a=BTC&category=&m=indicators.Svl7Y10Y

Image

Chart 9. SLRV Ribbons

When SLRV Ribbons reaches an elevated point, and the slow moving average (red line) creates a rounded top, we have a bearish crossover, and you get the below four risk signals.

SLRV hasn’t yet gotten very elevated this cycle, and the slow moving average is still trending up suggesting the top may not be in. Nonetheless, As of May, it is in a bearish trend for the first time in 2024.

Score: Bearish

Watch it here: https://studio.glassnode.com/workbench/btc-slrv-ribbons

Chart 10. Dormancy Flow

In April I wrote: “Quite concerning today, Dormancy Flow has peaked significantly suggesting the average age of coins spent is significantly higher in 2024. Peaks in this metric (z-scored) typically see cycle tops just 3 months later.”

Well it’s now 3 months later. Price has only gone down and the Dormancy Z-Score peak remains in with a structure very comparable to the 2017 and 2021 tops.

Score: Bearish

Watch it here: https://studio.glassnode.com/workbench/44de4303-7adb-4527-5de0-f71cbaa7eff7

Chart 11. Percent Addresses in Profit

A more simple version of NUPL. There’s no fixed rule here, but the longer we have over 95% of addresses in profit, the more likely a cycle top is in. With price at new all time highs over the last month, this process has started. When this metric starts to drop down sharply, from 95%+, that’s the time to be concerned.

The chart speaks for itself.

Score: Bearish

Watch it here: https://studio.glassnode.com/metrics?a=BTC&category=&m=addresses.ProfitRelative

Chart 12. Mayer Multiple

Mayer Multiple readings over 2.5 have marked all the major Bitcoin cycle tops through history. Any reading above 2.0 brings growing risk of a cycle top. We peaked at 1.9 in March, and at 1.0 today, I tend to believe the top is not in on this classic metric.

Score: Neutral

Watch it here: https://tradingview.com/chart/VEriuguD/

Chart 13. US Liquidity

Liquidity drives markets. There’s a very strong correlation with this chart and Bitcoin’s price history. Up is good for Bitcoin, down is bad.

In April I wrote: “In the last two weeks we have possible signs of a (local) top. If this downtrend persists, that would be concerning.”

The downtrend did persist, and we have had negative liquidity growth for the last two months.

Score: Bearish

Watch it here: http://Capriole.com/Charts

Tally

It’s hard to sugar coat this. Just looking at the metrics in the Top Signals thread, we have a confluence for the cycle top being in with 62% of metrics being Bearish today:

  • Bearish: 8
  • Neutral: 5

Technicals

While the on-chain picture looks bleak, it’s important to note that the technicals are more mixed. We are still dancing above $58K support. As long as that holds, it’s technically bullish. We also have a possible Wyckoff Accumulation forming on the Daily timeframe. If the “top signals” data looked more neutral, I would find this an incredibly bullish setup. And it may still be, but we do not have confluence today and that means higher risk. Things could change quickly, in particular I will be looking to the Bitcoin Macro Index to start trending positively or for a Hash Ribbon Buy signal to fire to give renewed weight to the bull-case.

Monthly Support is intact and it’s usually unwise to get bearish at Support.

The Bottom Line

I won’t lie, I find this on-chain data hard to believe. I am surprised by the count of Bearish signals for being just two months post halving. While many of the 13 signals suggest the top is in, most also have not gone anywhere close to the level of extremity we saw in 2021 (though in 2021, this was also the case with reference to 2017).

It’s important to read this issue in context. Fundamentals look bearish, but technicals are still bullishly skewed. That leaves ambiguity here. All of the bearish Top Signals could be the result of typical summer months inactivity. Or perhaps this cycle will be a bit more like 2013 with a double top, or some hybrid mid-cycle grind that we must go through now given we are playing in the big league with the TradFi today.

As Bitcoin gets bigger, we shouldn’t expect the same level of extremities and signal clarity as past cycles. Flows are very different now with ETFs and it takes a lot more capital to move the needle as we enter the multi-trillions.

My gut tells me this is just an exceptionally bad summer period for Bitcoin on-chain activity, and we will see what is usually the best 12 month window for Bitcoin risk-adjusted returns post-Halving resume in Q4 and beyond.

I don’t think these Top signals should be ignored. Risk management in this region is justified. That said, a Daily (and better Weekly) price close below $58K (with all else equal) would certainly add technical confirmation and significant weight to a short-side case.

Until then, it doesn’t look great, but things could still restore onchain after the summer months.

Charles Edwards

The Capriole Fund

The Capriole Fund has one goal: outperform Bitcoin.

We are open to professional investors, but the fund has limited spaces.

Share the Post:

2 Responses

  1. from the last 2 cycles experience and subscribed multiple onchain data source and news letters. My conclusion? Using unchain is not very useful and accurate than TA. And when I am talking to TA, its not you and other “retail trader” level of TA, which is just drawing couple of lines and using RSI, MACD…. I am not using any indicators, just pure price action and doing fairly well.

  2. Amazing as always Charles, Congrats.

    I always learn so much from you. I also have my own on chain and classical t.a analysis , which even though are far from being as sophisticated as yours , it’s been signaling bearish and since yours are as well, I felt encouraged to share them here.

    I’ve been able to identify retracement bottoms since 2019 fairly successfully, by “retracement bottoms” I mean pullbacks , and this time around I’m stuck at 40s, which oddly enough is somewhere around power law corridor stands..

    Oh well, let’s see how it will play out , and if my rudimentary pullback signaling will actually fulfill in its 40s ..

    Once again, thanks for your insights and takes.

Leave a Reply

Your email address will not be published. Required fields are marked *

Disclaimer

The information contained here is provided to you solely for informational purposes only. Opinions and projections included are provided as of the date of publication, may prove to be inaccurate, and are subject to change without notice. This information does not constitute an offering. Prospective investors should not treat these materials as advice regarding legal, tax, or investment matters. No recommendations are made to invest in Capriole Investments Limited nor any other investment. An offering may be made only by delivery of a confidential offering memorandum to appropriate investors. Past performance is no guarantee of future results. Investing in digital assets in general involves risk. Digital asset risks include, but are not limited to, exchange risk, legal risk, hacking risk, market risk, liquidity risk, trading risk and default risk. As with any investment, investing in digital assets could result in loss of investment. Additional digital asset risks are outlined at www.capriole.com/legal. Decisions or actions based on the information provided are at the reader’s own account and risk.

Related Posts

Update #54

Don't trust on-chain data. A lot of metrics have been manipulated in...

Charles Edwards

Update #53

Bitcoin is under pressure. But the most comparable asset to Bitcoin, at...

Charles Edwards

Update #52

Is the cycle top in? This issue, we will revisit the Bitcoin...

Charles Edwards

Update #51

Hash Ribbons is back. Perhaps the best long-term Bitcoin buy signal there...

Charles Edwards

Update #50

Is Bitcoin's longest winning streak finally coming to an end?...

Charles Edwards

Update #49

A dive on the forth Bitcoin Halving, Runes, Onchain valuations and macroeconomic...

Charles Edwards

Update #48

Welcome to Bitcoin price discovery, it's been a long time coming. With...

Charles Edwards

Update #47

The era of deep value is over. Bitcoin is fairly valued for...

Charles Edwards

Update #46

With the big Fidelity news, Bitcoin is finally being acknowledged in traditional...

Charles Edwards

Update #45

The brand names of these two behemoths in the traditional asset space...

Charles Edwards

Update #44

Today's Bitcoin ETF launch was the most successful launch in history and...

Charles Edwards

Update #43

ETF fever is coming to a head with approvals expected within the...

Charles Edwards

Update #42

Two major and positive events just unfolded in the Bitcoin space. According...

Charles Edwards

Update #41

Bitcoin is heating up, in both opportunity and across derivatives markets. And...

Charles Edwards

Issue #40

A new major trend has formed. We now have the biggest asset...

Charles Edwards

Issue #39

We have historically rare risk-asset signals appearing, amidst a period of Bitcoin's...

Charles Edwards

Issue #38

The last week has seen the biggest improvements across Bitcoin technicals and...

Charles Edwards

Issue #37

Bitcoin is pricing as a better-and-better inflation hedge. It is rapidly skewing...

Charles Edwards

Issue #36

The Fed is Building a War Chest. A macroeconomic deep dive to...

Charles Edwards

Issue #35

We are seeing some promising and rare structures form on Bitcoin which...

Charles Edwards

Issue #34

All else equal, Bitcoin is like a beach ball submerged underwater. Nonetheless,...

Charles Edwards

Issue #33

Last update technicals and fundamentals told us to be cautious with Bitcoin....

Charles Edwards

The Three Factor Model

90% of the S&P500 returns over the last half century can be...

Charles Edwards

Issue #32

Welcome to Capriole’s micro update #1. Where we consolidate the most important...

Charles Edwards

Issue #31

At $29K, Bitcoin’s on-chain fundamentals are not too hot and not too...

Charles Edwards

Issue #30

The failures of the Federal Reserve in managing the value of money...

Charles Edwards

Issue #29

This newsletter explores a taboo topic. The idea of the impossible, a...

Charles Edwards

Issue #28

Bitcoin’s deep value is slipping away and in its place a new...

Charles Edwards

Issue #27

We believe the 2020s will be the decade of hard money, much...

Charles Edwards

Why markets are not as overvalued as you might think.

Charles Edwards

Issue #26

The crypto world was shaken to the core in November as top...

Charles Edwards

Bitcoin Miner Sell Pressure

Charles Edwards

The Bitcoin Yardstick

Charles Edwards

Issue #25

We crack open the rarest of Bitcoin value metric readings you can...

Charles Edwards

Everything you need to know about yield curves

Charles Edwards

Issue #24

This month we deep dive into the macro and make the case...

Charles Edwards

SLRV Ribbons

Charles Edwards

Issue #23

Fear struck the market again with a blunt Fed speech. The broader...

Charles Edwards

Issue #22

This issue we deep dive into the many Bitcoin and macro metrics...

Charles Edwards

Issue #21

Today, we now find ourselves in a special juncture in the crypto...

Charles Edwards

The Digital Asset Thesis

Charles Edwards

The Capriole Macro Index

Charles Edwards

Issue #20

The S&P500 and Bitcoin showcased a strong recovery recently and today both...

Charles Edwards

Issue #19

Traditional markets have been taking a beating. Our February Newsletter and analysis...

Charles Edwards

Issue #18

The first quarter of 2022 is coming to a close. War in...

Ryan McCoy

Issue #17

For the past few months, Bitcoin has been driven by macro events...

Yassine Zrigui

Issue #16

Last month was mostly dominated by macro news much like December, namely...

Mick Herfkens

Capriole’s 2022 Market Outlook

A year ago, we published our “Christmas Special” newsletter. We wrote the...

Charles Edwards

Issue #15

If you have been around the cryptospace long enough, you have probably...

Ryan McCoy

Issue #14

Bitcoin started the month of November strong with a new all time...

Mick Herfkens

Issue #13

Bitcoin is up over 30% to date in October, reaching as high...

Charles Edwards

A Simple Metric to Identify Bitcoin Tops

Charles Edwards

Issue #12

Last issue, at $47K we noted some concerning metrics, but noted the...

Charles Edwards

Issue #11

Last issue we noted the improving fundamentals for Bitcoin...

Charles Edwards

Issue #10

Last issue we reviewed the China’s crypto exodus and argued why we...

Charles Edwards

Issue #9

These are unprecedented times. The Bitcoin network has just experienced the biggest...

Charles Edwards

Issue #8

Bitcoin is trading at more than 40% below the all-time high for...

Jan Uytenhout

Issue #7

Every month we write a short update on the market. We try...

Charles Edwards

Issue #6

Every month we write a short update on the market. Last issue,...

Jan Uytenhout

Issue #5

Every month we write a short update on the market. We try...

Charles Edwards

Issue #4

Every month we write a short update on the market. We try...

Jan Uytenhout

Issue #3

Every month we write a short update on the market. We try...

Charles Edwards

Issue #2

We try to release our newsletters when we see key opportunities. Today...

Jan Uytenhout

What is Money?

Charles Edwards

Issue #1

This newsletter provides our airplane view of the Bitcoin market. It summarises...

Charles Edwards

The Energy Standard

Charles Edwards

Bitcoin Energy-Value Equivalence

Charles Edwards

Bitcoin’s Production Cost

Charles Edwards

Hash Ribbons & Bitcoin Bottoms

Charles Edwards

Metcalfe’s Law Says Bitcoin is Overvalued

Charles Edwards

Bitcoin Valuation using Dynamic Range NVT Signal

Charles Edwards

The Next Resession

Charles Edwards

Bitcoin Bottom Fishing with Miner Capitulation

Charles Edwards