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Has a New Crypto Bull Market Arrived?

Bitcoin’s recent price surge may have some industry pundits adamant that a new cryptocurrency bull market, to rival the likes of 2021, has arrived - Nonetheless, the crypto community should stay aware of the fact that things are rarely as they seem in the blockchain world…

Following what feels like the coldest period in crypto history to date, in the wake of FTX’s collapse in November 2022, Bitcoin’s surge from as low as ~$28,000 to YTD highs of ~$35,000, in less than a week, might have the crypto community desperate to believe a new bull market, to rival the lofty heights of 2021, has begun.

But is this belief misguided, and is there yet more capital about to be shed from the cryptocurrency markets? 

Whilst predicting the cryptocurrency markets is an altogether impossible feat, regardless of who you are, there are some factors that are certainly worth examining in light of recent jumps to the upside…

Bitcoin Ain’t Everything…

The first thing to mention is that, when the price of BTC rose to tickle the $35,000 mark, in the early hours of October 24, it constituted the highest price that Bitcoin had seen since early May of 2022, around the time of Terra/LUNA’s dramatic death spiral.

One could therefore say that the cryptocurrency market has recovered from the two most negative shocks to have occurred in this bear market: LUNA’s death spiral and the collapse of FTX. 

However, much to the frustration of many Bitcoin-maxis, BTC itself does not constitute the entire cryptocurrency market. Whilst Bitcoin may have briefly recovered to pre-LUNA levels, the same cannot necessarily be said for all of crypto.

According to CoinMarketCap, the current market capitalization of the entire cryptocurrency industry is around $1.25 trillion. However, shortly before the Terra/LUNA saga debacle, the market cap of the industry was closer to $1.74 trillion. 

The market capitalization of cryptocurrency. Source: CoinMarketCap

The deficit of nearly half a trillion dollars may imply the fact that full recovery by the industry as a whole is not yet complete.

This skeptical thesis is complimented by a rise in Bitcoin dominance throughout the last 12-18 months. At time of writing, Bitcoin accounts for nearly 53% of the cryptocurrency industry, with a market capitalization of ~$668 billion.

This dominance has been rising since November 2022, with investors apparently seeking to prioritize fundamental soundness over potential profitability. 

Bitcoin dominance over time. Source: CoinMarketCap

The above data serves only to remind us that Bitcoin is no longer representative of the success of the entire cryptocurrency industry, as perhaps it was prior to 2017. 

That said, an optimist in the industry might be tempted to point out that historical bull markets have begun with growth in BTC dominance and price, only to be followed by consolidation into non-Bitcoin assets in an attempt to procure larger margins of profit on assets with lower market capitalization…

Institutions Taking Profit…

Whilst countless retail investors have no doubt found themselves with positive PNL following yesterday’s market-wide price pump, the same is true of large scale institutions.

One such example is the Michael Saylor-directed MicroStrategy, which, according to a report from @lookonchain, finds itself some $746 million in profit after recent movements.

MicroStrategy holds some $5.6 billion in Bitcoin (BTC) with an average buying price of $25,707 since May of last year. 

Analysis of MicroStrategy’s Bitcoin holdings. Source: X/Twitter

MicroStrategy’s long-term bullish stance on Bitcoin itself has been made clear to the public for some time. Nonetheless, there inevitably reaches a point where a combination of shareholder pressure, investor maturity, and the instinct to take profit, combine and see major institutional investors offload their cryptocurrency holdings.

When such time will come is anyone’s guess but, if/when it does, we could see large scale supply injections of BTC and other major digital assets which, in turn, encourage other investors to follow suit and consequently trigger mass reductions in the value of such assets.

Exchange Outflows

Despite potential cynicism of now-widespread bullish sentiment, stemming from overall market performance and the risk of institutional profit-taking, there remain potential reasons to remain hopeful. One such reason is the volume of exchange outflows over very recent times. 

Though exchange outflows in specific instances may give cause for fear, as in the case of FTX’s collapse, said outflows are often seen as bullish as investors move assets away from centralized platforms to more secure/self-custody venues.

As reported by Cointelegraph, data from blockchain analytics firm, CoinGlass, points to more than $500 million worth of assets moved off of Binance in the last day, with similar but lesser instances occurring on the likes of OKX and Crypto.com. Analysts are treating these specific outflows as bullish, given their correlation with the price performance of BTC.

Takeaways

In short, crypto users should exercise caution in believing outright that a whole new bull market has arrived. Factors such as the lagging performance of the wider cryptocurrency industry, as well as the possibility of major investors looking to take profit in the near future, should give pause for thought.

Nonetheless, Bitcoin’s surge to $35,000 in recent days is uncontroversially a positive phenomenon and its existence could provide hope to the cryptocurrency community, both institutional and retail alike.

Investing in cryptocurrency at any stage of a market cycle is always risky and investors should undertake their own research before doing so.

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