The world of cryptocurrencies is famous for its volatility, often moving between rapid highs and lows. During these fluctuations, there are periods when prices rise steadily, which we call a bull market. Identifying these moments in advance can be really helpful for those looking to make the most of their investments. This article takes a look at some of the key signs that can indicate a crypto bull market, including data from blockchains, technical charts, market sentiment, changes in regulation, macroeconomic trends and lessons from history.
1. On-chain data: reading bullish signals
Data from the blockchain can give us clues about what is happening in the market and where prices may be headed.
- NVT ratio: Think of this as Bitcoin’s price to income ratio; a low NVT means the network may be undervalued compared to its transaction activity, indicating a buildup before a price increase. If NVT increases, it may mean the network is overvalued.
- MVRV Ratio: This ratio compares the market value of Bitcoin to the price at which coins were last traded. If MVRV is greater than 3.5, it usually points to a market peak, and values below 1 may indicate a good buying opportunity before prices rise.
- Active Addresses and Transaction Volume: More active addresses and higher transaction numbers indicate that the network is getting busier. For example, we saw a surge in Bitcoin addresses before the bull runs in 2017 and 2021.
- Whale Activity: When large holders start buying the asset, it shows confidence in the market. Tracking wallets holding 1,000 or more BTC can reveal what major investors are doing.
- Exchange flow: If coins move from exchanges to private wallets, it usually means investors are holding on for a long time, which helps support prices. During the 2020-2021 bull run, many investors moved their Bitcoin out of exchanges.
2. Technical analysis: following the charts
Looking at charts can help us identify trends and decide when to buy or sell.
- Moving averages: A golden cross occurs when the short-term average moves above the long-term average, often indicating a rise in price, as seen in Bitcoin’s run in 2019 and 2020. A death cross, by contrast, usually signals bearishness.
- Relative Strength Index (RSI): An RSI above 70 suggests an asset may be overbought. However, if it remains high during a bull market (such as when Bitcoin’s RSI was over 90 in April 2019), it indicates strong growth momentum.
- MACD crossover: When the MACD line crosses above the signal line, it can confirm that prices are likely to rise, as we saw in the 2021 bullish trends.
- Breaking resistance levels: When Bitcoin breaks through key price levels, such as above $20,000 in December 2020, it often leads to increased investor interest.
- Change in volume: If prices rise with increasing trading volume, it supports a growth trend. The 2017 bull market saw a surge in volume as new investors joined in.
3. Market sentiment: The cycle of fear and greed
Understanding how investors feel can help signal when the market might turn.
- Fear and Greed Index: When this index shows extreme fear (below 25), it may be time to buy, while high greed (above 75) often leads to a price drop. For example, when Bitcoin hit $64,000 in 2021 it reached “extreme greed.”
- Social Media Trends: An increase in mentions of “Bitcoin” or “Ethereum” on social media is often accompanied by a price jump. The 2021 Dogecoin craze driven by social media chatter is a great example of this effect.
- News Events: Good news, such as Bitcoin adoption by large companies or positive regulation, can drive prices up, while negative news can have the opposite effect.
4. Regulatory Changes: Building Trust
New regulations can greatly impact market operations.
- Good regulations: Clear guidelines received from Japan regarding crypto exchanges in 2017 help investors feel secure. The SEC’s approval of a Bitcoin futures ETF in 2021 encouraged more institutional investment.
- Adoption by institutions: When regulations allow traditional financial firms to enter the crypto space, it can lead to more investment, as can be seen from the anticipation of a spot Bitcoin ETF in the U.S. in 2023.
- Global acceptance: The adoption of Bitcoin as a legal currency by countries like El Salvador or Hong Kong inviting crypto businesses indicate that digital assets are becoming more widely accepted.
5. Big economic trends: A macro view
Crypto prices are increasingly affected by macroeconomic conditions.
- Inflation and interest rates: When interest rates are low, like they were in 2020, more people turn to riskier investments like crypto. However, higher rates can push prices down.
- Dollar strength: A weaker dollar typically helps Bitcoin. We saw this during the dollar’s decline in 2020 due to COVID-19-related stimulus measures.
- Global tensions: Situations like the Russia-Ukraine war highlighted how crypto can serve as a safe haven during times of volatility in traditional markets.
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6. Lessons from history: What we can learn
- Bitcoin halving: After events like the halvings in 2012, 2016, and 2020, we often see a significant increase in prices. For example, after the 2020 halving, Bitcoin jumped from $8,000 to $64,000 in just 18 months.
- Market cycles: The pattern of market behavior every four years, influenced by halvings and rising interest, suggests we could see another peak around 2025. Various flows, from retail in 2017 to institutions in 2021, have shaped these cycles.
- Seasonal trends: The last quarter of the year and the beginning of the following year typically see price increases, possibly linked to year-end financial adjustments and tax strategies.
Conclusion: Riding the bull waves
While no single signal can perfectly predict a bull market, looking at a mix of data from on-chain metrics, charts, market mood, regulation, and macro trends can help form a clearer picture. It is also important to be wary of signals that may lead to false expectations, such as the social media-driven 2021 price boom that later fell sharply. Changes keep happening in the crypto world, so it is essential to stay informed and flexible. By looking at these various factors, from Bitcoin’s price cut in half to regulatory changes, investors can be better prepared for the next crypto growth wave while keeping in mind the unpredictable nature of the market.