Bitcoin investors are feeling the heat as the cryptocurrency faces a steep price decline. The panic has spilled over to spot Bitcoin ETFs, which saw outflows over the past two days after weeks of intense inflows that totaled over $36 billion. However, a closer look at key metrics and trends suggests that this might not be the end of Bitcoin’s bullish run. Let’s break it down.
Bitcoin’s Long-Term Track Record Is Unmatched
Bitcoin’s journey since its inception in 2009 is nothing short of extraordinary. From being virtually worthless, it climbed to an all-time high of $108,200 last week. This meteoric rise has made Bitcoin the best-performing major asset in history, with a jaw-dropping gain of over 9.5 million percent.
But the road hasn’t been smooth. Bitcoin has endured several sharp corrections:
- An 85% drop from its 2017 peak to its 2019 trough.
- A 56% decline between April and June of 2021.
- A 78% fall from November 2021 to March 2022.
- A recent 33% dip from March to August.
Despite these setbacks, the trend has been overwhelmingly upward. If history is any guide, Bitcoin might just be setting the stage for another surge once the current downturn stabilizes.
Bitcoin Exchange Balances Are Shrinking
A critical metric hinting at a potential rebound is the dwindling Bitcoin supply on exchanges. Companies such as MicroStrategy and mining firms like Marathon Digital have been voracious buyers, pushing institutional and long-term demand higher. Spot Bitcoin ETFs, too, have been stockpiling, with total holdings now exceeding $110 billion.
This buying frenzy has reduced Bitcoin exchange balances to a multi-year low of 2.24 million coins, down from 2.7 million just months ago.
Why does this matter? A smaller supply of Bitcoin on exchanges generally signals higher demand among investors unwilling to sell, which could stabilize prices and set the stage for recovery.
Bitcoin’s Inflation Is Virtually Nonexistent
Bitcoin’s fixed supply is one of its defining features. With only 21 million coins ever to exist, the circulating supply currently stands at 19.79 million. Miners now have just 1.2 million coins left to mine, a number that dwindles further with every halving event.
The annual inflation rate of Bitcoin has plummeted to a mere 1.13%, a significant drop from 12% in 2015. Meanwhile, fiat currencies like the US dollar face rising supply pressures, with the Federal Reserve’s M2 money supply nearing record highs. This imbalance further strengthens Bitcoin’s appeal as a store of value.
Miners Are Holding Fewer Coins
Bitcoin miners are typically seen as a stabilizing force, holding reserves to sell during price spikes. Yet, miner reserves have fallen to about 1.9 million coins, the lowest since 2010. At first glance, this might seem like a bearish signal—more coins in circulation could drive prices down.
But here’s the twist: demand from institutions and investors has offset this potential negative. Even as miner reserves have dwindled, Bitcoin’s price trajectory has largely remained intact, underscoring the resilience of buyer interest.
The MVRV-Z Score Suggests Room to Grow
The MVRV-Z score, which compares Bitcoin’s market value to its realized value, is a reliable gauge of overbought or oversold conditions. Currently, the score sits at 2.86, comfortably below the critical overbought threshold of 3.7. This implies that Bitcoin still has room to climb before reaching levels considered overheated by historical standards.
Other Positive Indicators
Several other factors bolster the case for Bitcoin’s recovery:
- Hash Rate Record: Bitcoin’s hash rate has soared to all-time highs, reflecting a healthier and more secure network.
- Profitability Metrics: The majority of Bitcoin holders are now in the green, based on in-the-money and out-of-the-money analysis. This could incentivize investors to keep holding, reducing sell pressure.
Bitcoin’s current price crash has sparked fear, but the fundamentals suggest this could be another temporary dip in a long-term upward trend. With falling exchange balances, declining inflation, strong demand, and positive technical indicators, the cryptocurrency may be poised for another rally once the dust settles.
