IN TODAY'S ISSUE:
- Bitcoin reaches a new all-time high, recovering from the latest drawdown, which appears to be shrinking in terms of frequency and severity this cycle.
- We examine a range of market indicators to assess whether the recent rally shows signs of overheating.
- We update our cyclical price targets and explore potential scenarios for where bitcoin could head this cycle.
Bitcoin Hit a New High as Traditional Markets Signal US Risk Off
Bitcoin registered a new all-time high this week, hitting $112K, surpassing the $109,358 previous high set in January. The new price comes amidst turbulence in traditional markets, one where the “US hegemony” risk-off trade was front and center: stocks faltered, yields on US Treasuries rose, gold rallied, and the US dollar index fell. In some sense, this is the ideal condition in which bitcoin should shine, one where faith in institutions like the US is shaken. That’s not how we like to pitch bitcoin, however, given that the incentives of politicians and central bankers mean that the loss of purchasing power of fiat currencies, whether they be fast (devaluation) or slow (inflation), is an outcome that is nearly assured.
Bitcoin Pulls Back from Drawdown
Bitcoin pulled back from a pretty steep drawdown, one that registered 28.2% at the lows (close to close), on the way to its new high. Bitcoin fell to $74.4K in the wake of “Liberation Day”, with many calling into question the continuation of the cycle. As the following chart shows, bitcoin has endured numerous double digit percentage drawdowns this cycle – the path from $15,460 in November 2022 to $112,000 this week has not been without its ups and downs.
Ironically, the data in the table below shows that this cycle has been significantly less volatile than previous ones. Although the current cycle isn't over yet, bitcoin has experienced only seven drawdowns of 10% or more, compared to 13 and 10 such drawdowns in the two prior cycles, respectively. Not only were these drawdowns more frequent in earlier cycles, but they were also more severe, both on average and at their worst. This decline in drawdown severity is something we’d expect as bitcoin and its investor base mature.
Charting The Cycles
With bitcoin hitting a new all-time high this week, it's a good moment to evaluate how this cycle stacks up against previous ones. While it's fair to argue that bitcoin’s 4-year market cycles shouldn’t keep repeating, as they contradict even the weakest form of the efficient market hypothesis, they have clearly done so in the past.
That said, there are strong arguments that bitcoin may now be in a secular bull market, potentially breaking free from the four-year cycles. Still, when analyzing cycle dynamics, we find it useful to look at them in two key ways: relative to halving events and troughs to peaks (and then peaks to troughs).
Halving Cycles
Looking at the dates of bitcoin reward halvings (every 210,000 blocks) on the following chart, the dates of halvings seem to bisect cycle peaks. The peaks have come around the 1/3 marker between halvings, while the trough seems to come around the 2/3 point.
By charting returns from the start of each halving cycle, indexed to 1, we can compare performance across different cycles from a common starting point. As the chart below illustrates, the current cycle is up roughly 75% (at 1.75) since the most recent halving on April 20th, 2024. We do not expect this cycle, assuming one exists, to match the intensity of previous ones. As bitcoin grows in market size and the technology continues to mature, it is reasonable to expect more modest returns over time.
Trough to Peaks
Another way we like to measure bitcoin's cycles is by examining the rally from trough to peak, followed by the drawdown (peak to trough). Bitcoin reached an intraday low of $15,450 on November 21, 2022, and has since climbed 7.1x based on closing prices (7.2x using the intraday high). Like the pattern seen in halving cycles, bitcoin’s returns from trough to peak have decreased over time. So, while we don’t expect a 20x move from the last low, we also believe there’s still room for further price appreciation.
Market Indicators Do Not Show Signs of Overheating
While short-term price predictions for bitcoin are notoriously difficult, current market data paints a consistent picture: price action doesn’t appear overheated.
Perp Funding Rates
One of the most common tools offshore traders use to take leveraged directional bets is through perpetual swaps. The funding rate, typically quoted in 8-hour intervals but annualized here, reflects the cost of holding long versus short positions. When the rate is positive, long traders are paying shorts to maintain their positions, signaling bullish sentiment and demand for leveraged long exposure.
Historically, during heated market rallies, this rate has surged above 100% annualized. Right now, however, it sits at just 6.2%, suggesting very little speculative activity.
Futures Basis Tells a Similar Story
The futures basis, the annualized percentage difference between dated futures and spot, remains well below previous 12-month highs, currently hovering in the high single digits. Futures, like perpetual swaps, are a popular tool for traders to take leveraged directional positions. The fact that this basis is still well below the level reached in November is yet another sign that the market isn't exhibiting signs of excessive speculation or overheating. We find it interesting that the basis is higher on the CME versus Deribit, perhaps indicating that it is US investors who are driving the rally in price rather than offshore traders.
Binance Perps Trading at a Discount to Spot
Perpetual swaps trading on Binance, the biggest exchange by volume, are trading at a discount to spot. At market highs, we usually see the other way around – perps trading at a premium to spot as traders express levered long positions. This discount is yet another signal that the market remains relatively cool and isn’t showing signs of excessive speculation.
Where This Cycle May Go
We published a version of this analysis 6 months ago; while our thinking on the matter hasn’t changed, some of the numbers have changed slightly. Using cyclical indicators, such as MVRV (market value to realized value) and peak to trough multiples, and the fact that there is some cyclicality to the prices rather than just secular growth, there is a range of outcomes for bitcoin.
MVRV Ratio
Our first indicator is the MVRV ratio. This metric compares the current total market cap of all bitcoins to their aggregated value based on the last time each coin moved. In essence, it's a gauge of investor profitability. Over time, the MVRV ratio has shown clear cyclical patterns and, in our view, has been one of the most reliable indicators for identifying market tops and bottoms.
While it's difficult to predict exactly where the ratio might peak this cycle, it currently stands at 2.4x—well below prior peaks. Historically, these peaks have trended lower over time, so it’s reasonable to expect this cycle’s high to fall below last cycle’s 4.0x MVRV ratio. That said, the 2021 cycle was unusual: the price topped out despite a relatively modest MVRV level. As such, we recommend interpreting this metric with some caution. Ultimately, price will be the final judge of where this cycle peaks.
Cycle Troughs to Peaks
Another useful metric is comparing the current cycle’s progress to past cycles. While we expect the trough-to-peak multiple to decline over time, pinpointing an exact figure remains difficult. In the table below, we outline the historical trough-to-peak multiples and provide a range of estimated prices based on those precedents. While these are just rough benchmarks, they suggest there’s still meaningful upside potential for Bitcoin.
Final Thoughts
With bitcoin reaching new all-time highs this week, we have made the case that the market does not appear overheated. We think there is still room for the price to climb, and our target estimates suggest further upside is possible. While no one can predict with certainty where bitcoin will ultimately go, the current political and economic landscape appears supportive of continued strength in the asset.
Market Update
Bitcoin surged 7.8% this week, reaching new all-time highs amid heightened volatility in traditional financial markets. Stocks declined, bonds sold off, the US dollar fell, and gold rallied—moves that echoed the “U.S. hegemony risk-off” trade seen after “Liberation Day” and the announcement of “reciprocal tariffs.” Given the price action, bitcoin seems to be increasingly part of the “haven trade,” which includes gold and the Swiss franc.
While renewed tariff talk, fueled by recent comments from Trump, has grabbed headlines, the more pressing concern for markets is the bond sell-off, with 10-year Treasury yields climbing to 4.6%. Investors are also grappling with the implications of Moody’s recent downgrade of U.S. debt and the House’s passage of the “One, Big Beautiful” bill, which includes $3.8 trillion in tax cuts and is projected to add $3 trillion to the national debt in its current form. While these developments are troubling for the US financial outlook, bitcoin is increasingly emerging as a destination for capital seeking to move outside the traditional financial system.
Important News This Week
Investing:
Moody's Cuts America's Pristine Credit Rating, Citing Rising Debt - Reuters
Regulation and Politics:
Companies:
Coinbase Reveals 69,461 Users Affected In December 2024 Data Heist: Filing - The Block
Japan's Metaplanet Buys Another 1000 BTC - CoinDesk
Block (XYZ) Leans Into Lending After Winning Direct Loans Approval - Bloomberg
Circle Has Explored Potential $5B Sale to Coinbase or Ripple Instead of IPO: Report - CoinDesk
Big Banks Explore Venturing Into Crypto World Together With Joint Stablecoin - WSJ
Upcoming Events
May 27 - Bitcoin 2025 conference
May 30 - FTX to distribute $5B to creditors
May 30 - CME expiry
Jun 18 - FOMC interest rate decision
Jul 2 - Final SEC deadline for decision on GDLC ETF conversion
Jul 8 - 90-day tariff suspension ends
Jul 22 - EO Working Group report deadline
