The cyclical nature of Bitcoin’s price movement, often referred to as the Bitcoin cycles hypothesis, has once again gained validation as it aligns with various on-chain indicators. The driving force behind these cycles is the halving event, occurring approximately every four years, which halves the BTC reward for miners.
A particularly insightful set of on-chain indicators arises from the behavior of long-term holders (LTHs) of Bitcoin. These patient investors, unswayed by short-term market fluctuations, exhibit repetitive cyclical patterns that offer valuable insights into the cryptocurrency’s cycle stages.
Cost Basis and MVRV Cycles
Two key on-chain indicators associated with long-term holders, the Cost Basis and Market Value to Realized Value (MVRV), are currently displaying patterns that echo those observed in previous cycles. The emergence of a plateau in these indicators could serve as a harbinger and catalyst for an upcoming bull market in the crypto realm.
Plateau in LTH Cost Basis
@therationalroot, a well-regarded on-chain analyst, has shared a cost basis chart for long-term Bitcoin holders. Cost basis essentially represents the purchase price of an asset and plays a crucial role in calculating potential gains or losses from holding that asset.
The chart reveals that the cost basis of long-term Bitcoin holders is in the process of forming a plateau, mirroring trends seen in past cycles. During the previous two cycles, after sharp market increases, a correction followed, leading to a plateau in the cost basis. This phase persists for around three years, during which the BTC price periodically dips below the LTH cost basis.
This phenomenon signifies a capitulation of long-term holders, accompanied by brief periods of unrealized losses. Subsequently, the LTH cost basis experiences a rapid ascent for about a year before stabilizing during the ensuing bear market.
Additionally, the analyst charts the 90-day change in this indicator, highlighting the accumulation phase between two bull markets (indicated by blue arrows). The bounce-back phase appears to have commenced, with the BTC price comfortably above the long-term holders’ cost basis. In conclusion, @therationalroot notes that the decrease in the 90-day change is slowing down, indicating a repetition of past cycles.
MVRV of Long-Term Holders on the Rise
A similar cycle pattern is observable in the Market Value to Realized Value (MVRV) metric for long-term holders. MVRV represents the ratio of market cap to realized cap, indicating whether the market price is below “fair value.”
In previous cycles, the MVRV for long-term holders reached the oversold green zone, historically signifying an optimal buying time for BTC. Although the cryptocurrency market has experienced recent declines, the MVRV for long-term holders remains relatively stable at 1.28. This implies that the prime buying opportunity has passed and long-term holders are now realizing profits.
However, a re-test of the oversold green area remains plausible in the near future, akin to the situation before the previous halving when BTC prices sharply dropped due to the COVID-19 crash.
Whether history unfolds as seen in previous cycles or deviates, the behavior of long-term holders strongly suggests the commencement of a prolonged bull market. Both the cost basis and MVRV indicators for long-term holders provide compelling evidence for the cyclic nature of Bitcoin’s market behavior and the imminent arrival of a bullish phase.