Kim Chua, a leading analyst at PrimeXBT: Two interesting historical metrics suggest that the rise of bitcoin is not over

The sharp pullback and the prolonged weakness of bitcoin made many traders worried about the possible end of the bull cycle in the market and the onset of a bear market.

Although the short-term price trajectory looks bearish, two historical metrics that coincided with the movements of bitcoin in previous bull cycles suggest that the current bull market is far from its end.

These metrics are: the ratio of commissions to miner rewards and the historical ROI cycle.

The ratio of commissions to the rewards of miners suggests that the bull market is not over

After each halving of bitcoin, the reward for blocks decreases, as a result of which the share of commissions in the income of miners becomes higher. Analyzing the pattern of the ratio of commissions to the rewards of miners can help us determine at what stage of the halving cycle we are at. The graph below shows that this ratio usually rises in four separate jumps, each of which sets a higher maximum, while the price peak of the bitcoin cycle coincides with the fourth jump in the ratio of commissions to rewards, after which there is a sharp decline along with the entry of bitcoin into the bear market.

There have been only two such peaks in the current halving cycle, which means that we are potentially waiting for two more peaks in the ratio of commissions to rewards before the price starts moving towards a bear market. This may suggest that the current bitcoin bull market is not over, as we have not yet seen two final higher jumps in the ratio of commissions to rewards.

This phenomenon has a logical explanation, if you apply it to the current situation with BTC mining.

Now the ratio of commissions to rewards has fallen due to a major decrease in the hashrate caused by the great migration of miners from China. Although this may sound bearish, the current drop in the ratio of commissions to remuneration looks like an integral part of the fluctuations also observed during the bullish cycle of 2017. During the 2017 cycle, the ratio of commissions to rewards fell sharply after each jump, after which it completely recovered and rose higher on the next jump. Thus, although the exodus of miners from China seems to be a unique event, statistically its impact does not go beyond the norm. During the previous bullish cycles, the same falls were observed, which were soon followed by a recovery.

In the current situation, the drop in hashrate and the ratio of commissions to rewards will also definitely be replaced by a recovery as more and more miners move their equipment and reconnect it to the network. According to experts, this will take about six months. In other words, the current lull is temporary, and the bitcoin hashrate is on the mend right now and will return to its previous values by the end of this year (if the migration of miners takes up to six months, as experts predict). Then there may be two final jumps in the ratio of commissions to rewards.

In other words, despite many statements that China's ban on mining put an end to the rise this year, historical data paints a different picture.

Taking into account the two jumps still waiting for us, the departure of miners from China can only mean a temporary period of consolidation and thus prolong the rise, and not complete it.

Another interesting metric seems to be consistent with my theory that the bull market was only extended.

The historical ROI cycle shows that we are only in the middle of the cycle

According to the historical return on investment (ROI) in bitcoin, the current bullish cycle, if it had already ended, would have become the shortest with the lowest ROI and would have peaked earlier than it should according to the purple graph below.

If we are guided by the curves of the three previous rises, each new bullish cycle should unfold over longer time intervals, and it should take more days to reach each new peak. At the same time, the purple chart shows that the current rise was moving too fast and reached the peak too early. Just look at the third cycle in 2017 (yellow graph). Thus, it seems that the current pullback has only returned the BTC price to its proper values, increasing the number of days needed for the next parabolic upward movement, which is likely to occur near the 1,200-day mark according to my forecast.

If this pattern really plays out, this bullish cycle will need at least another 300 days before it reaches a peak by the middle of next year, and the current pullback will become nothing more than a consolidation that occurs on each cycle. This period of consolidation is perfectly consistent with the migration of Chinese miners, which prolongs the current upswing, forcing the market to consolidate for about six months. According to experts, this is how long it will take the affected miners to reconnect their equipment to the network and allow the hashrate to recover to previous levels. Only after the hashrate is restored, we will be able to observe the third jump in the ratio of commissions to miners ' rewards and the continuation of the rise.

Historical data and unfolding events seem to agree very well with each other to suggest the possibility of market consolidation for about six months (three months have already passed) before the price of bitcoin again exceeds $64,000 and continues to move upwards. If we are waiting for two more jumps in the ratio of rewards to commissions and if the historical trajectory of ROI continues, then the price of bitcoin may reach around $150,000 by this point next year.

About Kim Chua, PrimeXBT Market Analyst

Kim Chua is an institutional trading specialist with successful experience covering leading banks such as Deutsche Bank, China Merchants Bank, and not only. Subsequently, Chua opened a hedge fund that consistently achieved triple-digit returns for seven years. Chua is also a mentor by vocation, who has developed her own trading course to pass on her knowledge to a new generation of analysts. Kim Chua is closely following the traditional and cryptocurrency markets and is enthusiastically looking for future trading and investment opportunities as the two significantly different asset classes converge.

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