Dylan LeClair, senior analyst at digital asset fund UTXO Management, recently shared his views on the potential direction of Bitcoin (BTC). According to LeClair, if Bitcoin returns to the $70,000-$75,000 price range, it could put significant pressure on short positions.
LeClair's analysis is based on Bitcoin realized market cap, a metric that values each Bitcoin at the price it last moved on the chain. He notes that the high rate of positive change in this metric indicates significant inflows to offset profit-taking by the current group of long-term investors. He says this pattern has been repeated every bull cycle, and now it's happening once again.
By looking at the average daily price performance during each group's realized market cap increase from 2012 to present, LeClair observes that the largest share of Bitcoin's all-time price increase occurred during periods when realized market cap increased significantly (10+%). However, he cautions that past performance is not indicative of future results.
“We are in the Middle of a Bull Market in Bitcoin”
LeClair also discusses the Market Value to Realized Value Ratio Z-Score (MVRV Z-score), which is currently 2.68, indicating that we are roughly in the middle of the bull cycle.
The analyst warns that there is extreme skew in performance during periods when MVRV is high. According to the analyst, while average price performance generally improves as the MVRV Z-score increases, it also becomes increasingly unstable as market capitalization expands relative to the average price/fair value measure.
Despite this, LeClair believes that an MVRV Z-score below 3, combined with the current level of realized market cap growth, indicates that we are in the midst of a strong and sustainable bull market.
Turning his attention to the derivatives market, LeClair notes that we are seeing the lowest sustained futures open interest for BTC in several months, with funding rates falling significantly as Bitcoin consolidates below the previous high of $69,000. He also notes that the froth from leveraged longs looking to trade on a breakout of the All Time High (ATH) has disappeared.
According to the analyst, as Bitcoin consolidates, an increasing amount of short liquidation occurs between $70,000 and $75,000. While there is a large cluster of long positions that could be liquidated around $50,000, LeClair thinks it is unlikely to see that level again.
*This is not investment advice.