Bitcoin’s Bull Market: A Long Road Ahead

6 min readJul 16, 2021


As Bitcoin came to terms with the dramatic sell-off that occurred in the third week of May, and now seems to be enjoying a consolidatory phase, it’s time to check in on what the market fundamentals are signalling to us. Despite the fact that we went as low as 30k in recent weeks, which amounts to over 50% price decline from the mid-April all-time high, the bull market is still far from over. This should be obvious if we look at the bigger picture and consider longer timeframes.

So, let’s take a quick look at some on-chain metrics as well as derivatives market dynamics. Derivatives (futures and options), along with the amount of leverage, for that matter, are now playing an indispensable role for BTC and the entire cryptocurrency market.

In the past few weeks, the number of open contracts (the so-called open interest) fell by more than 22%. For example, the dollar value of standard Bitcoin futures on the Chicago Mercantile Exchange hit a six-month low of $1.36 billion since mid-December, 2020. Down from $3.17 billion in February of this year.

It is worth noting, though, that the type of futures contract is as important as open interest and trading volume. As far as Bitcoin is concerned, there are Bitcoin-margined contracts that are denominated and settled in Bitcoin, and futures that are settled in some stable coin, example, USDT (stable coin-margined contracts).

With Bitcoin-margined futures, you use Bitcoin as collateral, which is apparently exposed to Bitcoin’s price volatility. So, whenever the price of Bitcoin goes south, so does the collateral value. The relationship between the price and the value of your collateral is an advantage in a bull market as both the price and the value of collateral rise simultaneously. However, it can have devastating consequences to your balance when the market suddenly turns around and stabs you in the back.

This is not the case with USDT-margined futures because USDT is pegged to the US dollar, and thus not susceptible to Bitcoin’s price volatility. This is the primary reason why we see an increased demand for stable coins nowadays, with their circulating supply exceeding $60 billion at the time of writing. It is simply less risky to use a stable coin for collateral as you don’t need to worry about the performance of the underlying asset in volatile periods (for the most part).

Big part of the cryptocurrency rally of 2021 was fuelled by leverage (borrowed money). As is often the case, a bull run ends with a bull trap, and plenty of traders learn it the hard way. So, the first to suffer in a collapsing market are overleveraged speculators who end up with margin calls and their positions liquidated. It was indubitable to think that the market was not massively deleveraged in May, with short-term speculators going home, probably on foot. On the other hand, those sitting on the fence could have easily made up to 50% APR by being market neutral and seeking to squeeze profits from both increasing and decreasing prices when Bitcoin was moving sideways in the $45–65k price range throughout most of March and April.

Elon Musk’s tweets and the Chinese authorities extending the ban on crypto triggered a cascade of long position liquidations of more than $8 billion for over 800,000 crypto traders due to margin calls within just five days, starting May 13. With short-term speculators having been shook out, long-term hodlers finally took over in June for the first time this year.

We’ll see how it pans out.

If the whale buying tendency persists, it would mean that the market has entered into a sustained accumulation zone. Metaphorically speaking, there’s not much steam left to drive the selling pressure up while the prices down. In simple terms, a full-scale market recovery may be in the cards by the end of summer.

In May, Bitcoin witnessed the most dramatic surge in realised losses by on-chain entities since 2018, including the March 2020 sell-off. The May 19 net losses accumulated to a whopping $2.56 billion, which is nearly 3 times larger than the extreme price plunge (technically, a flash crash) which occurred on March 12, 2020.

Breaking down the Net Realized Profit/Loss metric reveals that over 70% of the Bitcoin market cap is still in profit, with short-term losses (a little under 18%) somewhat exceeding short-term profits (a little over 10%). It means that most UTXOs remain in profit, and it is short-term investors as well as heavily-leveraged traders that have been sacrificed in the mind-blowing carnage that shredded the entire crypto space. What we saw in May was the ruthless unwinding of leverage, with much of retail left wounded in the aftermath.

Another on-chain metric that can provide us with a precious insight into the lay of the crypto land is the change in illiquid Bitcoins. Illiquid Bitcoins are the ones that sit idly in wallets, and therefore are not in open cirtculation. So, a sustained decline in the number of illiquid bitcoins indicates a build-up of the selling pressure as more bitcoins are available to market participants, while the reverse process conveys strong hodling sentiment as fewer bitcoins make their way into the orderbooks (the so-called supply-side crisis).

Until May, the number of illiquid Bitcoins had been gradually increasing. However, in May, this dynamic was reversed, with a peak in increase reaching 233k BTC on May 20. Now these “loose” bitcoins are being picked up by the long term hodlers.

At the ATH of ~$65k in mid-April the market-value-to-realized-value indicator (MVRV) was at 3.99. Today, it is at 2.03, which is almost 2 times less. As the MVRV metric is indicative of market tops and bottoms, we might be closer to a market bottom with Bitcoin’s price being below its “fair value”.

MVRV’s historical values paint essentially the same picture.

After the Federal Reserve’s two-day meeting this week, the Fed’s chair Jerome Powell said inflation could turn out to be higher and more persistent than the central bank (FED) expected. To be sure, with central banks printing money like there’s no tomorrow, you can’t reasonably expect inflation rates to go down in a moment’s notice…

And where d’ya think all this money is going to flow to?