Three Reasons Why Bitcoin Prices Are at the "Cycle Top"

Author: Nancy Lubale, CoinTelegraph

Compiled by: Deng Tong, Jinse Finance

BTC price has dropped by 2.25% in the past 24 hours and is currently 16% lower than the all-time high of $73,835 set on March 14.

Bitcoin / USD daily chart. Source: TradingView

The price of Bitcoin has decreased by 8.75% over the past 30 days and by 5.5% over the past three months. The decline in Bitcoin's price in June has led market analysts to question whether this pioneering cryptocurrency has entered a "cycle top."

Let's take a look at some reasons analysts believe the Bitcoin bull market may have peaked.

Bitcoin Long-Term Holder Inflation Rate Nearing Critical Threshold

Charles Edwards, founder of Capriole Investments, stated that many on-chain indicators suggest that Bitcoin's failure to reach new highs after two retests is a "sign of weakness."

In his latest newsletter, Edwards explained that the inflation rate of Bitcoin long-term holders (LTH) has been steadily rising over the past two years.

According to Glassnode, the LTH market inflation rate measures the annual accumulation or distribution rate excluding the amount issued to miners daily. Higher values indicate that as the amount of Bitcoin held by LTH decreases, they are increasing selling pressure.

At the peak of a bull market, market inflation reaches a peak above nominal inflation (2.0), "which typically marks a high threshold for the cycle top," Edwards said.

"Today it is 1.9, we are too close to this level, and I don't like it."

Bitcoin LTH inflation rate. Source: Glassnode

Bitcoin Dormant Flow Increases for Three Consecutive Months

Another indicator that helps determine market cycles and assess whether Bitcoin is bullish or bearish is dormant flow. It is an on-chain metric that measures the number of tokens spent relative to the overall trend.

Additional data from Glassnode shows that Bitcoin's dormant Z-score has surged in the past 90 days.

Edwards noted that this metric reached a significant peak in April, indicating that the holding time for tokens sold in 2024 is significantly higher on average. "The peak of this metric (Z-score) is usually seen three months after the cycle top," the analyst explained.

"Well, it has now been three months. The price has just dropped, and the dormant Z-score peak still maintains a structure very similar to the peaks in 2017 and 2021."

Bitcoin dormant Z-score. Source: Glassnode

At its current value, the dormant flow Z-score indicates that Bitcoin is overvalued relative to the total amount of tokens in circulation without trading volume support. This suggests that Bitcoin's price may have reached a cycle top, which could also be bearish for the broader cryptocurrency market.

Surge in Spending Volume May Signal Bitcoin's Peak

Finally, the increasing clusters and peaks in spending volume help indicate what Edwards refers to as "areas of increasing risk." Historically, when Bitcoin's spending volume over 7-10 years suddenly spikes, it can signal a cycle peak.

Also note that the growth in 2024 indicates that this cycle is progressing rapidly.

"This chart will blow your mind, slap you in the face," Edwards said in a post on X on July 2.

"The entire history of this chart has disappeared as a large amount of Bitcoin moves on-chain, 10 times more than previous peaks."

Bitcoin's lifecycle is 7-10 years. Source: Glassnode

Edwards also pointed out that over $9 billion worth of Bitcoin has been transferred by addresses that have been inactive for over 10 years. He attributed this distribution to the recent actions of the dissolved cryptocurrency exchange Mt. Gox, which is preparing to repay creditors later in July.

Bitcoin financial services company Swan also shares a similar view, stating that the market is concerned about the impact of Mt. Gox's 142,000 Bitcoins (approximately $9 billion at current rates).

Swan explained that while "many creditors are long-term holders with options, considerations regarding institutional ownership and taxation suggest that the selling pressure will be gradual rather than sudden, even if all tokens are released to the market simultaneously."

In a subsequent post on X, the company added that ongoing government sell-offs have increased the supply-side pressure on Bitcoin.

Source: Swan

A previous report by Cointelegraph indicated that a cryptocurrency wallet labeled "German Government (BKA)" transferred 832.7 Bitcoin (approximately $52 million) in four transactions on July 2. According to Arkham Intelligence data, the wallet sent 100 BTC to Coinbase, 150 BTC to Bitstamp, and 32.74 BTC to Kraken.

Tracking the selling patterns of Bitcoin whales can provide investors with valuable insights into Bitcoin's price, as large sell orders can signal a market top.