Is this the start of a bull market? What do indicators tell us?

The major cryptocurrency has experienced an explosive increase in the last three weeks after a two-year low of $15,600. Market indicators rebounced, and some altcoins increased by 200–300%, bringing the crypto market capitalization back above $1 trillion.

Is this increase, however, logical or just another market maker's manipulation? In order to respond to the question of when the bull market will start, we decided to analyze the various indicators.

The stock market, inflation, and the credit rate

Many people are relating the recent increase in BTC to data on US inflation. It is also not surprising because the Consumer Price Index, which estimates how much consumers pay for goods and services, has decreased for the fifth consecutive month. This indicates that market liquidity is returning quickly and that inflation is declining faster than predicted. 

Data on the US consumer price index (Investing)

The Fed's rate also has a significant impact on BTC. It will determine whether the US Federal Reserve System's future policy will be softening or strengthening. The economy is more stable when credit rates are reduced, which boosts market liquidity and encourages people to invest, including in cryptocurrencies. The Federal Reserve interest rate decision was made on February 1, 2023. If the economy truly recovers from the recession, Bitcoin may benefit as well.

Extremely high trading volumes

There was a significant spike in user activity when BTC rose from $16,000 to $23,000. People did not actively trade during the New Year's holidays, which resulted in low trading volumes and volatility. The statistical data of traded contracts from Coingecko and Coinmarketcap also show that investors' interest in cryptocurrencies has increased since January 10. These websites organize data on trading volumes from every cryptocurrency exchange that is featured on them. 

BTC rate dynamics and trading volumes (Coingecko)

The highest trading volumes were recorded during the BTC price decline between May and July 2022. The market was starting to recover from the Terra platform fraud at the time. The next spike occurred following the collapse of the FTX crypto exchange. However, the decline in the exchange rate stopped after November 21, most likely due to a decrease in seller activity.

The dominance of BTC is increasing

Despite the explosive increase of some altcoins (for example, Aptos (APT), Magic, and Keep Network), the crypto market as a whole is failing to keep pace with BTC. BTC dominance has increased since January 10th by 8.5%, reaching a six-month high of 44.5%. This suggests that investors are hesitant to actively invest in altcoins because they are concerned that the BTC rise will not be real.

Chart of BTC Dominance

An inorganic increase

There is a primary and a corrective movement for every trend. Any organic increase requires corrections, just as any decline is frequently accompanied by intermittent price increases.

Bitcoin has been steadily increasing in price since the beginning of 2023. Several times, the cryptocurrency took a brief pause before rising again. Such an inorganic increase is a sign of investor greed and the fact that sizable sell orders are pushed to the top in search of a profitable price in order to “unload.” A bull market must be supported by rational asset price behavior and market sentiment shared by the majority of participants.

BTC price (WhiteBIT)

News background

The crypto market was able to recover from the FTX exchange scam.  Furthermore, the company's new leadership announced restructuring plans as well as the possibility of reviving the platform. In terms of regulating the cryptocurrency market, nothing has changed, and most countries will continue to work actively on cryptocurrency legalization.

Even so, the current state of many crypto companies leaves much to be desired. Several of them have filed for bankruptcy (Genesis, BlockFi), and new scams and major revelations occasionally make headlines (such as the recent arrest of the Bitzlato management). In general, the news background is currently neutral, but everything can change at any moment.

The mining difficulty has reached its peak

Following the recalculation of the BTC mining difficulty, the network's hash rate reached an all-time high of 37.59 T. The difficulty level was last increased by 10.5% on January 15th. Even as BTC fell throughout 2022, miners accumulated production capacity, and the hash rate increased month after month.

Such actions resulted in the insolvency of some mining companies (for example, Core Scientific), which either filed for bankruptcy or announced that they were about to run out of funds. According to Crypto Quant, the majority of miners took advantage of the local BTC price increase to sell some of their reserves and cover their losses. The BTC price was unaffected by sales at the same time, which indicates that the majority of the companies' reserves were kept until better days. 

BTC Mining Difficulty Chart (btc.com)

BTC balances on exchanges

According to Coinglass, the amount of BTC on centralized exchanges has barely changed since the beginning of 2023 and now stands at 1.92 million coins. This means that traders don't transfer money to cryptocurrency wallets; instead, they leave it on the exchange, probably in the hopes of making short-term profits rather than long-term gains.

The indicator also demonstrates that the majority of Bitcoins in the wallets of funds and institutional investors have not yet been moved for sale.

BTC balances on cryptocurrency exchanges (Coinglass)

Bitcoin logarithmic growth curves

Coinglass also has some interesting indicators, such as Bitcoin logarithmic growth curves. The Bitcoin price has now crossed the horizontal channel, and the oscillator indicator has fallen to negative values (-0.40). This indicates that BTC is oversold and close to a local bottom from a technical perspective.

BTC logarithmic growth curves (Coinglass)

Summary

According to the aforementioned indicators, the true bull market has most likely not yet begun. Most investors are holding their BTC and are wary of investing, and the explosive increase of the main cryptocurrency is the result of a large injection of liquidity following the New Year's holiday. News background and inflation data in the USA should receive special attention because these indicators will have a direct impact on the future liquidity of the entire cryptocurrency market.