Author: Dylan LeClair & Bitcoin Magazine Pro

Translator: Felix, PANews

Last weekend, due to the conflict between Iran and Israel, the price of Bitcoin fell below $60,000, sparking concerns about the possibility of Western involvement in a Middle East war - a situation all too common in the 21st century, as war leads to increased inflationary pressures and disrupts global supply chains and commodity markets. Although some skeptics mocked the almost instantaneous selling of Bitcoin after the conflict news broke, ironically, Bitcoin was one of the few global assets trading over the weekend, with stock, commodity, and bond strategists turning their attention to Bitcoin, trying to assess the potential damage to the global market on Sunday.

Setting aside geopolitics, this article will focus on the latest developments in on-chain behavior and the Bitcoin derivatives market, analyzing whether the drop from the high point of $73,000 is a typical bull market correction or a cyclical peak.

With the trend of breaking new highs before Bitcoin halving, many past notions about Bitcoin cycles may be outdated. Therefore, it is worth paying attention to evaluating the current situation and how investor behavior may affect what may happen next.

First, let's look at the "Value Days Destroyed Multiple" indicator. This indicator judges the market's hotness by dividing short-term selling behavior by long-term selling behavior. The higher the indicator value, the hotter the market; conversely, the lower the indicator value, the quieter the market. This indicator indicates that the bull market is progressing smoothly, and may have even peaked.

The precise calculation method of this indicator is the ratio of the two-day moving averages (30,365) of value destruction (token day destruction * price), adjusted for supply inflation, to explain changes in consumer behavior over time.

Approximately one-third of the selling can be attributed to the transfer of tokens from Grayscale Bitcoin Trust to new ETF participants such as BlackRock, Fidelity, and Bitwise. However, as original data, a large amount of selling activity can be seen as Bitcoin pushed to new highs.

However, careful observation of this indicator reveals that this selling activity is cooling down, and there are precedents for setting new highs in the market during the bull market cycles of 2017 and 2021.

Next, let's observe the interaction between short-term and long-term holders and new entrants from the perspective of short-term and long-term holders. It can be seen that during a typical bull market, the trend of the cost of short-term holders is not only standard but also quite healthy.

Furthermore, this approximate price level is a typical characteristic that supports the bull market, as opposed to the bear market. In a bear market, this short-term average holder price (cost basis) is often a significant psychological and technical resistance. In the current bull market, this price level is approximately $58,500, which means it is fully in line with the expectations of the bull market.

Now turning our attention to the derivatives market, the leverage and speculative bubbles in the entire market are quite healthy. The perpetual futures price in Bitcoin terms is close to the lowest level since 2022, and since the sharp drop last weekend, the futures price has been slightly discounted compared to the spot market. Although it cannot be guaranteed that higher prices will be achieved immediately, similar positions in the past have created conditions for price increases. This is a welcome development compared to the severe speculative bubble brought about by speculative premiums in the futures market over the past month or so.

As for the prospects of derivatives, the accumulation of liquidation leverage above $70,000 continues to grow, and the bears hope to push the price significantly below $60,000. Although there is still some leverage to be cleared below the $60,000 level, the true profit level for the bears is below the $50,000 level.

Although a 33% drop from the historical high point of Bitcoin is a more crazy event, spot demand may start to strengthen from $50,000, the disappearance of open contracts, and the beginning of a negative futures premium relative to the spot market, implying that most of the pullback has already occurred. A major flight to safety in the macroeconomy may need to occur for this to happen, and considering the speed of long-term fiscal deficit spending, any decline may be temporary.

In summary, the current pullback of Bitcoin from the high point and any future declines should be a welcome one for investors with a long enough vision and an understanding of the direction of all these developments. The fundamentals of Bitcoin continue to improve, and pullbacks are helpful in clearing leverage and short-sighted speculators during a long-term bull market.

Related reading: Geopolitical Disturbances Shake the Cryptocurrency Market, Waiting for Calm in the Volatile Market

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