Disclaimer
The data I use (BitInfoCharts, Coinglass, CoinMarketCap) to compile the tables and graphs contained in the on-chain section of this analysis do not always align with data found via others sources like Glassnode and CryptoQuant. I cannot explain the reason for the differences nor can I confirm which sources are most accurate. For this and other reasons, I have come to trust only the on-chain data I collect when trying to explain and/or predict Bitcoin’s (BTC) future price action (PA). Whether you too find my on-chain analysis useful is for you to decide, but I can assure you that some of my observations and/or predictions will differ, often markedly, from other observations and/or predictions you will see on Crypto Twitter (CT) and elsewhere.
Price Action
What a month. It seems almost quaint that some were prognosticating that US spot-BTC ETF approval would be a sell-the-news event. Far from it, obviously. As I concluded in my November 2023 month-end analysis:
… there is no scenario under which ETF approval/launch will be a sell-the-news event. Price may not substantially or sustainably increase following announcement/launch, but it most certainly will not swoon. Yes, price could consolidate for a while thereafter, especially if approval announcement leads to a parabolic spike prior to launch, but to suggest, e.g., price will plummet to $25K (or even lower) post-launch is absurd. Not going to happen.
My belief proved even more prescient than I could have foreseen, as price did indeed consolidate for a while post-ETF launch due to the substantial initial exodus of investors out of Grayscale’s Bitcoin Trust (GBTC), but that is now a faint memory.
February opened at $42,545 (on Coinbase) and peaked at exactly $64,100 on February 28 before closing slightly off the peak at $61,179. As I tweeted yesterday, I suspect certain whales wanted to curb the frenzy going into month end; hence the somewhat sharp price drop the final day of the month. I can only speculate the reasons why this would be the case, but given that price is already up more than $1000 just 12 hours later, I think I may be on to something.
As it is, February 2024 experienced the largest USD increase in BTC’s history, up a staggering $18.6K. While the percentage gain was equally impressive (43.8%), it is not even close to the largest monthly percentage gain in BTC’s history.
As shown above, even when eschewing the eye-watering gains that early BTC investors earned between 2011 and 2015, note that February 2024’s percentage gain is “only” the fifth largest percentage gain since 2017 and the second largest percentage gain this halving cycle, with December 2020 having experienced a 47% gain.
My point is not to diminish February PA in any way, of course. The month was simply sensational in every respect. Perhaps even more impressive is that the monthly relative strength indicator (RSI) is only now entering the “overbought” zone despite the staggering price growth the past six months (indicated by the yellow arrow above). The two most recent times monthly RSI entered the overbought zone, it remained there for several consecutive months before price peaked. Could that happen again? It certainly could given the current momentum behind US ETFs. That said, ETF mania is not all peaches and cream, however, something I discuss later in this analysis.
Below are the calendar-month returns for BTC throughout its history:
As shown above, 2024 is off to a spectacular start, being the first year since 2021 to open with consecutive monthly gains, something that (somewhat surprisingly) has happened only four times in BTC’s 14 year history (2011, 2013, 2021, 2024).
When reorganizing monthly PA by halving cycle, it is easier to see that February 2024 is the sixth consecutive month of gains, a streak that has occurred only one other time in BTC’s history (Oct 2020 - Mar 2021):
Simply put, we are in the midst of a historic bull market. The question of course is for how long it will continue. After all, nothing goes straight up, not even Bitcoin. In fact, Bitcoin is notorious among traditional investors due to its volatility. As such, we should anticipate a sizable correction sooner or later. As it is, we are already entering uncharted territory to some degree, with a new all-time high (ATH) potentially in reach even before the next halving (projected for late April). And Bitcoin just wouldn’t be Bitcoin if everything went as planned. So, does this mean a sizable correction is imminent? Imminent, yes. But soon? Who knows. As I tweeted back in December, there are only three potential outcomes given current PA:
1. A sizable correction is headed our way.
2. The next cycle will peak early (gains are being pulled forward).
3. We are in the early stages of a supercycle.
As it happens, I think both outcome #1 and either outcome #2 or #3 will transpire. i.e., We will absolutely get a sizable correction at some point. When is unclear, but sure as death and taxes, we will get a correction and it will be sizable. The more interesting question, in my opinion, is whether outcome #2 or #3 will prove correct. If I had to place a wager, my money would be on outcome #2. Given the timing of the approval of US spot-BTC ETFs, I think a lot of demand that otherwise would have emerged post-halving has been pulled forward. If so, then it is likely we will have an early halving-cycle peak, perhaps even before the end of 2024.
On the other hand, it is possible that current ETF demand is an entirely separate pool of capital that otherwise would not have invested in Bitcoin. If this is the case, then yes, the upcoming cycle could indeed prove to be a supercycle, where untold billions pile into Bitcoin as institutions and high-net-worth individuals diversify out of, e.g., risk assets and/or gold. I would actually argue this is already happening, but only in part. i.e., The reason I think outcome #2 is more probable than outcome #3 is simply because the latter requires the adage “this time is different” to be true, and how often is that ever the case?
I (and many others) actually thought the current cycle would be different than past cycles due to institutional investment in BTC. Remember the original Microstrategy announcement (LOL, look how young Saylor looks!), followed a few months later by the Tesla announcement? Heck, even Mass Mutual purchased $100M in BTC at that time). Pronouncements then about how we were entering a supercycle were innumerable. And yet, in hindsight, this cycle’s peak of $69K fell woefully short of the predictions put forth by the most followed/vocal BTC prognosticators. So, tell me again why this time will actually be different?
In sum, my so-called base case is that a lot of demand is being pulled forward due to the timing of the approval of US spot-BTC ETFs, so the upcoming cycle peak will occur earlier in the cycle than it has in past cycles. And while I admit/think/agree at least some of the money currently being invested in ETFs is new money, money that otherwise would never have found its way into BTC, there are still significant sources of overlap that will prevent a so-called supercycle from unfolding (e.g., people selling proxies for ETFs, people selling GBTC for other ETFs, retail investors uncomfortable buying spot BTC and instead investing in ETFs, et al.). All of these sources currently appear like new demand but actually aren’t. As such, while I think we’ll see considerable price appreciation in 2024 and potentially even into early 2025 as the halving supply shock takes hold, I don’t think the post-halving pump will manifest itself to the same extent it would have had US spot-BTC ETFs not been approved.
On-Chain Data
Below are the distribution of BTC addresses and coins for the past 12 months:
As shown above, we are squarely in a whale world right now. Nearly three dozen Orcas evolved in February and nearly five dozen over the past two months, this despite the staggering 56-Orca devolution the penultimate day of the month. I have some thoughts on this devolution later, but make no mistake: whales (and Great Whites) are ruling the market right now. Which makes sense, of course: there are ten new US spot-BTC ETFs whose stockpiles are undoubtedly stored in mega-wallets, with most created and managed by Coinbase.
That said, it is still startling to witness the coin concentration currently unfolding. For example, despite a net gain of 20,000 Minnows in February, the tier as a whole shed 6.8K coins. Even more startling: retail investors (Fish and Minnows) have shed more than 30K coins over the past two months while whales have sucked up an eye-watering 203K coins over the same time period. For those of us investing for more than just “number go up (NGU),” these data should raise some concern. i.e., While many retail investors are undoubtedly buying ETF shares right alongside institutional investors, the mantra “not your keys, not your coins” rings loudly, at least in my ears. There is a considerable swath of BTC wealth being swallowed whole by these ETF issuers, and their investors currently have no right to take possession of the underlying BTC. That is concerning, in my opinion, especially because these ETFs are metastasizing at an increasing rate (I discuss ETF-specific data further below).
Despite my concern about coin-concentration at the top of the chain, it is interesting that 56 Orcas devolved on one day alone, especially after so sharply increasing the preceding six weeks (from a low of 1887 on January 19 to a peak of 2044 on February 27, an increase of 157). Here is what the increase and reversal look like visually:
Two potential explanations for the sudden Orca drop come to mind. The most straightforward explanation is profit-taking: a subset of Orcas (e.g., institutional swing traders) decided to cash out after substantial short-term gains. As mentioned earlier, Orca-count increased by 157 between US ETF approval mid-January and February 28. It is therefore possible that, e.g., several hedge funds that started buying BTC immediately following US ETF approval decided to sell yesterday, locking in +/- 50% gains. Buy low, sell high. The market seems somewhat frothy right now, so why not lock in profit?
It is also possible that Orca-sized investors who have been accumulating since 2022 (amidst the bear-market lows) decided to take some profit as price closes in on its ATH. Whatever the case, profit-taking right before the end of the month, when optimism seems to be peaking, is logical and therefore a plausible explanation for the sudden and substantial Orca devolution.
That said, plenty of well-respected metrics illustrate that the market really isn’t that frothy right now despite the recent spike in price. For example, the Mayer Multiple was still only 1.66 at month end, well below 2.0, the point at which concerns begin to arise. The Pi Cycle Top Indicator, remarkably accurate at detecting market peaks, is also still at a moderate level. And as I indicated earlier, monthly RSI only recently entered overbought territory, but when it has done so the previous two times, several months of gains followed before a top was finally reached. In short, while the market is clearly frothy in some respects (e.g., funding rates are elevated, indicating a lot of long leverage), now is hardly peak euphoria. Not even close.
As such, another possible explanation for the sudden and substantial Orca devolution is GBTC wallet reorganization. As shown below, GBTC underwent a significant wallet expansion in early 2022, resulting in a massive overnight Orca-count spike despite no net change in coins.
It is therefore possible that yesterday was the reverse: GBTC, having experienced considerable outflows since the launch of US spot-BTC ETFs, induced Grayscale to consolidate and/or downsize the number/size of their GBTC wallets. As shown below, Great White (GW) wallets experienced a huge increase the same day (125), more than 2x the number of Orca devolutions, so perhaps the drop in Orca count is nothing more than a wallet reorganization by Grayscale.
While I was able to confirm Grayscale’s wallet reorg in 2022, I have as yet been able to confirm a similar reorg for the other day. I will of course tweet out any subsequent findings should they emerge, but in the meantime, I personally think a wallet reorg is the most likely reason for the sudden and substantial Orca devolution.
The biggest reason I think a wallet reorganization is more likely than profit-taking is because price has held up remarkably well despite the devolution. i.e., If 57 Orcas dumped 15K coins on the market in a single day, price would have CRATERED, at least temporarily, even with a surge in new demand. As shown in my daily distro that day, there wasn’t really that much new demand, other than from Great Whites. And it is highly unlikely 125 new GWs would evolve in a single day. Instead, it is far more likely that some entity (or entities) downsized their Orca-sized wallets into GW-sized wallets, putatively to reduce coin-concentration risk. Do I know this to be true? No. But again, PA supports this thesis. Yes, there was a lot of volatility that day, but not nearly as much as there would have been had nearly five dozen Orcas projectile-vomited 15K coins within a 24-hour period. I therefore think it is far more likely the Orca devolution is the result of a wallet reorg rather than widespread profit-taking.
Incidentally, Blue Whale counts have been remarkably stable throughout the past year despite huge swings in Orca counts. As shown below, BW equilibrium seems to be around 108, with counts diverging only +/- 5 since stabilizing in mid-2023.
Below are exchange flows for the listed exchanges over the past 12 months:
As shown, the exchanges listed above had a net outflow of 46.5K coins in February. While impressive, the net outflow seems low given the wallet expansion and price appreciation that occurred in February. While I am unsure how Coinglass compile their exchange data, I do suspect exchange flow data are somewhat distorted by the fact that most US spot-BTC ETFs use exchanges (primarily Coinbase) for their coin custody. Whether ETF stockpiles are commingled with these Coinglass exchange flow data remains unclear, but it is still impressive that so many coins came off exchanges in February, and primarily from the largest exchanges (Binance, Coinbase, OKX).
Before concluding this month’s analysis, I would be remiss if I did not add ETF data to my analyses. While I am still trying to determine the best way to track ETF data based on what is freely available, for now I am tracking ETF data in three ways: 1) share count, 2) market cap, and 3) market share. I explain my rationale for choosing these data in this tweet.
Below is a distribution of share counts through the first six weeks of US ETF trading:
As shown, GBTC shares contracted by nearly 11% in February while most other ETFs (sans BTCO) expanded their share counts. The biggest expansion was by IBIT, Blackrock’s ETF, which should come as no surprise. That said, Fidelity (FBTC) also had a sizable expansion, as did ARKB (Ark 21Shares) and BITB (Bitwise).
In terms of market cap, all ETFs grew, even GBTC, given the extraordinary 44% gain in BTC’s spot price in February:
Note, however, that IBIT experienced a greater market-cap gain than GBTC despite being only one-sixth the size of GBTC at the start of February. This market-share shift can better be seen in the following table:
As shown, GBTC lost nearly 17% of its market share in February alone but is down a staggering 35.74% since ETF launch, when its market-share peak was 94%. IBIT on the other hand gained nearly 9% in market share in February while FBTC gained nearly 5%. Overall, most ETFs (sans BTCO) are currently at their market-share peak while GBTC is at its market-share nadir and continuing to bleed out each and every day. GBTC’s contraction is in fact the reason spot price initially faded after ETF launch. As I explained in a tweet at the time, GBTC deleveraging was severe initially, putting extreme pressure on spot price. However, once the rate of GBTC deleveraging subsided, so did price pressure and we’ve been off to the races ever since. The big question of course is when (whether?) ETFs will reach market saturation.
Conclusion
February 2024 was an extraordinary month for BTC bulls. Price appreciated at a near-historic rate in terms of percentage gain and did hit a new all-time high in terms of USD gain, adding a staggering $18.6K to its spot price. Whether the pump continues, for how long, and to what eventual peak are all open questions. There are plenty of reasons to assume the bulls are not yet exhausted: the macroeconomy is nearly FUD-free, global liquidity is stable, US equity markets are at all-time highs, US spot-BTC ETFs have experienced monotonically increasing inflows, and the next halving is less than 60 days away. That said, when the entire market is on one side of a trade…
I of course have no crystal ball, but I do believe we will get a sizable correction, and sooner than later (sometime before the halving, if I had to guess). I could be wrong, but markets simply don’t just go up forever without hitting at least a few air pockets along the way. Long and short, I am uber-bullish over the next 12-18 months, but I also fully expect a few sucker punches along the way.
Regardless of what happens to price, up or down, I will continue hodling, remarkably unfazed by whatever PA has to offer. In this sense, I think I am finally a seasoned BTC investor, excited for the future, both in terms of price and network growth, but I also merely shrug at pullbacks now, figuring a resumption of the structural bull market is only a matter of when, not if. These past four years plus have helped me forge such an outlook. I hope they have done the same for you. As always…
Go #BTC.
P.S. I have a number of new Twitter followers. For those interested, below are links to my more popular Substack articles over the years. All are still relevant to today’s market regardless of when I wrote them: